Category Archives: Britain

Britain, Economic, Government, International trade, Politics, Society, Technology

Wresting opportunity from this geopolitical crisis

GEOPOLITICS

Intro: If Britain is nimble and responsive to this global crisis it can be a winner in an era beset by conflict. Confident governments that circumvent risk will benefit handsomely

Amid the geopolitical storms and instability emanating from Ukraine to the Strait of Hormuz, flickers of light are piercing the gloom. To paraphrase Charles Darwin, it is not the strongest that survive, but those most responsive to change. So too, with nation states. Mid-ranking powers are navigating independent paths to mitigate risks and grasping opportunities lacing the chaos. There are lessons here for Britain.

In Ukraine, necessity has proved the mother of invention. Since Russia’s invasion, Ukraine has revolutionised its industrial-defence base, changing the face of global warfare. In 2024, Ukraine conducted the first fully autonomous drone strikes on Russian targets. The scale of innovation is equally dramatic. Ukraine has reduced its reliance on foreign-supplied military hardware, from 54 per cent to 18 per cent, in three years. Now, Gulf states are queuing up to buy its drones to defend themselves against Iran.

Such rugged self-reliance and determination persuaded the United Arab Emirates (UAE) to leave OPEC, the 12-country cartel that fixes oil prices and supply. “Opexit” will enable the UAE to increase its oil production by around 40 per cent, and help to ease global shortages. In doing so, the UAE has derided regional rivals, deepened ties with the US and Israel, and signed a defence pact with Ukraine. These moves are highly controversial for a mid-sized power under lethal fire – responding with vision and self-confidence.

The trend is not limited to those facing military pressure. When China responded to Australian criticism over Covid in 2020 by imposing tariffs, the government in Canberra reduced its dependency on China. It expanded trade with South-East Asia, and signed Aukus, the defence co-operation pact with Britain and the US.

In the wake of US tariffs, Canada signed a dozen new free trade deals, and launched a sovereign wealth fund to boost critical mineral supply chains with allies. It has ramped up defence spending, and is partnering with innovators in defence tech. 

The emerging trend undermines lazy assumptions that mid-sized nations must choose between or bow to larger powers. Confident governments that manoeuvre nimbly can circumvent risk. By co-operating in clusters with like-minded partners, they can seize the opportunities accompanying geopolitical ructions.

There are clear lessons for Britain. Since 2019, UK trade has increased – measured by volume or as a proportion of GDP. The latest United Nations statistics show that, since its departure from the EU, Britain rose from seventh to fourth place in the global trade rankings, spurred on by trade deals with Australia, India, and the 11 countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. As a services-oriented economy, the UK should strike further deals from the Gulf to South America.

UK trade objectives, however, must play to our comparative advantages. London remains the second-largest financial centre in the world, contributing 20 per cent more to the UK economy than it did in 2016. We can build on this by securing greater market access abroad. Reform at home would help, too. With public finances strained, state support should focus on sectors where the UK offers global leadership from life sciences to AI, for example, to make it easier for large funds to invest in data centres and defence procurement.

As the conflict in Iran shows, the global economy is still acutely reliant on traditional maritime supply chains. Britain has a long history as a leading maritime nation, and UK firms – like GB Global – are looking to high-tech logistics and modular methods of shipbuilding to mitigate these risks. The Government can do more to support this strategic sector, in ways that would boost tax revenue.

If Britain aims to lead in innovation, we need a reliable supply of critical minerals. Similarly, Europe-wide efforts to rebuild defence capabilities will fail without a stable supply of heavy rare earths.

While the West lags behind China by around 20 years in the race to mine and refine these commodities, Europeans have been slower to respond than the US, Canada, Japan, and Australia. The UK has some natural resource and refining capacity, but is yet to translate strategic objectives into operational delivery. One option is to help finance projects abroad in return for the off-take needed to service industry.

Likewise, in defence tech there is a UK hub emerging in Swindon, but it needs a technical college to provide the skills, faster procurement decision-making, and a revamp of the electricity grid to attract businesses.

The splintering of the post-1945 international order has sent waves of uncertainty around the world. Yet mid-sized countries can navigate turbulent geopolitical waters, but only if they face the new realities and play to their strengths.

Standard
Arts, Britain, History, Politics, United States

The parallels with the 1760s

POLITICAL HISTORY

Intro: In the chaotic 1760s, as now, the country faced the entwined issues of debt and a geopolitical crisis

As America marks the 250th anniversary of their Declaration of Independence in 1776, we should hope they will remember the seven men who made it happen. I am not thinking of the Founding Fathers. No, I’m more reflective of the seven individuals or politicians who served as prime minister of Great Britain during the 1760s, the last of whom, the lachrymose Lord North, limped on until 1782 and oversaw events of the American War of Independence.

The 1760s are the last time that Britain had seven different prime ministers in a 10-year span, which is where we will be if the Labour Party dispenses with Sir Keir Starmer.

There are some important lessons from that time. In 1760, as students of history will recall, we (the Americans included) had a new King – George III, who came to the throne with the Earl of Bute, his former tutor, as very much the power behind the throne.

The prime minister of the day, the Duke of Newcastle, a veteran Whig statesman, had overseen the successful prosecution of the Seven Years War against France and Spain (resulting in British dominion over North America and much of India), but in 1762 he threw in the towel and his legacy was confined to the history books.

Lord Bute – who was also the King’s mother’s lover – then became prime minister. His tenure was an unmitigated disaster and was replaced in under a year by Lord Grenville, another Whig who lasted just two years but not before stoking up the North American colonies with his Stamp Act.

Grenville was replaced by the Marquess of Rockingham – best known now for commissioning Stubbs to paint his horse, Whistlejacket – in 1765. Rockingham’s administration expired with the Duke of Cumberland after just 13 months having attempted to conciliate the American colonies.

Pitt the Elder – “the Great Commoner” and the Churchill of his era – was the fifth PM of the decade. He held office for two years before resigning on grounds of health in 1768. By that time, though, his chancellor had passed the detested and draconian Townshend Acts, which included the imposition of taxes on imported glass, lead, and tea in America.

Running low on options, the King called on the Duke of Grafton and he lasted a year and 107 days before resigning in 1770 over France’s annexation of Corsica. Lord Noth came next.

George III bore some responsibility for this sustained imbroglio because of his inability to appoint someone who could command both his trust and the support of the Commons. But that’s only part of the story: underlying the crises was the burden of sky-high national debt, rising to a then lofty £144m.

It is to this we should pay special attention. Britain had emerged from the Seven Years War as the leading world power, with a vastly enlarged empire, particularly in America (having absorbed “New France”) that was expensive to maintain. Or, in other words, the trials of 250 years ago have some parallels with today: we’re also living with a massive national debt left over from the 2008 financial crisis and Covid-19 and confronting significant geopolitical challenges. Now, as then, it’s this combination of the two that is undermining the ability of the political class to rise to the challenges in hand.

Our level of debt stands at an extraordinary £111bn a year. If we could get that sorted – before it’s too late – we could, for instance, invest in more hard power and begin to claw back influence on global affairs again, rather than behaving like a geopolitical lobby group that no one takes any notice of.

As it was, the cackhanded efforts to balance the books and manage the enlarged empire in the 1760s and 1770s ended up driving a wedge between England and the formerly loyal American colonists. That led to another expensive war and the disastrous loss of what Churchill called the First British Empire.

Be grateful that in this case history cannot repeat itself.

Standard
Britain, Defence, Economic, European Union, Government, Military, Politics

Labour’s defence spending. A ruse

UK DEFENCE SPENDING

Intro: Ministers are resorting to desperate measures to boost Britain’s military budget

“We cannot defend Britain with an ever-expanding welfare budget … We are under prepared. We are under insured. We are under attack. We are not safe … Britain’s national security and safety is in peril.”

If these words had been said by James Cartlidge, Britain’s almost invisible shadow defence secretary, no one would have batted an eyelid. This sort of rhetoric is what Opposition politicians are supposed to say, whether justified or not.

But when it’s said by no less a Labour stalwart than Lord George Robertson – a former secretary general of NATO and the principal author of the Government’s recent Strategic Defence Review – it really is time for everyone to sit up and take notice.

Robertson is blunt and direct in his language when he says policy was being determined by the “corrosive complacency” of non-military experts in the Treasury. This has led to repeated delays to the 10-year investment plan caused by arguments over how to fund it.

It is of course a core part of the Treasury’s function to say no to the constant stream of departmental demands for more money. Someone has to keep the lid on burgeoning government spending and it falls to the Treasury to perform that role.

It should be said that this would be an understandable, even an admirable, characteristic if it were applied across the board to all forms of public spending.

What so infuriates military chiefs, however, is the double standards the Treasury seems to apply, not to mention the vast gap that separates the political dogma from reality. There could scarcely be a more vital government function than defence of the realm, for everything depends upon it from national to an individual person’s basic security; yet ministers pay lip service to its importance.

At the same time, too, they’ve squeezed defence spending to virtual oblivion. The proportion of national income devoted to welfare and public sector pay, coincidentally, has run out of control.

This didn’t happen by accident. It was done deliberately from the end of the cold war onwards. The resources once thought necessary for defence were instead diverted into social and health spending – a so-called peace dividend that allowed for a massive expansion of the welfare state.

Defence spending has meanwhile shrunk from about 5pc of GDP at the time of the Falklands war in the early 1980s to just 2.3pc last year.

Only belatedly have ministers realised their peril. Russia’s invasion of Ukraine was warning enough. US threats to withdraw from NATO provided another wake-up call. Then came the national humiliation of being unable to field a single frigate to defend British interests in the latest outbreak of hostilities in the Middle East.

There seems to be plenty of money that can be found when it comes to inflation-busting increases in public sector pay, yet ministers struggle to find the resources needed to sustain an operational navy. Somewhere along the line, the Government lost its sense of priority.

While welfare spending, taxes, and borrowing mushroom, there are still no answers as to how to deliver even the relatively unambitious targets the Government has set for defence – 3pc of GDP by the end of the parliament and 3.5pc by 2035.

TWO

In acts of desperation, ministers are reaching for what they amusingly call “creative solutions”, apparently unaware of the unfortunate connotations the expression carries in accountancy circles – as in “creative accounting”.

If increased defence spending can somehow be kept off the public balance sheet, then miraculously it immediately becomes perfectly “affordable”.

In pursuit of such sleight of hand, the UK is exploring setting up a new mechanism for collectively funding defence spending with the Netherlands and Finland. There is also the possibility of Poland and other NATO allies joining in.

The attraction of the scheme is that under international accountancy conventions, the additional spending moves “off balance sheet” if the entity pursuing it is multinational. Typically, a minimum of three countries is required to satisfy these requirements.

It’s cajolery and a swindle, because whichever way you cut it, and however the entity is funded, ultimately it’s the customer that pays, and the customers here are the three countries involved. Eventually, the costs will bounce back on to the British taxpayer.

Still, if it helps support the additional spending the military so desperately needs, it would perhaps be perverse to knock it. But it is also just an accounting ruse that allows the Government to spend money that it doesn’t have. Markets are sensing hidden deception and that something is wrong, and rightly so.

As is apparent from International Monetary Fund (IMF) analysis just published, Britain is in a dire fiscal hole, with fast rising taxes and borrowing struggling to keep up with increased welfare and other forms of government spending.

The peace dividend is gone, so the Government is desperately searching for ways of cooking the books in the hope that nobody notices. In practice, few are going to be fooled by this kind of window dressing.

Already, there are hundreds of billions of pounds worth of government liabilities conveniently shunted into the shadows of off-balance sheet finance, including the costs associated with previous wars in Iraq and Afghanistan. This would further add to them.

How Britain is going to pay for increased defence spending is anyone’s guess. Even the Prime Minister, Sir Keir Starmer, said that the Government was still trying to figure out how to do it in conjunction with European partners. Many will be sensing what he meant is the charade of international defence procurement and financing.

Seeking solutions in Europe is becoming a bit of a thing with this Government. Getting closer to the EU is also proposed as a solution for the country’s lack of growth, even if it is hard to see how a little “dynamic alignment” in standards is going to make much of a difference. But this halfway house doesn’t get the Prime Minister or the country anywhere. It is certainly not going to get the UK out of the fiscal hole it has dug for itself.

In terms of the public finances, Britain is on the ropes. It is also widely considered to be acutely vulnerable to the current energy price shock. The IMF expects UK growth this year to be slower and inflation higher than any other major advanced economy.

Worse still, the tax burden is projected to rise by more than anywhere else in the world during the remainder of this parliament, and that’s on the basis of what we already know about the Government’s plans. It is eminently possible to imagine further shock announcements to come. And yet public debt is still expected to swell to more than 100pc of GDP by 2029.

A rational person would have thought that somewhere in this developing financial Armageddon, the money might have been found to at least keep the military operational.

But no, social spending priorities continue to eclipse all else.

Resorting to accounting tricks only makes matters worse.

Standard