To defend itself, the UK needs to be rich. If we continue on our current path, penury and servitude beckon
Daily Telegraph
Who cares whether we spend two, three or five per cent of GDP on defence when our GDP is flatlining? Growth is no longer just about material comfort; it is essential to our national security.
The global order enshrined in the Atlantic Charter, the order we have defended since August 1941, is over. The US has not so much retreated into isolationism as switched sides, backing Russia in Ukraine while making threats against Canada and Denmark. Everything we thought we knew about our place in the world has become obsolete. All our isms are wasms.
The only certainty is that we need stronger Armed Forces. This means that we need a stronger economy. Our position in the world never rested on mass mobilisation. Between 1689 and 1802, England won its intermittent wars against France, a country with four times its population, by being better at finance.
The United Kingdom beat Napoleon, the Kaiser and Hitler because it was the wealthier nation. Even 20 years ago, we were rich, and our status in the world reflected it. Since then, we have squeezed our productive economy to fund a massive expansion of spending on healthcare and benefits.
We have become weaker, not because our defence spending has shrunk in proportionate terms – it has bounced along at a little over two per cent of GDP throughout those two decades – but because other countries, unburdened by our welfare commitments, have outgrown us. As Jon Moynihan shows in his magnum opus, Return to Growth, you can’t have prosperity and big government at the same time, at least not for long.
In the early Blair years, public spending accounted for around a third of Britain’s GDP. Today, it is closer to half. Think of it as the difference between two men carrying a third by his wrists and ankles, and a single man swaying under the weight of another. The first is just about sustainable; the second is not.
To be clear, we don’t need a straightforward shift in spending from benefits to defence. We need to reduce overall government spending by a third, returning to where we were under Blair. The consequent growth would mean that all budgets, not only that of the MoD, could expand in absolute terms while shrinking as a proportion of the economy.
Might Sir Keir Starmer deliver such a revolution? In theory, yes. In practice, his options are unappealing.
If he cuts spending, he will shoo away the 25 per cent of voters who still back Labour – a 25 per cent overwhelmingly made up of people who depend on government largesse, whether as public-sector workers or as benefits claimants.
If, on the other hand, he continues to let domestic budgets swell, our economy will collapse, spending will have to be cut anyway, and Labour will put itself out of office for a generation.
On paper, ministers want savings. Liz Kendall, the Work and Pensions Secretary, talks of recovering billions by reversing the recent explosion in mental-health related sicknotes.
Rachel Reeves, the Chancellor, promises that there will be no further rises in taxation or borrowing. When the international bond market turned nasty last month, she let it be known that she was looking to trim some departmental budgets.
Easier to announce than to deliver, though. Indeed, the £3 billion in welfare savings that were in the pipeline when the early election intervened, and that Kendall had planned to implement, have been quietly shelved following an adverse court ruling. Proposals for specialists rather than GPs to sign people off work also seem to have been dropped.
You can understand why. In parts of the country, Labour’s election strategy depends on getting postal vote applications to as many welfare claimants as it can, telling them that their benefits are at risk from the Tories.
Still, a party that is not serious about cutting the benefits bill is not serious about cutting spending. Welfare and the NHS are, respectively, the largest and second-largest components of the national budget, accounting between them for half of all government spending. Shockingly, the third-largest component is debt servicing.
Is it possible to make actual cuts – as opposed to the smaller-than-scheduled increases which is what Labour often means by “cuts” – in these areas?
Again, in theory, yes. It is a myth that this country spends less than its equivalents on health care. We spend around the OECD average, but we get worse survival rates, because British health care is run on the Marxist principle of contribution by ability and distribution by need. If we copied Europe and allowed an element of insurance – or, better, copied Singapore and adopted transferable healthcare accounts – costs would fall and outcomes would improve.
What about social security? Well, look at Ireland after the euro crisis. In two successive budgets, the government made meaningful reductions. Everyone, from the Taoiseach to claimants of child benefit, took a cut. Jobseekers’ Allowance was reduced to €150 a week, €100 for the under-22s. Several state employees lost their jobs, and those who remained saw cuts to their salaries and pensions.
Result? From 2013, Ireland became one of the fastest-growing developed economies in the world. Quite how fast depends on how we measure the figures. The raw GDP figures are spectacular, but they reflect the presence of several American tech giants, attracted by Ireland’s low rate of corporation tax. Still, even if we reckon without those companies, Ireland has massively outperformed both Britain and the eurozone for a decade.
The trouble, from Labour’s point of view, is that the party that delivered those cuts was pulverised. Fianna Fáil had won, in the sense of getting the most votes, every election since 1932. It had been the star around which the other parties orbited, planet-like. But in 2011, it collapsed from 42 per cent of the vote to 17. Though it has since clawed its way back into the low 20s, its dominance is finished.
Greece’s main Leftist party, PASOK, which also had to implement cuts during the euro crisis, was obliterated. Starmer knows it. But what if he moved before the crisis hit? What if he started making reforms now, before reaching Irish or Greek level of stress?
If we look at the Anglosphere rather than at Europe, we often find free-market reforms being initiated by Left-of-centre leaders: Bob Hawke in Australia, David Lange in New Zealand, Paul Martin in Canada, Bill Clinton in the US. Each of these leaders had a different reason, ranging from a currency crisis in Lange’s case to the election of a Republican Congress in Clinton’s. But each was able to make the necessary cuts in good time.
For Starmer, Trump’s abandonment of the Western alliance ought to be reason enough. We are the next most powerful Western state, a nuclear power in a world made suddenly colder and grimmer. Plenty of British voters will understand that we can no longer afford the indulgences we took for granted for decades, from a minimum wage that always rises faster than inflation to unaffordable public-sector pension packages.
Starmer likes to see himself as the adult in the room. And, like all prime ministers, he wants to play the world statesman. If he were to adopt a Churchillian tone, asking for a measure of sacrifice in the name of national and global security, he might find that his ratings improved.
What sacrifice? Well, for starters, how about tightening sickness benefits, ending the triple lock, letting the state pension age rise automatically with longevity, charging for health procedures from people who can afford to pay, dropping our net zero targets, scrapping half our regulators, a 20 per cent reduction in the civil service headcount and a cut in public-sector pension entitlements?
Such changes would allow us to develop the kind of full-spectrum defence capability that we never thought we needed in Nato while still ensuring strong economic growth.
In practice, it is hard to imagine Starmer presiding over such an agenda. Which is why he will continue to slide into irrelevance. And, more’s the pity, our country will slide with him.