So now we have no alternative. We have to raise taxes.
Trump’s appeasement of Russia threatens European security. But it also poses the full extent to which the Conservative government ran down Britain’s public capabilities – and, let’s be honest, the Coalition also underfunded our public services and infrastructure, and so did the Labour government (and the Thatcher government) before that. Since the election we have been learning about the appalling state of our hospital and prison estates. We already knew about the desperate shortage of social housing, the poor condition of many of our roads and the backlog of investment in public transport. Inadequate pay for teachers in state schools means that we’re losing them faster than replacements are being trained. Local authorities are struggling to avoid bankruptcy. And alongside all that, our armed forces are smaller and weaker than they have been in our lifetimes, and the US Administration has just given us notice that it won’t defend Europe if Russia extends its aggression against Ukraine into hybrid or conventional attacks on the rest of Europe.
The poor state of Britain’s armed forces partly reflects the efforts successive governments have made to keep up with the USA. We have built two ocean-going aircraft carriers, with highly-expensive US planes on them (fewer than we need, but more than we can afford). And we have spent a significant proportion of our defence budget on nuclear submarines and an ‘independent’ deterrent which relies on US support for its missiles and their maintenance. We lack sufficient patrol boats and frigates to secure our own maritime zone, while four of the ships we have are based alongside the US Fifth Fleet in Bahrain. Both the navy and the army are short of recruits, and the air force is losing pilots more quickly than it can train them – partly because of low pay and poor housing conditions. Military procurement has been biased towards compatibility with the USA and top-level capability, leading to high costs and smaller and smaller numbers of weapons systems acquired.
The Ukraine conflict has shown that larger quantities of cheaper and less capable systems – drones in particular – can be as valuable, and far quicker to acquire. It’s also shown that competent troops can be trained, when motivated, in months, rather than maintaining a long-term professional army in place for many years. Hybrid threats also need hybrid responses: a maritime coastguard, cyber-security teams, and other aspects of civil defence. The Ukraine conflict has already drawn down the UK’s existing stocks of weapons and ammunition; it will cost extra investment to rebuild them. Keir Starmer’s pledge to contribute to a post-conflict European security force in Ukraine would require an increase in the size of our army (and probably air force), probably including sharply increasing our reserve forces. A worsening relationship with Russia would also require a larger contribution to Baltic, North Sea and Arctic security.
Reports around Whitehall suggest that government departments are being asked to prepare for 10/11% cuts in their budgets to fund this surge in defence spending. This has an echo of 1930-31, when an earlier Labour Government followed the fiscal rules and cut back on essential spending programmes to keep within fiscal rules. There are potential savings to be made in some areas, but almost all require investment in alternatives first. We could halve the prison population if probation and rehabilitation were rebuilt. We could reduce the welfare budget if education and training prevented more people falling out of employment (or employability). We could reduce maintenance costs in the NHS if we built new hospitals; and reduce the pressure on hospitals if we invested more in social care.
The onset of a Trump-led disruption of the global economy removes the hope that economic growth will relieve the pressure on government finances in the foreseeable future. Economic growth also depends on greater investment in current conditions: on innovation and research, on promotion of a highly-skilled workforce, on green energy and sustainable farming. Right-wing denials of the need to adjust to climate change or use public resources to educate and train our workforce are convenient excuses for touting for tax cuts, not serious alternatives to the choices we face.
We are now in a geopolitical and geoeconomic crisis. It’s not what Labour thought it would be facing when it entered office; nor is it a situation that Liberal Democrats are happy to live in. But here we are. J.D. Vance spelled out to the Munich Security Conference that the current US Administration does not think that the Russian threat to European security is its problem. Donald Trump has told us that he doesn’t care about the rules of the global economy. They and the hard-right agree that freedom for the rich takes priority over liberty for all, that power overrides the rule of law, that democracy is something to be reshaped by money and media manipulation. That’s not only a fiscal emergency, it’s a full-frontal assault on liberal democracy. If we try to respond by cutting public spending we will lose.
* William Wallace is Liberal Democrat spokesman on constitutional issues in the Lords.
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13 Comments
Thank you for this important post. Before last week it was unimaginable that the US would betray Ukraine, cosy up to Putin and renege on their defence commitments to Europe. Now that they have, there is a national emergency which requires extraordinary measures to protect the UK and boost Ukraine. These should include, I suggest, an emergency extra 2p in the £ on income tax as from 6th April.
Ultimately, we have to collect sufficient taxes from our GDP including net imports/exports to be able to cover public expenditure and debt service. With a GDP of circa £2.8 trillion and government spending equivalent to 45% of this figure and rapidy rising Public spending statistice – July 2024the governements committment to not raising income tax, VAT or national insurance will come under pressure.
Between 1933 and 1938 the UK’s Defence budget grew from 2.2% to 6.9% of GDP. The aim was to boost the capabilities of the armed forces – primarily the Royal Air Force (RAF) – to a level where they could deter an attack by Germany Lessons from the 1930s: Rearm according to the threat, not the fiscal rules.
“Spending during the rearmament phase was, of course, then dwarfed by wartime military spending, which mushroomed to 50% of GDP by 1942.”
I think one of the key lessons is that the cost of deterrence, painful as it may be, is much lower then the cost of actual conflict.
As the linked article notes “The most important lesson from the 1930s is the one Cooper spelled out: faced with an existential threat, it is more advisable to begin from a calculation of what is needed, not what can be afforded according to peacetime fiscal norms” – meaning borrowing as well as taxes will need to rise to meet the threat.
Let’s increase taxes on the rich, first. We’ve had quite enough increases on working people – Employers NI, council tax hikes. I suggest equalise Capital gains tax, and a 60% tax band on(say) over £200k for a start.
Do people at large recognise and understand the threat from Russia?
Unless they do – and accept that there would be negative impacts on them personally – it’s going to be that much harder to generate a consensus as to what has to be done right now.
I fear a collective shrug of the shoulders combined with heads being buried in the sand.
“Before last week it was unimaginable that the US would betray Ukraine”
On the contrary – Trump told us exactly what he would do: ” peace in one day if re-elected” :https://apnews.com/article/trump-russia-ukraine-war-un-election-a78ecb843af452b8dda1d52d137ca893
I completely agree that rearmament must be started and funded to defend liberal democracy (and as it happens, Christian Democracy and social democracy; and it must be accompanied by renewed economic ties with Europe and new military ones.
I am sceptical about whether the markets and voters together would allow ANY government of whatever stripe the level of spending to maintain and improve defence and services as envisaged by William in his original article. The markets will allow it if it is funded out of taxation; the voters will allow it if it is not.
So increases in income tax and cuts to large part of the public sector?
Sounds like a recipe to ensure Reform UK builds its support even further…
Might.it be possible to consider more positive diplomacy with Russia and China, non-elite benefitting alliances with European and Levantine states awell as having an effective military proportionate to a country of our nation’s wealth, including that in tax havens and the like?
As I said yesterday, the evidence is now clear that a substantial increase in UK (and other European countries’) defence spending is required. Not perhaps to the 5% level demanded by Trump, but far more than the 2.5% level which the Labour government is seeking to make its target (on an undated completion schedule). The USA currently spends about 3.4% of its GDP on defence, so is not in a position to demand its European associates (“allies” is perhaps no longer applicable!) do more. 3.4% or 3.5% seems an achievable target. Thank you, Joseph Bourke, for reminding us of the defence economics of the 1930s, and the final needs during the Second World War when the war economy required 50% to be spent on wartime service. The parallels are clear – Ukraine is currently forced to spend 37% of its GDP on fighting the war. The rest of Europe (including the UK) has to raise defence spending urgently, and especially regenerate its neglected defence and munitions industrial capacity to re-stock its armed forces. Having (correctly) provided munitions to Ukraine out of its existing stocks, the UK in particular has found its own depots unready for any conflict, including the promised provision of peacekeeping forces in the event of a ceasefire.
We need to consider the state of the economies of not just the European nations, but also the Russian economy. Russia clearly outspends the individual European nations on its military costs, but that means a disproportionate share of its own GDP. What is not always understood is that Russia’s GDP is actually smaller than that of the UK, or of Germany, or of France. It has the advantage in a totalitarian society that it can force poverty on a large section of its own population to divert money into fighting the war. Democratic nations cannot and should not follow suit! But if we are to avoid needing to adopt the desperate financial requirements of 1939-1945, we have to prepare now. That means working with our European allies on joint procurement and on combined defence organisation. This arrangement would transcend NATO, which is currently unable to act because it would suffer from Trumpian vetos.
“That means working with our European allies on joint procurement and on combined defence organisation. This arrangement would transcend NATO, which is currently unable to act because it would suffer from Trumpian vetos.”
Is that implying creation formally of an organisation separate from Nato?
Keir Starmer and his party have largely boxed themselves in on tax rises and increased borrowing. To finance the rise in defence spending, that I agree we need, the government is going to have to break election commitments, though given the massive change in circumstances since last July (indeed, since last month), this is surely justified.
Should the government decide to go this path, let our MPs be responsible and provide them with support for the principle of emergency tax increases. But they should also insist that the extra money is spent sensibly, on purchases that increase the UK’s defence capabilities in the short term, not diverted to projects that won’t come to fruition until the 2030s or beyond.
Seeing what Trump 2.0 is offering the world (and I include over half the US electorate who never voted for him) I am really wondering whether the ‘Land of the Free’ is edging towards either a kind of Civil War or even some kind of military coup. The USA would appear to be stuck with a ‘red’ Congress at least until the mid term elections, if these are even allowed to take place. If the Democrats fail to get their act together and if Trump stays at least physically health, the next target might be the 22nd Amendment. Nixon apparently had it in his sights before Watergate intervened.
I agree with William