What does the budget mean for Britain’s strategic direction?
The Big Ask | No. 19.2024
On 30th October, Rachel Reeves, Chancellor of the Exchequer, unveiled the Autumn Budget to Parliament. While the primary aim of the budget is to enhance the United Kingdom’s prosperity, another important facet is to augment the nation’s strategic position in a more competitive and dangerous world. So, in this week’s Big Ask, we asked seven experts: What does the budget mean for Britain’s strategic direction?
Research Fellow on National Security, Council on Geostrategy
On defence, the budget confirms that the Labour Party does not yet have a strategic direction. However, the Strategic Defence Review (SDR) will formally set out the direction in the first half of 2025. On the one hand, therefore, it is understandable that the path to 2.5% of Gross Domestic Product (GDP) being invested in defence is yet to be clarified. His Majesty’s (HM) Government will not want to throw more money into defence until it has a better understanding of what it wants the British Armed Forces to do and look like. But the current holding pattern of inertia risks events running away from London.
The current aim is to increase defence spending to roughly 2.3% of GDP now and to target 2.5% in the future (presumably no later than 2030) once a strategic direction is established. But this will not be enough. With the world growing more volatile, and the unpredictability of a Trump administration on the horizon, the current plan will be insufficient to set a strategic direction for UK defence policy. Instead, the government should immediately set defence spending to 2.5% and aim for 3% over the coming years – and if the situation deteriorates further, even this may not be enough. While policy makers wait for the SDR, urgent investment in several areas of defence (such as munitions stockpiles and personnel retention) is necessary for enacting whatever strategic direction the SDR outlines.
HM Government has shown its willingness to find money to invest in the future prosperity of the UK, there is no better return on investment for this than the ability to deter Britain’s adversaries.
Director, Strategy, Statecraft, and Technology (Changing Character of War) Centre, University of Oxford
Britain’s national story reminds us that deterrence is cheap compared with fighting wars. Income tax was introduced when the country had to meet the costs of war in the 19th century, and deficit financing was another wartime emergency measure in the 20th. Keeping defence spending to a minimum in peacetime has been the preference of all governments, but with the understanding that, in times of imminent threat, a portion of the national wealth would be converted to defence.
Threats are now here, and Britain’s defences are in a parlous state. Every indicator and warning of Russian, Iranian, and Chinese aggression is now live. Are the UK’s defences being prepared? Where are the information packs for businesses, commercial shipping, or the City? What work is being done on civil defence measures? Does Britain have the personnel, the ships, the aircraft, and the munitions, stocked and ready?
Diversion of investment into automated manufacturing, rearmament, the UK’s nuclear deterrent, and other essential materials is still possible: but will the government act? It is unlikely that the next generation of citizens will forgive policy makers for the folly they now commit.
Associate Fellow, Council on Geostrategy
In a world dominated by major crises, actions speak louder than words. In her first budget Rachel Reeves has met that criteria. She delivered the biggest tax hike on record, the biggest rise in public spending for 20 years and unashamedly borrowed to raise investment. In addition, she plugged a £2.9 billion gap in the Ministry of Defence’s (MOD) in-year budget and promised to set out a path to spend 2.5% of GDP on defence next spring.
The importance of these measures lies not only in the signal she is sending now, but in their implications for the future: barring a major external shock, this is a government which does not see austerity as an option. It intends to grow its way out of stagnation through investment or – as the rappers say – ‘die trying’.
Geostrategically, however, the toughest decisions lie ahead. When the SDR reports, Reeves should be prepared to alter the profile of UK public spending – borrowing even more than currently planned in order to rearm. The bond market nervousness, triggered by the lowish growth projections of the Office for Budget Responsibility (OBR), might be overcome once the OBR allows itself to factor in the supply-side measures HM Government plans.
But ultimately the true character of the Labour government will be defined by how it responds to any drawdown of US commitments to the North Atlantic Treaty Organisation (NATO) by Donald Trump.
Associate Fellow, Council on Geostrategy
Improving the UK’s energy position is critical to make British citizens safe and more prosperous in a less stable and environmentally degrading world. The budget contained some welcome measures to that end, but it failed to make progress on fundamental issues.
First, the good news. HM Government will invest £2.4 billion over two years in flood resilience and is maintaining the Department for Environment Food and Rural Affairs’ (DEFRA) agricultural transition budget – the latter being particularly good for food security given Britain’s depleting soil health, although drowned out by inheritance tax changes.
On energy, the picture is more mixed. Investment in nuclear, including fusion research, is good and necessary given nuclear’s general dependence on consistent state backing. As are incentives for people to switch to electric vehicles, which will reduce the country’s dependence on imported oil. The £3.4 billion for home upgrades and fuel poverty will also help, but deploying it effectively remains a challenge.
But HM Government missed the chance to get a grip on spiralling energy costs – which last year were the highest in the world – through electricity market reform. And it missed the opportunity to begin urgently needed energy bill levy reform. Electrification – Britain’s only realistic route to a cheaper, greener, more secure energy supply – will continue to be held back as long as the government imposes socially regressive, anti-economic growth levies on electricity consumption.
Research Fellow on Sea Power, Council on Geostrategy
It was welcome to see an extra £2.9 billion for defence in the budget given the current range of national security threats to the UK and its allies – particularly in the context of cuts elsewhere. This keeps British defence spending well above NATO’s 2% of GDP target, but it was disappointing to see that a plan for reaching 2.5% of GDP still has not been outlined. Given that a large part of this money will be likely to go towards restocking munitions and equipment and increasing pay for serving personnel – both much-needed – there remain significant questions on how the UK will approach future defence investment, although the forthcoming SDR will provide answers.
The clearest strategic signal came from the £3 billion per year for military aid to Ukraine, backing up the new government’s pledge to support Kyiv for as long as it takes. The result of the American presidential election has brought into question what role the United States (US) will have in supporting Ukraine and European security in the coming years, so a strong British commitment to Ukraine is a promising start for the looming prospect of European nations needing to do more for their own security.
Senior Research Fellow in Science, Technology, and Economics, Council on Geostrategy
In recent years, successive governments have placed science and technology more explicitly at the heart of Britain’s strategic direction. This is evident in the creation of the Department for Science, Innovation and Technology (DSIT) and the Advanced Research and Invention Agency (ARIA), as well as in defence policy documents such as the Integrated Review, and the Integrated Review Refresh.
This renewed focus has come about because the UK’s economy has essentially stagnated since the global financial crisis, and geopolitical competition is increasing. There is a growing belief that science and technology – a ‘new national purpose’ – will boost Britain’s prosperity and competitiveness.
Reeves showed her support for this in the budget, setting out her intention to ‘drive innovation by protecting funding for research and development (R&D) and harnessing the full potential of the science base.’
One of the main impacts of the budget on Britain’s strategic direction is that it has provided a degree of stability for R&D activities. The political churn of recent years has led to uncertainty for scientists, innovators, and investors – and they have been calling out for stability. The budget committed to protecting overall R&D spending, and to provide decade-long funding cycles. It also fleshed out parts of the new industrial strategy. These announcements will come as welcome news to many.
But HM Government should do more to ensure its industrial strategy, National Wealth Fund, Skills England and other bodies work together towards an optimistic and strategic vision for the UK based on renewal and prosperity. Otherwise, the plans will be piecemeal, and will not add up to more than the sum of its parts.
Economist, University of Oxford and London Business School
In terms of the budget’s impact on UK economic growth, there is the potential to boost British prosperity and therefore, the country’s strategic options, subject to a number of conditions. HM Government’s focus on investment is the right approach, given that the UK lags behind many comparable countries in economic growth. As Reeves put succinctly at the start of presenting her budget, the aim is to ‘invest, invest, invest.’
But, to secure sufficient investment requires ‘crowding in’ or incentivising private companies and individuals to support projects alongside public funding, so the design of regulatory and planning systems is key. Therefore, how HM Government executes its growth strategy centred on investment will matter immensely.
Importantly – especially after the US presidential election – the increasingly competitive global environment is becoming a barrier to attracting investment, as financial stakeholders are increasingly risk aware of geo-economic challenges, whereby geopolitics affect economic policy. Thus, investors will also seek greater certainty before investing in a country. This increases the need for Britain to be transparent in its foreign economic policies, especially how it will treat international investors, which are essential components for long-term infrastructure projects, for one. Therefore, the budget has set out some much needed first steps in boosting British growth. But, it’s just the start.
If you enjoyed this Big Ask, please subscribe or pledge your support!
What do you think about the perspectives put forward in this Big Ask? Why not leave a comment below?
