WESTMINSTER REFLECTIONS

The mood amongst MPs in Westminster reflects the aftermath of a budget that has landed very badly with business and the public, and there are mixtures of shock and denial about Trump’s sweeping election victory in the United States of America.  The latter has been openly welcomed by very few.   

How do these two separate events relate to each other in the minds of MPs? First, President Biden’s economic policies, which Kamala Harris was promising to continue, have a lot in common with Labour’s first budget: higher spending, higher taxes, higher borrowing and slower growth as a consequence.  Of course, there are many other factors that are different, but the message is not lost that most American voters would rather gamble on Trump to reverse the perception that America is in decline, rather than carry on with ‘Bidenomics’.  Trump promised voters higher standards of living, more jobs, lower taxes; and that is what they voted for.  In the aftermath of a UK budget that British business does not like at all, and which will reduce long-term economic growth, some MPs must be wondering what the voters will think if there is not much better news for next year’s budget.  Such better economic news by this time next year looks most unlikely.

Trump anxiety is further amplified by the wide expectation that Trump will reduce UK exports to the US and slow global economic growth by applying protective tariffs to US imports.  The UK exports £861bn in goods and services.  £394bn of this is goods.  Less than half of this is to the EU.  The UK’s biggest single destination for exported goods is the USA (around £60bn per year – slightly understated because some UK exports to the US transit through Rotterdam and therefore look like exports to the EU).  The big question is whether the new Labour government can avoid US tariffs being aimed at the EU, now the UK is outside the EU.  The new government will not enjoy taking advantage of Brexit, but they may have to.  (There will be complications about Northern Ireland, which is effectively in the EU in respect of goods trading). 

Then there is the whole question of defence.  Labour does not like spending money on defence.  They promised in their manifesto to raise defence spending to 2.5 per cent of GDP (currently 2.3 per cent).  But these figures make things look much better than they are.  20 per cent of the defence budget is currently being absorbed by the huge programme to renew the Continuous-at-Sea Deterrent (CASD).  The 2.3 per cent also includes forces pensions, a large historic legacy burden on the budget.  So the UK is really only spending 1.4 per cent of GDP on its conventional armed forces and all their equipment, and some of that is being gifted to Ukraine.  There is an increasingly widespread view that the 2.5 per cent target shared by both Labour and Conservatives will not be nearly enough, in the currently fraught international security environment. 

Now factor in the new Trump administration.  The standard expectation is that President Trump will be hard on Nato, soft on Russia, and will do what he can to end the war between Russia and Ukraine, without regard to the interests of Ukraine or the security of Europe.  Certainly, he has said enough to encourage that expectation, and his stream of unorthodox appointments to his cabinet seem to reinforce that.  That may end the war in Ukraine (only if President Zelenskyy goes along with a Trump plan, whatever it may be) but it may also leave Putin further emboldened by partial success – territorial gains and perhaps guarantees of Ukrainian neutrality.  So Russia will not feel it is being deterred from future aggression.  Nato anyway must beef up its conventional forces to serve as a greater deterrent. 

Trump may also insist that European members of Nato carry a greater share of the burden for the defence of Western Europe.  The United States provides about half of the combat power of Nato in Europe.  The US spends around 3 per cent of GDP on defence – considerably more than any significant European Nato ally.  Trump does not see Nato as vital to US national interests, but as a bad bargain.  This will increase the pressure for European members of Nato like the UK to spend much more on defence.

There is a lot of speculation in Parliament about what President Trump will actually do.  Nobody knows.  Probably not even him.  In a recent Times interview podcast, his former National Security Adviser, Ambassador John Bolton, who resigned before the end of Trump’s first term, reminded listeners that Trump kept the US in Nato during his first term, though he can justifiably claim that he got European allies to spend more.   

Ambassador Bolton also reminded listeners that Trump indirectly turned on Putin, when Syria crossed the red line and used chemical weapons in their civil war.  Trump unleashed the US armed forces to bomb President Assad’s military installations, and this greatly displeased President Putin at the time.

There can be no assumptions about what President Trump will do – on tariffs, or Ukraine, with Putin, or Nato. We are assured that the UK government is ‘looking at all the scenarios.’  As someone who has long advocated a far more strategic approach to the world’s challenges by Whitehall, I welcome this.  It is unlikely, however, that MPs, least of all, Labour MPs are ready for the consequences of many of these scenarios.

The recently retired UK Chief of the General Staff (of the British Army) has warned that the UK could be drawn into a state-on-state war within the lifetime of this Parliament.  Are many MPs psychologically prepared for that prospect?  I doubt it.