UK Politics in an Uncertain World
The PM has had a good few weeks. His meeting with President Trump was adjudged a triumph, with the delivery of the letter offering an unprecedented second State Visit, a masterstroke of political theatre. Clearly working in very close concert with the French, the PM’s meeting with President Trump followed President Macron’s similarly successful visit earlier in the week. The plan was clearly to lay the ground for President Zelenskyy to hit the Home Run, make it three-from-three and sign The Mineral Deal on Friday, capping off a good week in terms of Ukraine and Trump-management.
As we all now know, that is not how it turned out. So the hastily-convened Summit last weekend moved from a focus on Strategic Planning to a focus on Disaster Recovery.
As with most populations, the UK likes its leaders to project a positive image of their country onto the world stage. So it is perhaps no surprise that the fact that the UK hosted the Summit; the PM’s public reception of President Zelenskyy on Saturday; and the private meeting (also extremely hastily organised) with HM The King at Sandringham on Sunday (importantly and symbolically, His Majesty’s private residence) have contributed to a growing public perception that Sir Keir is rising to the occasion and demonstrating long-absent, but much-needed UK leadership on the international stage.
That (new-found) appreciation of the PM is reflected in the opinion polls with Labour recovering its lead after a period of lagging behind Reform. By the same token, strong UK public support for Ukraine has wrong-footed Reform whose position of proximity to President Trump has become an electoral albatross with negative UK public opinion of the outcome of the meeting between President Trump and President Zelenskyy and the subsequent hardening of the US position.
These factors have combined to push to the background the fact that the PM suffered another Ministerial resignation over the weekend, with Anneliese Dodds resigning from the position of Development Minister over the decision to cut foreign aid to pay for an increase in defence spending. That she held back her resignation until the PM got back from the US - not wanting it to over-shadow the meeting with Donald Trump – is a mark of maturity and respect on her behalf, but should not disguise the fact that many in the Party are deeply upset with the decision. Although most Labour MPs recognise that it was necessary to announce an increase in defence spending prior to the meeting with President Trump and (grudgingly) that the money had to be found from somewhere, many are very uncomfortable with the decision to cut aid to pay for that increase, viewing it as a piece of short-termism for which the long-term price in terms of international stability and poverty reduction may prove to be much higher.
In a crisis, politicians tend to support, rather than criticise, their Leader and that is true in spades with this crisis, with Labour MPs (along with MPs from the Lib Dems, Conservatives and even the SNP) lining up to support the PM’s stance. But we should not confuse this absence of criticism from the Labour Party with unreserved support for the PM. There are undercurrents of dissatisfaction which will surface again when the immediate crisis subsides (which, given the unrelenting succession of seismic geopolitical shocks we are living through, may prove to be some distance into the future!)
Economics
Nowhere, it seems, is insulated from the winds of change howling across the globe. On Saturday night, the PM and Chancellor, burning the midnight oil in Downing Street, were taking difficult financial decisions. An additional £2.7 billion in funding was found for Ukraine and the National Wealth Fund was being re-purposed so that it could be spent on defence as well as infrastructure. Cue howls of online protest, unfavourably comparing the UK’s largesse towards Ukraine with domestic constraints on spending (in particular the slashing of winter fuel payments for pensioners and tax raids on farmers and private schools). The fact that the £2.7 billion was to discharge obligations given under an agreement reached last year and funded by interest from frozen Russian assets, escaped the attention of those making the noise most on-line.
But there is no smoke without fire and the UK’s financial situation is difficult. The Spring Statement and the OBR report will both be released on 26 March (with the Chancellor receiving five up-dates at fortnightly intervals between 4 February – 26 March). It is not expected to make pretty reading…
The latest productivity and GDP growth figures were almost flat, with the UK avoiding a technical recession by the barest minimum. Driven by food prices and wage growth, inflation remains stubbornly high (the Bank of England expects it to rise to 3.7% later this year), reducing the scope for the Bank to cut interest rates as much as had been envisaged and hoped for – figures which will not be improved by the inflationary effect of the trade war that President Trump ignited overnight with the tariffs on Canada, Mexico and China – with more to come on the EU in due course. And shifts in gilt yields have made meeting the interest payments on the UK’s national debt more expensive.
These factors have combined with lower-than-expected tax receipts to drastically reduce the fiscal headroom that the Chancellor had given herself at the last budget. This means that, to meet her own ‘red-line’ fiscal rules, she is almost certain to have to put up taxes or further cut spending at the Spring Statement at the end of the month – further increasing outrage from those who believe the UK should spend its money on itself first, before handing out more to Ukraine. Some commentators are beginning to question whether the Fiscal Rules (set out in October to reassure markets about UK borrowing) continue to make sense in the new global climate and might be relaxed to allow for greater public sector spending – in particular on defence. Further cuts to spending will be hugely unpopular in the Labour Party (adding to concerns about the cuts to foreign aid) and in the country-at-large (‘no Austerity#2’ was a key pledge in the election last year….)
International
There is no crisis that does not also represent an opportunity. And so it has seemed for the PM... According to the EU’s foreign policy lead Kaja Kallas ‘the free-world needs a new leader’. With Germany in transition and President Macron counting down the days until the end of his term in office, step forward Sir Keir Starmer. Almost alone amongst European leaders, he has a very solid Parliamentary majority behind him and, since President Trump will have reached the end of his mandate before Sir Keir does, he is the continuity international leadership candidate. His triumphant visit to Washington was followed by his competent handling of the weekend’s international gathering in London, winning plaudits from friends and foes alike. The UK is back on the lips and minds of EU leaders. A rapprochement with Brussels and an all-round warming of the relationship. All roads to Washington appear to lead through London (or Rome...) again.
So far, so good. But all may not be as good as it seems.
The Government is desperate for growth. Without it, there will be no sustained investment in the public sector. Without that investment, Labour will not win a second term (which is its goal). The Chancellor has indicated she is prepared to ruthlessly follow any path to growth. Domestically, that means ripping up planning regulations to allow development in rural areas and investing in highly controversial mega-projects like CCS and airport expansion. Since Labour’s Parliamentary majority does not translate into broad popular backing, these measures risk stoking local unpopularity. Internationally, that search for growth has seen senior members of the Cabinet beating paths to European capitals and to Brussels seeking ways to improve the TCA and increase bilateral trade with the EU. And it has seen Rachel Reeves leading a trade delegation to China (the first for nearly a decade) to try and deepen the trading relationship. And last week, in Washington, President Trump held out the tantalising offer of a Trade Deal with the US. The Holy Grail for which searchers have been seeking since 23 June 2016…
The UK is therefore currently riding three horses. All this seems great… but at least two of these are mutually exclusive. Rapprochements with China and the EU would be fine. But a US trade deal is almost certain to involve the UK relinquishing one or both of the others. And the terms of a trade deal with the US risks deep unpopularity (think chlorinated chicken, hormone-injected beef and access to NHS data…) with a UK public which holds a decreasing enthusiasm for the US under President Trump and increasing enthusiasm for a closer relationship with the EU.
There is more…
If the US decides to roll-back sanctions on Russia (as this article has led some in Europe to now fear), the UK will be faced with a deeply unpalatable policy choice: follow suit (possibly in pursuit of economic growth/advantage) or stick with its principles and the EU (risking the ire of President Trump and potentially jeopardising that Holy-Grail Trade Deal).
With the new US tariffs on China, surplus Chinese products must now seek other markets. The EU may decide to protect itself by imposing its own tariffs to avoid becoming the dumping ground for surplus Chinese products. That would suddenly leave the UK market at risk – in which case, the UK may feel obliged to follow suit (putting at risk the warming relations with China…).
And one other grain of sand to throw into the soup. Over last weekend, the US decided that Russia did not present a cybersecurity threat. And the US followed this bombshell by declaring it would no longer share intelligence with Ukraine. Both positions are utterly at odds with the UK’s. Without over-stretching the potential for tension this misalignment may cause, there may come a point at which the UK’s Intelligence Agencies do not feel they can share material with the US out of concern at Russian penetration and continuing to share intelligence with Ukraine when the US does not will involve an immensely complex disentangling of intelligence sources. Either step would be a breach of almost unimaginable scope, undreamt of in over a century of the closest intelligence relationship with UK has with any other country.
The very road map to peace in Ukraine on which the UK and France have been working so hard may become its own millstone. The success of the ‘Coalition of the Willing’ relies on the US providing security guarantees – either NATO membership for Ukraine, or in the shape of a US military ‘backstop’ - to back-up any military forces committed by European nations (a commitment scorned by VP Vance overnight - to the intense annoyance of many UK MPs). The US presence is something on which Starmer, Macron and Zelenskyy have insisted. But, in stark contrast, it is a commitment that President Trump has refused to give. Continuing to insist on US security guarantees may have the opposite effect – that of convincing President Trump that his European partners are not listening.
It may be that, for all the hard graft Macron and Starmer have put in, the only viable security option is for everyone to come back to Washington and try and sign the Minerals Deal. Such an outcome would make it very clear that, for all the rhetoric, the Leader still abides in the White House.