Spending review is no immediate panacea for Britain's growth woes

The National

2 days ago

A key theme of the UK spending review is raising government budgets in some areas and using those increases to boost economic growth.
Defence will receive a major injection with British contractors set to cash in, driving skills and jobs and revitalising some of the worst-hit post-industrial regions.
It all sounds exciting and eminently doable on paper but, moving away from the drumbeating, the picture is not as clear-cut as the one Chancellor Rachel Reeves paints. Indeed, it is nowhere near the rosy, easily achievable image she creates.
Britain is to increase its military expenditure to 2.5 per cent of GDP by 2027 and then to 3 per cent in the lifetime of the next parliament. Those numbers are tiny and fall a long way short of the 5 per cent sought by the US and Nato.
Given it is not remotely clear how even the 2.5 per cent will be met, which represents a lift of only 0.2 percentage points from the current level, it is hard see how Prime Minister Keir Starmer's 'ambition' of 3 per cent, let alone 5 per cent, will be met.
As the Institute for Fiscal Studies makes clear, there are few avenues: spending less on public services or raising borrowing and tax revenues. Some funding is to be derived from cutting international aid but after that, attention will focus on savings elsewhere or borrowing and taxing more. Details of what Reeves has in mind are scant – they will be revealed in her autumn budget – but tax rises look the most likely option.
They will be justified on the grounds of need and the argument is already being rehearsed. Gone is the old rhetoric of maintaining a deterrent. Instead, the language is of 'readying for war'. It is presented as a national crisis, a conflict when the usual caveats and restraints are abandoned in favour of all hands to the pump or rather, the wallet.
Except they are not. The day before Reeves' set piece, the Labour activists' news website LabourList published a poll finding that one in four party members backed defence savings not increases. 'The poll, conducted by Survation, found that 26 per cent of readers who identified as members would want to see money earmarked for defence to be spent elsewhere, despite the government pledging to boost investment in the military in the coming years,' LabourList said.
One Nottingham councillor, Steve Battlemuch, seemed to voice the reasoning of many when he said: 'I will watch the Chancellor's spending review with my fingers crossed that councils start to get a better deal, but I suspect the multinational defence industry will be the ones popping the Champagne corks when she sits down.
'They have more lobbyists than children and councils have, and they have the fear factor. In a world where fear beats hope we have an uphill battle to get money allocated to making things better locally.'
He may well be right. Despite the talk of 2.5 per cent, it is small compared to how Britain once was. In 1955, the military accounted for 7.63 per cent of national income. The subsequent long-lasting 'peace dividend' saw that proportion of GDP scaled back and the money directed to other services.
With that decline, though, came a commensurate decrease in weapons manufacturing – armaments suppliers disappeared and the sector heavily retrenched. Rebuilding will not occur overnight. It will be a slow process necessitating the planning and construction of factories and their attendant infrastructures and the sourcing of parts and materials, not to mention the development of skills.
Into that breach is bound to step established major producers from the US and similarly friendly countries. Those overseas behemoths will be rubbing their hands, or as Battlemuch put it, 'popping the Champagne corks', at the prospects ahead, despite Starmer and Reeves promising to 'buy British'.
It was that downsizing that saw Britain slash domestic defence shipbuilding capability, so the sector fell, effectively to just one shipyard at Barrow-in-Furness in Cumbria. It happens to be my hometown.
Even there, the size of the workforce drastically diminished, as Ministry of Defence orders continued to slump. At one stage, with completion of the generation of Vanguard submarines, it was down to below 5,000, badly hitting the town's fortunes. More recently, the site, now part of BAE Systems, has been climbing and is back up to 12,000 workers with another 5,000 to be added in the years ahead.
Under the Strategic Defence Review 2025 and proclaimed by Starmer, the plant will build 12 new attack nuclear submarines. Local Labour MP Michelle Scrogham said: 'This will safeguard jobs, provide huge opportunities for local people and be the driver for our local economy across south Cumbria.'
BAE, however, has struggled to obtain the necessary approvals for expanding its production facility. On the employment front the situation is little better. A nuclear industries task force has been set up to help train the tens of thousands of workers needed across the upscaling of nuclear in defence as well as in civil energy programmes.
On the defence side, the submarines will be built by BAE with their nuclear reactors hailing from Rolls-Royce. It too is doubling the size of its Raynesway site in Derby. Once launched, the vessels will be maintained by Babcock. John Howie, Babcock's chief corporate affairs officer, has said: 'The industry needs to recruit a lot just to stand still. We don't want to steal from each other.'
Starmer and Reeves then, may be gung-ho and what they are promising will certainly be of economic advantage, not to mention security. But the great defence push will cost and it cannot be completed immediately. A healthy dose of realism is required before everyone gets too carried away.