The world has changed and the UK Treasury needs to find billions of pounds quickly. Its finances, which were going to be perilously stretched even under more normal circumstances, now face a real crisis because of the need to hugely ramp up defence spending immediately and for the foreseeable future.
If ever there was a moment for a brave response, this is it. Yet, while Keir Starmer has rightly won plaudits for his bold and principled continued support for Ukraine in the face of the appalling behaviour from the White House, his government’s reaction to its dire financial implications is far from courageous. Reaching for cuts in welfare benefits as the way to fund rearmament might resonate well with Elon Musk but is a somewhat cowardly response to this extraordinary situation.
Even the government is, so far, being relatively modest in the numbers it is suggesting could be cut: slicing the mooted £5bn off the bill for Personal Independence Payments, for instance, would barely touch the needs of the (barely) armed forces. Last year, the UK spent 10 times that amount on defence, but in an era when conflict might have to be faced without aid from the United States, that figure has to be multiplied.
Slashing the budgets of government departments is another obvious step, and the instructions have been issued, demanding that each should specify areas for potential savings. Few would argue that the public sector could and should be much more efficient. Staff numbers have grown exponentially in the last decade, and productivity most certainly has not. The NHS, with its voracious appetite for cash, is a prime target for savings, but to deliver them effectively will require a thorough rethink of how health and social care services function – and that takes time.
The crisis the UK faces is a national emergency and requires an emergency response. It is time for the government to tell the people that they are going to pay for the nation’s security and that those who have the broadest shoulders must carry the larger part of the burden. Increasing taxes is the obvious answer to the dire situation, yet the government will not admit it.
Rachel Reeves seems so determined to stick to her pre-election promises not to raise taxes on “working people” that she will engage in the most elaborate contortions to be able to argue she has kept her word. Raising national insurance contributions, for instance, equated to a tax on jobs for which many working people are now paying, but Ms Reeves can claim that she kept her word.
Pre-election, it was understandable that Labour would be determined to reassure voters it would be fiscally prudent. Despite taking over from an administration that had been the opposite, Reeves has been adamant that prudence remained and there would be no tax-funded spending spree.
But if ever there was an opportunity – and a need – for a government to say that it needed to raise more cash from taxpayers, this is it. The economist John Maynard Keynes said that “When the facts change, I change my mind.” The facts have changed dramatically, and Ms Reeves would be completely justified in changing her mind. Increasing the top rate of tax immediately, while pledging to reduce it again when those sought-after efficiency savings began to flow in significant amounts, would be a sane response to an insane situation.
A one-off wealth tax is also something that the government should consider. The idea was much talked about before the election but was clearly at odds with Labour’s efforts to be seen as a party that had shed old prejudices. Nevertheless, there is a vast amount of inherited wealth in the UK, and those who own it have a vested interest in protecting the country from external aggressors. They might not applaud having to pay a little extra for that protection, but would they want to be seen publicly to have balked at the suggestion?
The government needs to act quickly, involving the public in this national emergency. While this island does not face the same immediate threat that has those countries contiguous to Russia understandably trembling, it does take its Nato responsibilities very seriously. Starmer has made clear that the UK intends to be a strong player in Europe’s defence, and that is positive news.
So what is holding him back from admitting that he needs our financial backing? The Conservatives might lob accusations of broken promises, but they have to take responsibility for underfunding defence for many years. Reeves should come out, guns blazing, and do what needs to be done.
