America tells Britain to pick: replace Trident, or be a "real military partner"

It's just not possible for us to have both at the same time, writes the CND's Kate Hudson.

As debate continues about the replacement of the Trident nuclear weapons system, many just assume that the United States automatically supports a new generation of British nuclear weapons – or even that they may not "let us" disarm. Those backing the retention and replacement of Britain’s nuclear arsenal often cite our obligations as part of NATO – a US-led nuclear alliance – and of our commitment to our allies in "an uncertain world". Indeed some even see nuclear cooperation with the US as the keystone in our "special relationship". 

So it was interesting to read the following passage in the International Herald Tribune last week – "NATO at a turning point" (12 April) – under the heading "Sharing Capabilities":

As for Britain, Prime Minister David Cameron is insisting on keeping a nuclear deterrent on a new generation of submarines, even as U.S. officials are pushing London to consider abandoning the idea. As one U.S. official said privately, "They can’t afford Trident, and they need to confront the choice: either they can be a nuclear power and nothing else or a real military partner."

As the article clearly conveys, there are many in high places that would prefer Britain to be a well-equipped and viable conventional military force, capable of twenty-first century interventions and keeping up the European end of NATO military capacity. This lays bare one of the main arguments – whether implicit or explicit – put forward by those in favour of Trident replacement: that while times may be hard economically, maintaining a nuclear arsenal is the strong choice for defence policy. So it’s interesting to note that allies may see it as making us a bit of a military lame duck.

In fact, such a view is increasingly widespread here, as well as in the US, given the drastic reductions in personnel and capabilities as a result of cuts to the Ministry of Defence (MoD). 

In the first instance, no-one should be in any doubt about the impact of Trident spending on UK defence equipment budgets. 

The Royal United Services Institute (RUSI) has said that by the early 2020s, 'submarine and deterrent spending is set to account for around 35% of the total core procurement budget'. And by 2017, cuts to defence personnel will see regular troops reduced from 102,000 to 82,000 – with increasing reliance on reservists.

We are now starting to see previously pro-Trident news outlets such as London's Evening Standard and the Telegraph raising concerns about the government’s approach to defence priorities. The Evening Standard has written two excellent editorials on the question of Trident and defence spending, here and here, stating:

'Defence must take its share of cuts and choices must be made. Something has to give: it is worth asking again whether renewing the Trident nuclear missile system, on which design work alone will cost £350 million, is as good a use of defence funds as more boots on the ground. Given our present challenges, the answer must be no.'

While many are still right to put forward the moral and humanitarian arguments against nuclear weapons, they are increasingly joined by those who see the strength in the economic and strategic arguments against Trident. These are people with serious concerns about the thinking behind the government’s defence spending and security strategy. And of course they’re right that the costs will be astronomical and devastating. 

The MoD puts the build cost of the "Successor" submarines alone at £20-25bn, which, given its track record of delivering major projects around 40 per cent over budget, might be more accurately predicted as £28-35bn. The maintenance costs will be £3bn per annum (not factoring in inflation) for 30-40 years according to former Minister for the Armed Forces Sir Nick Harvey MP. Then there’s the estimated £25bn decommissioning cost. 

£100bn is now a considerable underestimation of Trident replacement costs. It is clear it will be more.

But even without the grim economics, Trident replacement seems at odds with both government analysis – the National Security Strategy downgraded the threat of state-on-state nuclear attack – and with the ability to fulfil government policy. As the Standard rightly points out:

The Foreign Secretary talks tough about North Africa and David Cameron regards Libya as one of his foreign policy successes. Yet they must know that interventions like that in Libya, or a British version of France’s exploits in Mali, would be impossible with drastic reductions in troop numbers.

And this is precisely what is being called into question in the US administration. What use is an ally which becomes incapable of action through a dearth of personnel and equipment? How would Britain’s nuclear weapons play any useful role in US operations? 

This dilemma should be ringing alarm bells for Labour, whose shadow Defence Minister Jim Murphy MP recently outlined his vision of a flexible, dynamic, military with "adaptable units" to head off emerging security threats around the world. Labour needs to understand that it will not be able to afford both that and Trident.  

The debate on Trident will continue, to the general election and beyond. But those who still think we are well-served by nuclear weapons would do well to heed the view of former Conservative Defence Secretary Michael Portillo: Trident, he says, is completely past its sell-by date and a tremendous waste of money. I can’t say fairer than that.

People stand on a Trident submarine. Photograph: Getty Images
Ralph Orlowski / Getty
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Labour's investment bank plan could help fix our damaging financial system

The UK should learn from the success of a similar project in Germany.

Labour’s election manifesto has proved controversial, with the Tories and the right-wing media claiming it would take us back to the 1970s. But it contains at least one excellent idea which is certainly not out-dated and which would in fact help to address a key problem in our post-financial-crisis world.

Even setting aside the damage wrought by the 2008 crash, it’s clear the UK’s financial sector is not serving the real economy. The New Economics Foundation recently revealed that fewer than 10% of the total stock of UK bank loans are to non-financial and non-real estate businesses. The majority of their lending goes to other financial sector firms, insurance and pension funds, consumer finance, and commercial real estate.

Labour’s proposed UK Investment Bank would be a welcome antidote to a financial system that is too often damaging or simply useless. There are many successful examples of public development banks in the world’s fastest-growing economies, such as China and Korea. However, the UK can look closer to home for a suitable model: the KfW in Germany (not exactly a country known for ‘disastrous socialist policies’). With assets of over 500bn, the KfW is the world’s largest state-owned development bank when its size is measured as a percentage of GDP, and it is an institution from which the UK can draw much-needed lessons if it wishes to create a financial system more beneficial to the real economy.

Where does the money come from? Although KfW’s initial paid-up capital stems purely from public sources, it currently funds itself mainly through borrowing cheaply on the international capital markets with a federal government guarantee,  AA+ rating, and safe haven status for its public securities. With its own high ratings, the UK could easily follow this model, allowing its bank to borrow very cheaply. These activities would not add to the long-run public debt either: by definition an investment bank would invest in projects that would stimulate growth.

Aside from the obviously countercyclical role KfW played during the financial crisis, ramping up total business volume by over 40 per cent between 2007 and 2011 while UK banks became risk averse and caused a credit crunch, it also plays an important part in financing key sectors of the real economy that would otherwise have trouble accessing funds. This includes investment in research and innovation, and special programs for SMEs. Thanks to KfW, as well as an extensive network of regional and savings banks, fewer German SMEs report access to finance as a major problem than in comparator Euro area countries.

The Conservatives have talked a great deal about the need to rebalance the UK economy towards manufacturing. However, a real industrial policy needs more than just empty rhetoric: it needs finance. The KfW has historically played an important role in promoting German manufacturing, both at home and abroad, and to this day continues to provide finance to encourage the export of high-value-added German products

KfW works by on-lending most of its funds through the private banking system. This means that far from being the equivalent of a nationalisation, a public development bank can coexist without competing with the rest of the financial system. Like the UK, Germany has its share of large investment banks, some of which have caused massive instabilities. It is important to note that the establishment of a public bank would not have a negative effect on existing private banks, because in the short term, the UK will remain heavily dependent on financial services.

The main problem with Labour’s proposal is therefore not that too much of the financial sector will be publicly owned, but too little. Its proposed lending volume of £250bn over 10 years is small compared to the KfW’s total financing commitments of  750 billion over the past 10 years. Although the proposal is better than nothing, in order to be effective a public development bank will need to have sufficient scale.

Finally, although Brexit might make it marginally easier to establish the UK Investment Bank, because the country would no longer be constrained by EU State Aid Rules or the Maastricht criteria, it is worth remembering that KfW’s sizeable range of activities is perfectly legal under current EU rules.

So Europe cannot be blamed for holding back UK financial sector reform to date - the problem is simply a lack of political will in the current government. And with even key architects of 1980s financial liberalisation, such as the IMF and the economist Jeffrey Sachs, rethinking the role of the financial sector, isn’t it time Britain did the same?

Dr Natalya Naqvi is a research fellow at University College and the Blavatnik School of Government, University of Oxford, where she focuses on the role of the state and the financial sector in economic development

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