Across Whitehall, below the Ukraine flags flying from key buildings, the implications of the Russia-Ukraine war are starting to sink in. Everywhere, frantic keyboard hammering has begun. From energy to transport, diplomacy to economics, old plans are being pasted, cut or deleted. From military budgets to macroeconomic and trade thinking; from nuclear and net zero to the expectations of working-class voters, the range of change now being wrought by Vladimir Putin’s war is huge.
The shift in policy isn’t as dramatic as what is happening in Berlin. But the machine is preparing for a five- to ten-year conflict that would set British politics on a new path. Military spending is going to have to be a lot, lot higher. Assuming a complete cutting-off of Russia, there will be a major disruption of global trade. That in turn may require an economic, industrial, even agricultural, policy more based on self-sufficiency or “onshoring” than anyone has thought about since the 1970s.
In the short term, there have been grievous failures of rhetoric and imagination from inexperienced ministers – most obviously the failure to offer proper, generous asylum to Ukrainians.
Yet away from this week’s headlines, the policy reappraisal will bend Boris Johnson’s government into new shapes. It may transform the outlook for all parties. In different ways, it will affect all voters. The impact on the left, Scottish nationalism, climate change politics – those are subjects for another week. Here and now, internally, this is beginning to look like the tale of three ministers above all – the Chancellor, Rishi Sunak, the Defence Secretary, Ben Wallace, and the Secretary for Levelling Up, Michael Gove. While Johnson continues to fight for political survival, the intertwined choices facing these ministers are crucial to what happens next. All three men, their fates tied to Johnson, now face profound dilemmas.
[See also: Putin’s theory of war faces its toughest test]
Sunak has the hardest choices. A Treasury team is now looking at contingency plans for sharply higher energy prices; plus the effect of sanctions and higher food prices as Russian trade freezes. These could add up to an inflationary surge not dissimilar to that following the 1973 oil-price shock – itself the result of an invasion, the Yom Kippur War.
Though the future price of energy is fiendishly hard to predict, a range of possible annual increases from £1,000 to £3,000 per household, beyond the price rises already braced for, is not impossible. Work on how to respond – will it require another long period of higher public borrowing? Does Britain need to completely recast its energy policy? – began in the Treasury but is now being shared with the Foreign Office and the Cabinet Office.
This doesn’t necessarily require a new structure of government. Much of the thinking is taking place in Cobra meetings. In a “secret squirrel” atmosphere, paths of collaborative work forged during the pandemic, are being retrod. The most secretive discussions are about whether Putin, throttled economically, might start a nuclear war. Publicly, Wallace has been responsibly calming about that; privately, insiders believe there are a range of options open to an enraged Russian leader before nuclear warfare, including cyber attacks, disrupting information cables, and the use of “horrendous” battleground weapons.
On the economics, some ministers think we will inevitably need a second major surge of government borrowing, a Pelion-on-Ossa piling above the current level (in percentage terms, net debt is now at a level not seen since the Wilson government of the early 1960s). Sunak tells us that he has Thatcherite instincts.
In his Mais lecture on 24 February, Sunak attacked the notion that “we can simply grow the economy with public spending, or supposedly self-funding tax cuts… they are both highly seductive, easy answers. Neither are serious or credible.” Seductive or incredible, higher public spending now seems inevitable; tax cuts, self-funding or otherwise, are likely to be off the table. Of course, higher energy prices also mean higher Treasury receipts; but the pressure to help families in need will be irresistible.
During a prolonged European war, senior figures also ask, is the model of our high-consumption, throwaway society still sustainable? “We have to ask whether we have been dining out on a false prospectus of low energy costs,” says one adviser. Perhaps the “heedless society” of British consumerism needs “a bit of a reset”.
People are also talking of a new turn in policy from the “open Britain” thinking of the post-Brexit offer. After decades of exporting vast amounts of international capital, the City, it’s argued, must now partially reverse. Funding undemocratic regimes as if they were stable democracies has resulted in a “huge mispricing”. This is not a new mercantilism, civil servants say, but a tilt towards greater self-sufficiency.
This is only the beginning. The Russian gas weapon has intensified the sharp internal debate about energy security. The implications are more offshore wind capacity; accelerated plans for a new generation of nuclear power stations; and, more controversial still, further extraction of oil and gas at home. “We won’t be fracking the Weymouth basin, but we will be running existing North Sea reserves for longer,” the New Statesman was told.
[See also: The state of our resolve on Ukraine is strong. The state of our union, unclear]
Hard choices. But in terms of public spending, some of the hardest will have to be made by Wallace. A long-time ally and friend of the Prime Minister, he looks like a pivotal figure in this fast-evolving administration. Those inside No 10 are braced for demands for higher defence spending, despite a pledge in 2020 to increase military budgets by £16.5bn over four years. But the Ministry of Defence (MoD) has been jolted by a series of overspending and procurement scandals.
So, will Wallace now attempt to reverse the long decline in the British Army? For years, ministers promised to hold the number of soldiers well above 80,000. On current plans, by 2025 the army will only have 72,500. No 10, looking at the likely need to bolster the defence of the Baltic states, would not be surprised if it was asked to fund a new army battalion. Inside the MoD, they are impressed by the value-for-money performance of Turkish drones against the invading Russian tanks and feel the tech heavy approach of last year’s Integrated Review of defence policy “still reads well”. Yet an ally of Wallace’s says that, following his time as a security minister, “Ben is very threat-led – he is quite open to the idea that if the threat has changed, so must the policy.” So, which way does he go?
If Wallace is the minister asking Sunak for more money, the biggest loser may be Gove. “Levelling up” might seem a minor key in this grimly momentous time – but it is this government’s biggest domestic idea, and central to its survival. Gove’s thinking has won admirers across the political spectrum. At a recent private meeting, he sounded fired up, and even, if you closed your eyes, a little leftish in his angry condemnation of what had happened to the life chances of working-class voters. He knows, however, and the Treasury confirms, that there is little public money coming his way now. Another dilemma: the voters who put their faith in Johnson in 2019 will be among those most hurt by the coming price shock. Betraying working-class English voters now is the shortest way to the collapse of the Tory vote.
Three ministers, three sets of hard choices. Gove is what the Johnson project has as an intellectual centre. Wallace, in a period when Tory MPs cry out for grown-up leadership, is becoming the most plausible answer to the old question: who is the “Boris Johnson” – able to stretch the Tory brand in all directions – after Boris Johnson? And without Sunak’s economic flexibility, none of the coming changes in any direction are possible.
Behind those bland Whitehall facades, a lot is going on. Putin’s war suggests that politically, having lived through Brexit and the pandemic, we are heading for a time of even greater turbulence.
[See also: Zelensky is a hero – but bravery alone won’t defeat the Russians]
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This article appears in the 02 Mar 2022 issue of the New Statesman, Hero of our Times