There’s one substantial, profitable sector where industrial strategy could actually work: Defence. But with some on the left calling for an arms embargo, will the Labour leader look to defence as the driver of growth it could be? Asks Eliot Wilson
If you can find solid principles underlying the Labour Party’s economic and industrial policy, they are, as I have argued again and again, fundamentally suspicious of free enterprise. Instead they seem wedded to a grimly reheated dirigisme that would have made French presidents from Pompidou to Mitterand faint with pleasure.
The language of state intervention permeates the party’s manifesto. Labour wants “government to be a strategic partner with business”, and argues that “markets must be shaped, not merely served”. Even when it talks about wealth creation, it is obvious that Sir Keir Starmer and his team see that as a function of government. They have a “plan” for wealth creation and it is their “number one priority”.
I may be a bone-deep free marketeer but there is one substantial, profitable industry, a sector in which the United Kingdom performs strongly, for which this kind of state direction does have some applicability. Not only does it necessarily work closely with the government, but it also partners closely with other parts of the public sector in terms of research and design. It is, of course, the defence industry.
The defence industry is worth around £25bn and employs 150,000 workers directly, many of them in highly skilled and well paid jobs. Traditionally the UK has been one of Europe’s biggest exporters in the sector, though that has changed in recent years and the government spends a greater percentage of GDP on defence than any other sizeable European country except Poland. We are home to BAE Systems, Babcock, GKN, Rolls-Royce and QinetiQ, and subsidiaries of Boeing, Airbus, MBDA, Lockheed Martin and Leonardo. The US Department of Commerce, in briefing for its own business community, notes that “the UK aerospace and defence industries are large and sophisticated”.
This is a huge opportunity. The tense global geopolitical situation is, as has always been the case, good news for defence manufacturers. Europe literally cannot produce ammunition quickly enough and in sufficient quantities to satisfy the demands of the war in Ukraine: President Volodymyr Zelenskyy’s armed forces are firing 7,000 rounds a day, and that is careful rationing against their Russian enemies who are using 10,000. The Conservative Party has pledged to increase defence spending to 2.5 per cent of GDP by 2030, while Starmer has promised to do the same “as soon as resources allow that to happen”.
There is plenty of defence procurement to keep the sector buoyant. The UK is working with Italy and Japan on the Global Combat Air Programme, a sixth-generation stealth fighter which will replace the Eurofighter Typhoon from the mid-2030s, while BAE Systems and Germany’s Rheinmetall are building more than 500 Boxer wheeled fighting vehicles currently beginning trials with the British Army.
But everything is political. Within the last nine months, the left has been convulsed by the conflict in Gaza which followed Hamas’ 7 October attacks in southern Israel. Starmer has found himself on the rack as he has tried to support Israel’s right to self-defence while denouncing the casualties in Gaza, and he has seemingly satisfied no-one. A poll earlier this year showed that only 14 per cent of voters thought he had handled the issue well.
It is not a subject on which there is much nuance or charity. The mayor of London, Sadiq Khan, and the Scottish Labour Party have called for the UK to implement an arms embargo on Israel. In April, protestors targeted the Labour leader’s home, displaying a banner which read “Starmer stop the killing” and laid rows of children’s shoes outside his door. The Rochdale by-election in February saw George Galloway snatch a formerly Labour seat, saying voters had “an opportunity sent by the almighty to be a voice of Gaza in the world”. The wilder fringes of social media assert that Starmer, whose wife is Jewish, is an asset of the Israeli intelligence service Mossad.
This is not an atmosphere which makes it easy for Starmer to look to the defence industry as a key driver of prosperity and growth. That is not a fatal blow to his industrial policy, but it does serve as a microcosm of the wider challenges he will soon face: when hard-headed economic self-interest and passionate but uncompromising idealism diverge, which route will the likely future Prime Minister choose? Starmer is fond of talking about the “tough decisions” he has made, but, as Margaret Thatcher told Ronald Reagan in 1985, you ain’t seen nothin’ yet.
Eliot Wilson is co-founder of Pivot Point Group