Bronwen Maddox
Great, we’re almost on the dot of nine, and we have just the few last people coming in [pause]. Welcome, everyone, a very good morning. I’m Bronwen Maddox. I’m Director of Chatham House, and I’m delighted to welcome you online and here in a packed hall, to this discussion of Securonomics in the World with Rachel Reeves, Shadow Chancellor, David Lammy, Shadow Foreign Secretary. The first time I think you’ve done this together on a stage, and the point of this is to discuss some of the things that they have been talking about recently, including the concept of ‘securonomics’, but also, to dig into this question of whether economic policy and foreign policy sit together, how they sit together, and how that might work under a Labour Government. And I’ve lots and lots of questions, but so, I’m sure, do you. We will talk for about half an hour, and then I will come to the – to questions. In case anyone is any doubt, this is on the record and it’s also being livestreamed. Welcome to you both.
Rachel Reeves MP
Thank you.
David Lammy MP
Thank you.
Bronwen Maddox
Rachel, perhaps I can start with you. ‘Securonomics’, brand new word, what does it mean?
Rachel Reeves MP
So, I first spoke about it in a speech I gave in Washington last year, and I describe the age we live in today as being “an age of insecurity,” where what was once described as “once in a generation,” or, “once in a hundred years shocks,” are coming in thick and fast. Whether it is the global COVID pandemic, the – Russia’s illegal invasion of Ukraine, what we’re seeing now in the Middle East, but in addition to that, the climate emergency, the emergence of new technologies. And how do we respond in that age? What are the challenges, and what are the opportunities, as well? And I described the approach that an incoming Labour Government would take as one of ‘securonomics’, and making our economy more secure and more resilient, in face of the shocks that I think are going to come thicker and faster in the years ahead.
And that makes, for example, the importance of resilience of supply chains crucially important. It means being able to rely more on homegrown energy supplies, rather than being reliant on Putin and dictators around the world for our basic energy needs. But this is not a retreat into, sort of, fortress Britain. This is also about building new multilateral partnerships, but closer partnerships with our friends and our allies, and recognising that if we are to reduce some of the risks in our economy, then we also need to think about where things are made and who owns things, in a way that, to be honest, in the era of hyper-globalisation, I don’t think concerned us nearly as much as perhaps it should have done.
Bronwen Maddox
Thanks very much, and I’ll come back to quite a few of those points, including the nature of the shocks we’re facing. But David, you’ve been talking for the past few weeks very energetically about your notion of ‘progressive realism’. How does that fit with what Rachel Reeves has described, which is really quite a profound rethinking of Britain’s relationships with lots of countries?
David Lammy MP
100%. Well, I suppose if I’d said that our foreign policy was solely ‘progressive’, we would clearly be in a different era, wouldn’t we? I mean, we’d be in the era perhaps into which I arrived as a Politician, where Robin Cook was talking about an “ethical foreign policy,” where the world, in the context of the Berlin Wall falling down, Nelson Mandela coming out of prison, and those – that whole era of globalisation was the centre stage. I think what Rachel’s setting out is a very different world. We recognise that geopolitically, with war in Europe, with the huge challenges in the Middle East, and with the clear, now growing, if you like, partnership between China, Russia, Iran, North Korea, this is a different context.
And into that different context, the ‘realism’ bit is essential, and that’s why I said in terms of the a Labour inheritance, Ernest Bevin is actually very important. Looking out into the world, us, again with the multilateral partnership, NATO, and the Labour Party was essential in that foundation, but also, the nuclear deterrent. What does that mean today? Well, it does mean that we need very important partnerships in the Gulf, for example. Many of those countries are not countries that share our values entirely, but if you want peace in the Middle East, we need to work with them. And certainly in terms of investment, the way that they’re surging forward, for example, on AI, we want to partner with them. On critical minerals, we do need a strategy with Africa. I can’t detect one currently from this government. If we’re serious about the rare earths we’re going to need, we can lead that in relation to our Green Alliance.
And, clearly, going forward, oh, you know, a key part of if we are lucky to win the election, and successful in winning the election in the coming months, then, clearly, a new relationship with the European Union is going to be very important. They have a clear economic security strategy. This government’s been averse to having that conversation. They’re not even having structured dialogue with the European Union. And whoever’s in the White House, it’s important as they make their determinations – we’ve seen last week the announcements of 100% tariffs on EVs if Trump gets into the White House, it’s 200% across the board, we will need an important partnership with them, as well. So, that’s the progressive realism in action.
Bronwen Maddox
So, let me pick some – pick up this point about what we’re trying to protect ourselves against in your view, and I think anyone here would give you, the point you’ve just made, David, that the world is different from how it seemed, say, 30 years ago. Rachel, you’ve described the things that we might want to protect ourselves against, wars, pandemics, and, also, possibly threats from individual countries. But one counterargument might be, look, for some of these things, we actually need to reach out, to have supply chains that – where our allies support us. You said it’s not ‘fortress Britain’, but one concern would be, about what you’ve said, is it does sound like that. That we’d be pulling back and not giving ourselves resilience, at all, but trying to make ourselves self-sufficient.
Rachel Reeves MP
No, I don’t think that’s an accurate reading of what I’m saying, and you can’t prevent things like pandemics or wars happening, but you can make yourself more resilient in the face of those shocks. So, let’s just take two examples, first of all, the COVID pandemic came along and we found that the supply chains for some of the essential things to protect us, for example, PPE, we were over-reliant on one country, China. And we need, not to decouple, but to have a more diversified supply chain for things that are essential for our national interest.
Bronwen Maddox
But which still might extend to other countries?
Rachel Reeves MP
Absolutely.
Bronwen Maddox
Alright, you might want that…
Rachel Reeves MP
We’re not going to be…
Bronwen Maddox
…count – those countries to be China, or as much weight on China.
Rachel Reeves MP
Well, that’s exactly that point that I’m making. So, some of it is about not being so reliant on countries that don’t share our values, but it’s also about not being reliant on one country, per se, and that we have more diversified supply chains. So that when shocks come along, whether it be wars or pandemics, or disruptions to supply chains, then we are less exposed to that. So, this is not about driving up costs. This is about in the face of an insecure world, that we are not at the mercy of one company or one country.
The other example, of course, is what happened to oil and gas prices after Russia’s invasion of Ukraine, and we found, partly because we’d got rid of our gas storage facilities, so we weren’t able to store gas when it was cheap…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…but also, because we hadn’t invested sufficiently in homegrown renewables, that we were very exposed to those global markets. Of course, not Brit – not just Britain was exposed, but as somebody who wants to be the UK Chancellor, what can we do here in Britain so that we are less exposed? And that’s about doubling down on the investment that we need to see in homegrown renewables, so we are less at the mercy of those global markets for oil and gas. So, this is about diversification and it’s about seeing what more we can do at home. And we’ve got huge potential in energy…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…to be producing more homegrown energy. This isn’t just about meeting our climate obligations. It’s also about ensuring that we are more secure and resilient as a country, and in turn, bringing down energy bills. And I would just say this, you know, the inflation numbers today show that inflation has come down to…
Bronwen Maddox
We were inevitably going to get onto this point.
Rachel Reeves MP
Yeah.
Bronwen Maddox
So, we are now looking…
Rachel Reeves MP
But it relates to this…
Bronwen Maddox
…at 2%.
Rachel Reeves MP
…yeah, 2.3%, and the government are now on a, sort of, victory lap for that, but inflation is still not back at the Bank of England target. But crucially, and this is why I think securonomics is so important, the government have done very little to address the underlying reasons for why inflation got out of control in the first place. And that’s why securonomics is so important, so that we build in that resilience, so when shocks come along, as they inevitably will, we are not so exposed, in the way that we’ve found ourselves these last few years.
Bronwen Maddox
I just still want to stay on this big picture point, if you like, because some countries might well listen to this and think, look, globalisation has been very good for us, particularly poorer countries, it’s been very good for Britain. You’ve said recently that “Globalisation as we knew it is dead.” Should poorer countries be afraid of Britain focusing more on homegrown things?
Rachel Reeves MP
Well, you look at what David’s saying about…
Bronwen Maddox
David is itching to say it.
Rachel Reeves MP
Yeah, but your – the point that you make about critical minerals…
David Lammy MP
Yes.
Rachel Reeves MP
…this is about an Africa strategy, so that we’re less reliant on China, but actually, using the resources in Africa, and working with our partners there, but David?
David Lammy MP
100%. Look, globalisation, or the hyper-globalisation that we saw, is clearly over. I would not personally place the emphasis on free trade. I would place the emphasis on trusted trade, and that does mean new multilateral partnerships that are essential, and not being overdependent on one superpower, for example. And there are key areas beyond critical minerals, for example, where the Labour Party’s coming forward with a new proposition. So, one is, for example, on security and defence.
I was in Ukraine last week with our Shadow Defence Secretary, John Healey. Our offer to the European Union is a new security and defence pact, and I have to say, when I speak to European colleagues, they’re keen on that idea. Now, that’s not just about defence, in the old sense. It can also be about tech, about climate, about energy. It’s a new conversation with the European Union, given they are concerned about – or rising concern about China. They too are buying into the small yard, high fence understanding. They’re obviously concerned about war on the continent. We share that concern, and the truth is, France and the United Kingdom represent half, currently, of Europe’s defence capability.
Bronwen Maddox
Hmmm.
David Lammy MP
So, that pact is a tangible idea. The second big idea is the Clean Power Alliance, as a consequence of the energy needs that this country has rightly got to have, as a consequence of the transition that we’ve got to make, again, an alliance of countries, so that we’re not dependent, or overdependent, on China in this context, ensuring that race to clean energy.
Bronwen Maddox
China’s come up quite a bit and not being dependent on China. Do you have a sense of the right proportion of supply, and particularly in things like energy, which has been very controversial?
David Lammy MP
Look, what we said on China is, “It’s not good for our country, it’s not good for business, it’s not good for investment, if you’ve got a policy that’s bouncing around.” And I’ve counted about seven approaches to China under this government. We had the David Cameron and George Osborne golden era not so long ago, we had the Liz Truss approach. Boris Johnson jumped around, personally, and I think we all understand that. Then we had Theresa May and the huge concerns about Huawei and 5G, and then you’ve got significant backbenchers, Iain Duncan Smith, prosecuting their own direction. So they’ve jumped around. What we’ve said is…
Bronwen Maddox
China itself…
David Lammy MP
…is…
Bronwen Maddox
…has changed significantly during this period.
David Lammy MP
But what we said is that we would have a full audit, cross-Whitehall, of our relations with China, so that we can set a direction and a course. Let’s be absolutely clear, the overwhelming majority of that £100 billion worth of trade with China is uncontentious, you know, we’re not talking about toothbrushes. But there are areas where properly, there are national security concerns and so, I do believe that that small yard, high fence is important, and of course, it’s our job both to protect jobs in our country, of course, but also, to ensure that we’re not over reliant on any particular – particularly area – critical areas.
Bronwen Maddox
Right, but let me take one area, I mean, the fastest route to Net Zero for the UK might be to take the electric vehicles and solar panels that China is getting extremely good at making very, very cheaply. What should our response be to that, if that helped both economic growth, very cheap for consumers, and brought down inflation, and so on, and helped our green targets?
David Lammy MP
Rachel and I are hoping to be in the Far East a little bit later on this year, and we are looking at countries like Japan that have been looking at economic resilience for a significant amount of time. South Korea, doing the same, the Philippines moving in a direction at this point in time. So, look, I – one, let us see who wins in America later on this year, because that will be very important for us in terms of the discussions that we’ve got to have there. Two, as I said, I do believe that structured dialogue with the European Union is important. We will move forward on the review of the 2CA next year, as well as the economic security pact.
I suppose what I’m signalling is that where our government has been averse to an industrial policy, has been adverse to the European Union, has caused problems in Washington because of things like the Northern Ireland Protocol, so they’ve not been able to get into those discussions, promised, of course, the trade deal United States, where is it? Promised a trade deal with India, where is it? Have not really recognised the world as it is today. I think we can set a course, and clearly, there’s movement on electric vehicles, we all recognise that, and we will have to be part of the mix in ensuring that we’re not overdependent to any one power.
Bronwen Maddox
Perhaps we can just stay on this for a moment, because it is an extremely good example, it seems to me, of the kind of question people might have about both the philosophies you’re putting forward. I mean, both – you talked about the European Union and the US, both of which are trying to protect themselves against Chinese – cheap Chinese stuff in this area. The European Union by a mixture of pleading with China, and threatening tariffs, and the US, regardless of who gets in, by the proposals of tariffs. So, here, we are the UK, we’re not in the EU at this point, what is our answer? Is it to take Chi – the cheap, Chinese green transition vehicles and panels to make our own, as perhaps you were suggesting? What – how are we going to respond?
Rachel Reeves MP
If you take the, sort of, the realist part of what David has spoken about in our foreign policy, as a realist, I think you have to accept that one of the reasons why the Chinese cars are so much cheaper is because they’ve had an extraordinary degree of subsidy. And second, in terms of a realist perspective, is, if we end up in a situation where we are entirely reliant on China for our cars, I think that would leave us incredibly exposed. And so, I think it is important that not just Britain, and this is where it comes back to the multilateral point, that we are able to do things in Europe and in other countries that share our values, and we are not just beholden to one country, a particular country, that doesn’t share our values.
And if things are cheap just because they’ve had huge state subsidies, I don’t think that is fair on people who work in this country, or indeed, people who produce cars in France or Italy and in America. And so, free trade and cheaper goods, of course, is useful and valuable, and you’re right – you rightly say having low inflation is incredibly important, but what you find is when shocks come along and then, you are reliant just on one country, that that strategy didn’t look so sensible in hindsight.
Bronwen Maddox
I can see the point about not relying on one country, but really, the point we’re talking about here is whether security is in some respect, going to compromise growth, whether it is at odds with growth in some circum…
Rachel Reeves MP
No, because…
Bronwen Maddox
…some big…
Rachel Reeves MP
But the…
Bronwen Maddox
…circumstances.
Rachel Reeves MP
…whole point is that when these shocks come along, you find that growth dries up and inflation goes through the roof, because you’ve had a foreign policy and an…
David Lammy MP
Yes, absolutely.
Rachel Reeves MP
…economic policy that is naïve.
Bronwen Maddox
Hmmm.
Rachel Reeves MP
And I don’t want to be that situation again, where we say, “Oh, well, look, gas is really cheap from Russia, or other countries, and so let’s just carry on ploughing that field,” when we know, in our long run interests, and even in our, sort of, medium-term interests as a country, we have to diversify our supply chains. And so, I think that’s where this realist point is just…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…so important, that it is naïve to think that what is the cheapest is always the best, and what is the cheapest today is not a good economic strategy for tomorrow.
David Lammy MP
And can I just say, Bronwen? On that key point with our closest allies, both in the European Union and the United States, the point is that they have a mechanism, the Trade and Technology Council, where they are meeting and they are discussing these issues. Where is the UK?
Rachel Reeves MP
Yeah.
David Lammy MP
Where’s our arrangement? That is the point. I’m afraid it’s as Alicia Kearns said on – the Chair of our Foreign Affairs Select Committee, “The government” – and she’s obviously a Conservative, “The government have been asleep at the wheel.” And so, we have to be there, we have to be engaged, we have to be part of those dialogues and that’s precisely to drive growth in our economy. It’s why I’ve said my Foreign Office has to centre growth. We’ve got to have Diplomats that really can demonstrate growth and prospects. Our national interest is about growth in the country. It’s not just about geographical expertise, and being able to brief us on what a particular government’s up to, who’s up, who’s down, is there – are they going to win the election? It must be about the return for British taxpayers, and that’s got to be growth and prosperity.
Bronwen Maddox
I was inter – in some of the remarks you’ve made you said “growth and prosperity and security,” and you want Ambassadors in all kinds of embassies to demonstrate what they are doing on growth and security. Again, I’m just probing at where those two might be in tension. Can you envisage any examples where that – where those two do pull in different directions?
Rachel Reeves MP
I think you’re right to – you know, you’ve made – you know, today, it might be cheaper to do things in a certain way, but tomorrow, we find ourselves very exposed. And so, a short-term sticking plaster, sort of, politics that, you know, might be – you know, seem the right thing to do today, quite quickly leaves us exposed to shocks. And I would say that as well as the, sort of, the foreign policy, it’s about what we are doing at home…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…to ensure that we have competitive industries. And, you know, David has spoken about the, sort of, chopping and changing in terms of the approach with China. Look at the chopping and changing we’ve had in terms of growth strategies from this government, 12 different plans for growth in 14 years. Now, there was an industry strategy for a very brief period, when Theresa May was Prime Minister and Greg Clark was Secretary of State for Business. That was a pretty good industrial strategy, but one of the first things Boris Johnson did was to rip it up. And the problem is, if you don’t have an industrial strategy, you don’t have a formal partnership between government and business, working together to build some of these key industries, not through picking winners, but identifying industries where Britain has real growth potential…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…because of our industrial heritage, our universities. And in areas like, floating offshore wind, carbon capture and storage, green hydrogen, there’s every reason to think that Britain can be a leader in…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…some of these industries of the future. And it is crucial that we work with business to exploit those opportunities, because unless we do, we are going to find ourselves, in the future, importing all of our energy, or more of our energy than we need to, and find ourselves once again, exposed to the global shocks that…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…are sure to come along.
David Lammy MP
And can I just say there? The key areas of the future in relation to that last question, AI, quantum, biotech, these are areas where we do have a huge competitive advantage. We’ve got to be thinking down the line, we’ve got to be thinking about the right alliances with the right country, in relation to that. For example, I mentioned the Gulf and AI, UAE, Saudi Arabia, all investing. We want to be partnering with them in the appr – right – appropriate places, but we do not want to be exposed to those who really don’t share our interests, so we’ve got to be…
Bronwen Maddox
Hmmm.
David Lammy MP
…you know, careful about how we go about that. And in terms of that individual Ambassador in an Embassy, of course, it would be naïve not to suggest that there isn’t sometimes tensions between security interests and economic interests. Of course there are, and it’s true, also, that in government, Prime Minister in the Cabinet Office, Treasury, foreign affairs, biz, defence, climate, all have a concern in these areas. So, you have to be co-ordinated, you have to set a course, it’s got to be joined up, not siloed, and I recognise those challenges exist, and so does Keir Starmer.
Bronwen Maddox
I have to say, reaching into my professional past before this job, I think every government for 30 years has come in with something like an industrial strategy, and a regional strategy and a further education strategy, and – because these are enduring problems of Britain, and they might not always have been labelled as those strategies, and they don’t always last very long, because they’re difficult to put in place. But we can have that discussion perhaps in the future.
Let me go to Europe, which has not come up, at all, and we were talking about growth and sources of growth. And if you want growth, there’s been a lot of comment recently, and you’re talking about needing diversity of supply chains, you’re talking about the need for trust, here is this large bloc of countries who we trust and share values with and so on, sitting right there. Should we expect a much closer economic relationship under a Labour Government?
Rachel Reeves MP
We definitely want a closer relationship with our friends and neighbours and biggest trading partners in the European Union. We’re not going to go back into the Single Market, the Customs Union or bring back free movement of labour. I think those issues are now settled, even though obviously, David and I voted a different way in the referendum almost eight years ago now. We’re not going to, sort of, re-prosecute those arguments, but there are a number of practical steps that we can look to implement, working with the European Union. So, for example, we look to secure a veterinary agreement…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…improve the flow of goods and reduce some of the backlogs, not just in the food and farming sector, but in other sectors, as well. The services sector got very little from the Brexit deal that Boris Johnson secured, and we would look to achieve a mutual recognition of professional qualifications, that would be a huge benefit to our service sector. And in cultural industries, another area where the UK is really strong, we want to make it easier for touring Artists and reduce the bureaucracy. So, those are just three areas, but we’ll only achieve those if we have a real reset of our relations with the European Union…
Bronwen Maddox
Hmmm.
Rachel Reeves MP
…and start treating them as partners and friends again, in a way that I don’t think we see in this government’s either economic or foreign policy.
Bronwen Maddox
Change of tone can get you quite a lot of way, and those things you’ve described might do quite a bit, in many people’s view, to change the mood of relations with Europe, but possibly not of big economic effect. Could you just spell out for us, I’m not going to ‘re-prosecute’ it, as you said, but why not a Customs Union?
Rachel Reeves MP
Because I think that ship has sailed. You know, the vote now – by the time of the election, it will be more than eight years since the referendum. And, you know, we’ve had those arguments, the government secured a deal, I don’t think it’s the best deal in the world, but there are practical, quickish things, that we can do to make that trade easier. And we’ve – I’ve just identified three and David has also spoken about having much closer relationships in terms of, you know, our security policy with the European Union. So, those are our red lines, but I still believe within those parameters, we can build those closer relationships. And I do accept the impact that leaving the European Union with the deal that was secured, I do accept the impact on growth, that the OBR and the IMF and others have pointed to. I recognise that it has had damaging economic impacts…
Bronwen Maddox
Hmmm hmm.
Rachel Reeves MP
…and we want to build those closer relationships that I think will be good in our national interest, but I also think good for consumers and businesses in the European Union, as well.
David Lammy MP
And Bronwen, let me just say that I recognise that probably the overwhelming majority of people in this room would perhaps wish things to be slightly different. But look, let us be clear that when I am in discussion in Brussels, or in any European capitals, they are not talking about Brexit, that’s the first thing. The second thing were even in some, sort of, land where we – if we wanted to reopen this, they would ask for a settled position across the United Kingdom. There isn’t a settled position, because we have one major party, the party in government, totally opposed to this agenda. So, it would be perverse for us to go back into the past to reopen these discussions. We’ve got to look to the future.
We’ve got the review of the paper-thin trade deal that Boris negotiated in 2025, and we will approach that with an open mind with our European partners. I think that our defence and security pact I’d put centre stage because we – I think it does open up a new discussion. And I make the point that I made about the United States, because they have structured dialogue with the European Union, because they have the Trade and Technology Council, they’re in a, in a way, a more fortunate position than we curr – than we are currently in. And it’s why I’ve emphasised that, at the moment, under this government, we are not even meeting with the European Union on a regular basis to discuss mutual issues of concern. That has to change under a new government, for the reasons that you outline.
Bronwen Maddox
Is it important to get a free trade agreement with the US?
David Lammy MP
Oh, look, I mean, anyone who’s spent any time in Washington can see that they have set their face against that. So, in the end, that is the determination of the United States. They are not talking about free trade deals at the moment. They’re in a very different place, but what we’ve got to do with our – in terms of the special relationship, is be in the room. And obviously there was some concern when they – from our point of view, not in terms of the content of the IRA, but the fact that in the end, we were left out.
Bronwen Maddox
Let me ask you both finally, we’ve got you both on the panel, what you’re going to do about more money into the business of foreign affairs? David, obviously, you set out this ambitious plan, and the point that we made recently in our point on realistic ambition in UK’s foreign policy, was to say, “Look, it does, if you want influence, need more money.” More in defence, which you’ve committed to, though we’ve suggested even more than that. You would like, I would guess, more on development aid and more on the often forgotten diplomacy, where all these relationships that need adjusting in the way you described need people to go and have those conversations. Is this something that Britain can afford?
Rachel Reeves MP
Well, I’m under no illusions about the scale of the challenge that I will inherit if I become Chancellor later this year. I honestly believe it’s the worst economic inheritance since the Second World War. The first Parliament ever where living standards are lower at the end than they were at the beginning, the highest tax burden in 70 years, and a debt to GDP ratio of nearly 100%. And so, there are lots of things that an incoming Labour Government might like to do, but I’m not going to make any spending commitments without being really clear where the money’s going to come from. Because that is the road to economic ruin, and all it ends up doing is putting up interest rates and making it harder for families and businesses.
So, you know, while I recognise that challenges that you put to me, and we have made that commitment around defence spending, neither David, nor me, nor any of our Shadow Cabinet colleagues, are going to be putting out commitments without being really clear where the money’s going to come from. And that’s why growth is at the heart of everything we talk about, because unless we grow the economy and have that high sustainable growth again, we’re not going to have the money for the public services or the diplomatic services that we would like to have.
Bronwen Maddox
On that, let me go for questions. The fastest ever; lot of hands up. I’m going to start over here, and I’m going to take them in pairs, so I’ll take the two in the front, here. Could I ask people to ask simply one question, and to say who they are? Thank you.
Nick Coleman
Nick Coleman from S&P Global Commodity Insights. The UK gets about 75% of its energy from hydrocarbons. That’s not going to change overnight, however many solar panels and windfarms you put up. It’s also a world leader in subsea oil and gas, specifically, with maybe 200,000 jobs in this country from that sector. Your critics would say the windfall tax plus ending North Sea licensing are basically, going to run – or already running the industry into the ground. Is it wise to hand that energy security to Saudi Arabia and Russia and other countries?
Bronwen Maddox
Thank you, and next to you.
Graham Lanktree
Graham Lanktree from POLITICO. You’ve, kind of, hinted at this, but not really addressed it directly. The EU’s conducting an investigation into Beijing’s state subsidies for EVs, and yesterday, Janet Yellen urged Brussels to impose tariffs on Chinese EVs, after the US put 100% duties on them last week. Should the UK conduct a similar investigation into Chinese EVs?
Bronwen Maddox
Thanks very much. Alright, energy security in Saudi from Nick, and EU and China, and should we follow, Graham.
Rachel Reeves MP
Yeah, fine, I’ll take Nick’s question first. Look, we are going to need North Sea oil and gas for many decades still to come, and we will honour all the existing licences for oil and gas, but we won’t be granting new ones. Now the government have already introduced the Energy and Profits Levy. We would extend that, we would increase the rate to 78%, as is the rate in Norway, and we would get rid of the investment allowances, which see some companies paying very little of the Energy Profits Levy, at all. But that would be a time limited extension of the windfall tax. It would last no longer than the next Parliament, and we’ve been really clear with the industry, and the industry continues to invest, and we’ve set up a Shadow Fiscal Forum with OEUK, who represents the oil and gas sector.
But we see a really bright future for the North Sea, because of the huge potential in some of the low carbon industries of the future. So, floating offshore wind, carbon capture and storage, and green hydrogen will all rely on the skills that we have built up because of our success in oil and gas. And so, this isn’t just about securing oil and gas for a few decades to come. This is about a long-term future for the jobs and the industries in that sector as they look to move towards the energy sources of the future. But we’ll need those skills, we’ll need that business investment, as we move to then, the next phase of energy in the North Sea.
David Lammy MP
And on the second question, look, the Kea – Clean Power Alliance, and if you like, the – our Green Prosperity Plan, all indicate a clear direction of travel. We are not in government, so we’re not able to make decisions about EVs, but I do think that the full China audit that we said that we would have does indicate the sorts of concerns that we have about this. We have to have the proper intelligence across Whitehall to make those assessments and make sure that where we’re – where there is subsidy, where we do have an industrial strategy, that we are putting taxpayers money to best value, basically.
Bronwen Maddox
Let me just ask you, there’s a lot of areas in which Labour says, “Oh, we’re going to have an audit,” or a review, or so on, you’ve probably got six months now, and you’ve got access to Whitehall to some extent…
Rachel Reeves MP
Well, we…
Bronwen Maddox
…why not have it now?
Rachel Reeves MP
Well, we have access talks. That’s not the same as having access to Whitehall. The point of the access talks is for us to explain what we would want to do in government, for them to get ready. We’re certainly not getting advice from the Civil Service. That would not be right or appropriate…
Bronwen Maddox
Not advice…
Rachel Reeves MP
…and so…
Bronwen Maddox
…but you talked about an ‘audit’ of…
Rachel Reeves MP
We can’t do those…
Bronwen Maddox
…links with China.
Rachel Reeves MP
…sorts of things…
Bronwen Maddox
Right.
Rachel Reeves MP
…from opposition. We just don’t have access to that sort of information and expertise. But, you know, we’ve set out, you know, quite a large amount of detail of what we would want to do in government, but I think you have to be honest and realistic about what we’re able to do with the resources that we have in opposition.
Bronwen Maddox
Thank you. Let me come – I’ll come back over here, as well, but let me go from Olivia, and then in the middle, no, more in the middle. Yes, the person who’s still bravely got his hand up, him, and in the front row.
Member
Yes.
Olivia O’Sullivan
Hi there, Olivia O’Sullivan from Chatham House. I direct our UK Programme here. I wonder if we could come back to the impact of this agenda on low-income countries, which you’ve raised, but it would be good to hear more about. So, you’ve talked about diversifying supply chains away from reliance on China, particularly in green tech. The origin point, or one of the points on a lot of those supply chains is the critical minerals that come from low-income countries, a really important part of the climate transition. How will you work with those countries? How will you think about their role in this agenda, and avoiding this sense that they’re being shut out of, sort of subsidy, or somewhat protectionist programmes being implemented by countries in the Global North? Thank you.
Bronwen Maddox
Great, thank you, and in the middle. Yes, is it sti – the – yes, you…
Robert Yates
Yes, it’s me…
Bronwen Maddox
…you.
Robert Yates
…with my hand up for ages.
Bronwen Maddox
Yeah.
Robert Yates
Many thanks, Bronwen, it’s Robert Yates, I head up the Global Health Programme here at Chatham House. David, I suppose the question’s mostly for you really, and it’s about securonomics and progressive realism, and what it means for development policy, particularly thinking about, sort of, building human capital in countries, health and education. So, I’m just wondering how this will play out in your development policy thinking.
David Lammy MP
Those two are quite linked. Do you want another question? A couple – Bronwen?
Bronwen Maddox
Yeah, I’ll take – second row here [pause].
Brunello Rosa
Good morning, Brunello Rosa, Rosa & Roubini and LSE. A question on inflation if I may. A number of ongoing events, deglobalisation, balkanisation of global supply chains, the digital transition, the ecological transition, the redistribution of income, between, say, labour and capital, all these things are inherently inflationary, and there’s the risk that inflation will be higher, on average, in the future, than it was in the past. And it’s true that perhaps it was too easy to go for the cheap solution in the past, but that was also very convenient, because it was, in fact, able to keep inflation down. So, if inflation is going to be higher on average in the future, what are you going to do, as a government, as opposed to the Bank of England, to make sure that inflation doesn’t go out of control? Thank you.
Bronwen Maddox
Thank you very much for that range of questions. Impact on low-income countries, health and inflation.
David Lammy MP
The two questions I think are centred, really, and thank you for those questions. The starting point for us, as the opposition, was that it was a huge mistake to abolish DfID from one day to the next. After a period where the Global South felt that – and had experienced a hoarding of vaccines by our own country and others in the West and were turning to Russia and China for assistance, then cutting our aid budget from 0.7% to 0.5%, and then going on to spend 3.4 billion of that 0.5% on hotel bills, basically, for refugees in our own country, of course, has left us in a very bad position with the Global South, no doubt about it. We inherit this, we want to get back when the fiscal climate allows, I did say that, Rachel, to 0.7%, but I did want – just want to put this – and it links to the first question. Development is not where we were…
Rachel Reeves MP
Yeah.
David Lammy MP
…in 1997, let’s just be absolutely clear about that. And particularly, the challenges around climate do require different finance mechanisms, reform at the World Bank and in those finance institutions that we want to be part of leading, we’re absolutely clear about that, that’s the first thing. And second, when you speak, and I’ve, you know, spent a lot of time speaking to African leaders particularly, they want a strategy, and it’s not – and their concept of development is about trade, it’s about investment, it’s about partnership, and I’d want to emphasise that. So, when I talk about an ‘Africa strategy’ that will come forward from us, it will emphasise those things, not just development in the old style.
And just to press this point even harder, the truth is, China’s Belt and Road has happened. If you’re in Uganda, they can point to the bridge, to the train station, to the road that was built by the Chinese. All too often, when I’m in these countries, it’s hard to explain what our development spend delivered. So, we have got to be a bit more hard-edged, we’ve got to be in proper partnership, we’ve got to lead on changing global finance, particularly in wake of climate, and we’ve got to use our huge leverage in the Commonwealth, particularly. That’s both important for the continent of Africa, but also, in the Pacific, actually, small island states, lots of vulnerability, in partnership with countries, like, Australia, very close allies. There’s a lot that we can do together if we get the furniture right, both in Whitehall, and we’re serious about these new alliances and partnerships that we’ve got to strike.
Rachel Reeves MP
I’ll take Brunella Rosa’s question, which is really interesting, and I’m just, sort of, thinking back to when I started in my career, as an Economist at the Bank of England, and my first job was the – as the Japan Analyst in the monetary analysis part of the bank. But I also started the work that we did at the bank of forecasting the Chinese economy, and, also, looking at the impact of some of the ASEAN economies on the UK. Particularly, the impact on imported low inflation that we benefited from in that era that Mervyn King described as a “non-inflationary continuous expansion,” and that world of 25 years ago looks like a long time ago.
But I don’t think it is all negative, and I’ll just give you a, sort of, a couple of reasons why I say that. First of all, technology can have huge improvements on productivity, and that can be deflationary. Second, low carbon energy, solar and wind power, is the cheapest form of energy, and will get cheaper still. So, I don’t think all of the pressures are inflationary in the years to come. But I would also point to what Janet Yellen is doing in the US, and what I would like to do if I have the opportunity to be Chancellor in the UK, of embracing a modern supply side approach to economics. So, boosting the supply side capacity of the economy, for example, through the industrial strategy, through the National Wealth Fund, to invest alongside businesses in some of these low carbon industries of the future. And, also, practical things like improving childcare so that we can increase the number of people who are available in the labour market.
So, I think there are, sort of, exogenous things with the energy transition and productivity gains from technology that can help drive down inflation, but also, I think an embracing of that modern supply side approach, to boost the supply side capacity of the economy, can also help to contain inflation in the years to come.
Bronwen Maddox
Thank you both very much. Let me come back over here. Let me take these two together.
George Eaton
George Eaton, New Statesman. It’s a question for Rachel, what’s your response to those who say “securonomics is Bidenomics but without the money”?
Bronwen Maddox
Thank you, and next to you.
Matthew Holehouse
Thanks, Matthew Holehouse from The Economist. Actually, following up to George’s question, I want to understand the electoral politics of this a bit. I mean, it’s not apparent that Bidenomics is doing Joe Biden a huge amount of good at the ballot box, if anything – or sorry, at least in the campaigns, in the polls, potentially, the opposite. So, what lessons are you taking from the Biden campaign and the challenges that its facing, in terms of how you make securonomics something that is electorally rewarding for you and wins you, you know, the re-election and the second term that you hope to achieve?
Rachel Reeves MP
I feel a bit of complacency about the next election there, Matthew, which, if Keir Starmer is listening, there is absolutely no complacency from David and myself, and we will fight for every vote in that general election. I spent some time, as you know, with your Editor, George, in the US last year, and trying to learn from what they’ve done there and, you know, gave a answer to Rosa’s question about that modern supply side approach. But we are not the US, we do not have the spending firepower, we do not have their reserve currency, and so, what we can do here in the UK, is going to be different. It’s going to be at a different scale in terms of the financial might that we can put behind it, but actually, that’s not necessarily a bad thing, because we need in the UK, and arguably, in other countries, as well, to address some of the structural issues which is holding back investment.
And if you say to companies who are looking perhaps at doing floating offshore wind, or carbon capture, or building a new ga – gigafactory, or in other industries, a datacentre for our tech and AI sectors, they’re not saying to us, you know, “Give us a huge subsidy and we will do this.” They say, “Reform your planning system and we will do this.” So, at the moment, it takes 18 months to build an offshore wind farm, but it takes 13 years to go through the planning system first, and then to get a grid connection after you’ve built the wind farm. If we can reform the planning system in the way that myself and Ed Miliband and Angela Rayner and Keir Starmer have put forward, I think we can leverage in that private sector investment. It’s also why we’ve set up the National Wealth Fund Taskforce, being chaired by Mark Carney, but also with Amanda Blanc from Aviva, Venkat from Barclays, António, the new CEO at L&G, to look at how we can structure that National Wealth Fund to leverage in at least three times as much private investment, compared with public investment.
So, the lesson I would take from what Joe Biden and Janet Yellen are doing in the United States is that we have to do it in a way that is appropriate for our country, recognising some of the constraints here, but also what the real blockages are. And that’s why I’ve worked so closely with business, as well, these last three years, to really understand what is holding back investment and what could be done to remove some of those barriers, so that that wall of capital, that we know exists, more of that is coming to the UK. And I think that’s a positive offer for this election, but also, I think something that we will be able to deliver at some pace, so that if we do have the opportunity to form to next government, then we will also, hopefully, have something at the following election to show the difference that we’ve made in government.
Bronwen Maddox
Thanks very much, indeed. Are there any – right, no, there are still lots more. Let me go right to the back. Yes, on the aisle and then here, second row, in the aisle, you have a question? Yes.
Jon Wilks
Thank you. Jon Wilks from the Oxford Centre for Islamic Studies, but recently retired from FCDO as Ambassador to Qatar. Thank you both for appearing together on stage and talking so much about the synergies between economic policy and foreign policy, I think this country needs that, and you’ve symbolised it, and you’ve talked about the synergy between foreign policy delivering for the economy, and our power is going to be based on our economy. So, that is really encouraging, and the long-term thinking, both on foreign policy and economy. Could I just ask about some long-term thinking, it’s really to David, about the Middle East? I don’t want to relitigate the arguments of the past six months on Israel-Gaza, but it…
Bronwen Maddox
Everyone online…
Jon Wilks
…struck…
Bronwen Maddox
…does, but…
Jon Wilks
It struck me that we absolutely understand where a very pro-Israeli policy came from for the government, and the opposition and the statements, and we also see the discourse moving a little bit, but the effect of it was to green light so much of what is going on that we find difficult to accept. I wonder as you think forward, you know, where are the red lights and the amber lights now? And I’m talking about Israel, Palestine, both sides of this, and how do we position the UK to engage with the frames of reference of both sides, so we can actually be peacemakers or conflict resolvers, at the end of the day? Thank you.
Bronwen Maddox
Thank you very much, and I’m going to add to that one online, from James Crisp, which is simply, “Would a Labour Government recognise Palestine as a state?” Let me come here, second row.
Simli Gustavas
Simli Gustavas, member of Chatham House. David, a question directed to you as a Lawyer yourself, I’m a Lawyer too. Will you implement the International Criminal Court’s call for the arrest of the Israeli Ministers, to start with Netanyahu, as war criminal, and – what do you say to that?
Bronwen Maddox
It was inevitable that we would come to the Middle East at some point. I can see many people nodding.
David Lammy MP
We’ll give Rachel a breather. Look, I think the starting point in terms of the conflict that we’ve got to hold up in lights is the determination of two states.
Rachel Reeves MP
Yeah.
David Lammy MP
And I recognise, and I have been quite prepared to disagree with a position put by some Politicians in Israel, that there can be a one-state solution, or actually, I think what is preferred is a no-state solution. That is not a solution to the conflict. I am concerned about what the plan is for Gaza when this awful war comes to an end, and I don’t believe that occupation or continued occupation can be the way forward. All of us who want to see peace in the region recognise that a negotiated deal between Saudi Arabia, Israel and the United States is of huge importance, but none of us can see how that’s achieved, without a ceasefire and without a proper roadmap to a two-state solution.
We need a new contact group, and it has to involve Arab partners in the region, and I do think the UK can play an important role in that. And of course, we’re not in government, but we are doing the thinking about how we play a role in that two-state solution. And let me just say, I did a statement – a response to a statement in the House of Commons on the arrest warrants day before yesterday, and I’d encourage you – it’s on my Twitter feed, I’d encourage you to look at that. I think it is important to say that the starting point is there has to be a ceasefire. That is the starting point, and there has to be proper aid getting into Gaza to support people facing now famine. That is the starting point.
The – I believe in the International Criminal Court, the Labour Party believes in the International Criminal Court, and we believe that because that movement, that international humanitarian law, came out of a context of war in our continent, Soldiers that died in this country fighting for that freedom, and that rules-based order that we have to defend. But these are appropriately decisions for the ICC, not for Politicians. A process has begun – actually, the arrest warrants have not been issued. He’s indicated a direction of travel, there will be a hearing, in the coming months. Let that process take place.
Politicians, what Politicians can do is focus on the ceasefire, is focus on the future, and absolutely do all we can to stop the famine, the loss of life that we’re seeing going on in Gaza. And let me just also emphasise, I met this week with hostage families still waiting for their loved ones, no news, no understanding. These were young people who – hostage families who came to see me, and it’s important that those hostages are released.
Bronwen Maddox
Thanks very much. Let me just take a final…
Member
Sorry, you didn’t respond to the recognition of the state of Palestine.
Bronwen Maddox
Palestine, thank you, James.
David Lammy MP
Forgive me. We made a decision at the National Policy Forum of the Labour Party, it’s now well over 18 months ago, that we wanted to work with partners on recognition. This is moving ground, and I’ve seen the announcement today from partner countries in Europe, particularly. I’m not sure what the situation will be on the ground. If we are fortunate enough to win the next general election, I think it’s important, or preferable, that recognition is part of a process to two states, and that’s why I place my emphasis on a two-state solution.
Bronwen Maddox
Thank you. We go here in the front.
Creon Butler
Thanks very much. I’m Creon Butler, I run the Global Economy and Finance Programme in Chatham House. Just wanted to come back to securonomics a little bit, which all the presentations at the start were about moving away from China, relying less on China. And yet, it’s not just that China produces cheaper goods, they have better technologies in a range of areas, which we may need, the US may need. We also know that in terms of global health shocks, climate change, we can’t solve the problem without relying on them. And when you have the, sort of, small yard, high fence, I mean, their response is, well, not really impressed, frankly. So, what is the strategy for working with China, engaging with China, as part of the broader approach that you’ve defined? Thank you.
Bronwen Maddox
Thank you, and just quickly, and we have only two minutes, but on the aisle, there. So, these are micro-answers…
Sir Simon Fraser GCMG
Thank you very much.
Bronwen Maddox
…I mean micro-questions.
Sir Simon Fraser GCMG
Simon Fraser, Senior Adviser at Chatham House, but also former Permanent Secretary in the Foreign Office. Can I – my question is this, it’s about securonomics in the government. It’s a very interesting presentation you’ve made, but I think, in my experience, there are oftentimes when there are tensions within government between the interests of those pursuing economy policy concerns and those responsible for security policy concerns, and those things can come into tension. So, have you thought through how you would make the trade-offs in government, at the centre of government and between departments, to be able to pursue this agenda effectively?
Bronwen Maddox
You have one minute. Shall we give it to Rachel, given you’ve…
Rachel Reeves MP
I think – yeah.
David Lammy MP
Sure.
Bronwen Maddox
…had the Middle East?
David Lammy MP
I’ll – yeah, okay.
Rachel Reeves MP
Okay, so, on China, our approach is compete, challenge and collaborate, and it would be a different approach in different areas. We want to export more financial services, for example, to China, and we can benefit from lower cost goods, to the point that Rosa Roubini was making earlier, as well, it can contribute to lower inflation. And we have got a huge amount of trade with China, and you look at countries like the US, where trade is growing with China and yet, they are challenging in areas that are important for their, and our, national security.
Simon, thanks very much for being here this morning. I think the fact that you see David and myself working in partnership, in a way perhaps that you haven’t seen from this government, should give you some signs of encouragement. And to go back what we said at the beginning, we’re not naïve, we recognise that sometimes things do come into conflict, but we want to work together. Our number one mission of an incoming Labour Government is to grow the economy. I think that David and the Foreign Office have got a really important role to play in delivering that growth and prosperity, but I also recognise in the age of insecurity that I’ve described, being able to respond to shocks and being able to anticipate those, which is a crucial role of the Foreign Office and the fantastic Diplomats there, is important for our economic stability, as well.
So, I see this relationship, if we form the next government, between David and me, as being really crucial to address both those security challenges that you speak of, but also, to have a serious plan, a comprehensive plan, to grow our economy, and to have the Foreign Office playing its role in delivering that objective.
David Lammy MP
Can I just say briefly on the China point? I am hugely concerned and surprised, well, maybe I’m not surprised, because as I’ve said, the government have had seven strategies on China, but at the moment they’re not engaging, at all. I mean, if Janet Yellen is going to China, if Tony Blinken is going to China, if our partners in France and Germany across their systems are engaged with China, it is perverse that – James Cleverly went for a few hours and then came back. And all the indications are for, you know, because he’s hugely compromised, David Cameron intends not to set foot in China, and that will not do for the British public.
So, I do believe in engagement. I do want to emphasise that there’s a lot of trade between our countries that has nothing to do with the security concerns and issues that have come up in this discussion, but I also want to be, you know, harder edged. We are seeing a closer alliance between China and Russia, we are seeing semiconductors, we are seeing jet fighter parts, radar parts, turning up in Russia, hugely supported by China. And I would be being remiss, on behalf of our commitment to Ukraine, if I didn’t put quite squarely those huge concerns that we’re very, very – we’re very – you know, that we monitor very closely, and to say that one of the things that does happen in our system, as Privy Councillors, we do get those security briefings and we are watching, and therefore, we’re not naïve about the nature of this relationship.
Bronwen Maddox
With that, we are going to have to close. Thank you very much online for excellent questions, which we couldn’t quite weave in, but Emily Jones, Carl Wright, Alejandro Navarro, Trevor Clark, thank you very much, indeed, for those. Thank you all for coming, not just Simon Fraser, and can you join me in thanking [applause] David Lammy and Rachel Reeves.
