A Manifesto for Lord Mandelson

Written By Miles Saltiel

Crisis

A transatlantic blow-up has shattered our series on trade relations with the new American administration. Or has it? The final paragraphs of our conclusion remind us of the context going back more than a century, together with precedents of similar turmoil passing off without lasting damage. 

Even so, right now everyone is spooked, as the US has unapologetically demonstrated the asymmetry of security relations highlighted in our post on defence. In Brussels on 13 February, US Defense Secretary Hegseth announced that Europe's security is no longer an American priority. In Munich on 15 February, Vice President Vance warned that the EU foments its greatest threat from within. In Washington on 27 February, Trump and Vance sent President Zelensky packing, after mauling him on camera. In London that weekend, the Europeans patched up a proposal. One of its four pillars, continuing supply to Ukraine, was undercut within hours by Trump's pause in military deliveries and a day later by his suspension of intelligence-sharing. 

In seven weeks, Trump and his attack dogs have done more to grab the attention of the Europeans than his predecessors managed in decades. Maybe these episodes of "move fast and break things" are shock-therapy advancing subtle strategy, including a just peace in Ukraine. Maybe not. Regardless, the nations of the Old World are hastening to rectify what now looks like a fools' paradise extending over thirty years: immediately, to ramp up defence spend and shoehorn their way into a Ukrainian ceasefire; ultimately, to develop security independent of a US upon whom they now hesitate to rely. Alarmists are speculating that America slugs its military supplies with "kill switches" and is on the way to becoming a hostile power. This is dopey: the first is unnecessary, with the Pentagon having many other ways of pulling the plug; the second is panic attaching to the belated discovery of the continent's self-inflicted defencelessness. Let us spell this out.

  • We (and our neighbours) have meagre local defence production. This would take one to five years to rectify, at the cost of slashing budgets elsewhere and pausing net zero. Buying off the shelf from the US would upgrade capacity promptly and satisfy Trump's mercantilism but do nothing for self-reliance. Procuring systems needing least post-delivery Pentagon support, eg, airlift (see below), would square the circle. 

  • We have no out-of-area air cover, scant airlift, and scant over-the-horizon surveillance or comms. Strategic airlift would take five to ten years to rectify as Airbus has no high-wing rear-loading airframe sufficiently large for such purposes. Airborne surveillance could use existing airframes, so three to five years. So too air cover, satellite surveillance and comms. 

  • We have no independent joint command or procurement capacity. In principle, this is rectifiable immediately, given political will, at the cost of complicating NATO structures and possibly further undermining transatlantic relations.

  • Defending ourselves courts nuclear war with Russia. If the US takes its battlefield nukes off the table, European scope to deter or retaliate is restricted. British and French strategic weapons were deployed as a backstop (more accurately a tripwire) for US commitment. It would take three to five years to build out battlefield nuclear weapons and the UK would have to steel itself to unwinding its nuclear technology from the US.

Predicament

Should Trump be seen as a temporary aberration or an epochal Zeitenwende? To put it another way, can the UK wait him out? If erring on the side of caution, the argument would run that confidence is so undermined that a subsequent US administration will struggle to repair it. The reductio ad absurdum is that if eighty years of goodwill can be depleted so abruptly, why trust anyone? Cool heads call for the UK to tread nimbly to maintain credit with both the US and Europe; possibly also to revisit strategic balances, long believed to be settled, specifically

  • continued security commitments to our neighbours, our course since the Entente Cordiale of 1904; versus creating a citadel as Israel, Singapore or Switzerland, freeing us from military entanglements; and

  • continued adherence to the "international rule of law", our course since WW2, as best-aligned with the interests of a prosperous medium-sized country with legacy global relationships; versus protecting our interests with hard power and piecemeal bilateral treaties, freeing us from international intrusions.

Let us wish luck to Starmer, straddling a careless America and a toothless Europe. In the domestic arena, these upheavals also oblige him to revisit other familiar balances, never capable of final settlement: aspirants vs incumbents, autarky vs efficiency, deregulation vs social protection, energy economy vs security vs (this more on the faddish side) zero emissions, fiscal benevolence vs sound money, and growth vs redistribution.

The headline should be that growth is now paramount, not so much for yesterday's agenda - balancing the post '08, post-Covid books; but for today's - defending the realm. It is not clear that the penny has dropped. Britain's marginally increased defence spend comes at the cheap cost of slashing aid; serious commitment calls for tougher choices. The bond markets had already pushed Reeves towards growth. She has offered warm words about airport expansion, rail links and datacentres, but these are not even starts, let alone completions. Turning from words to deeds, anti-growth bills on education, employment and renting are still going through Parliament; the government remains committed to a Climate Change Act reflecting attitudes now with Nineveh and Tyre. The welfare cuts expected in Reeves' Spring statement will test Labour MPs' tolerance of further reversals.

Lord Mandelson’s appointment

Lord Mandelson is going to Washington as our Ambassador. What is he up to? We cannot know, but here are some ideas about how he might spend his day.

He is going to be negotiating inter alia with Trump’s new appointee as Secretary of Commerce, Howard Lutnick. He and his colleagues should be seeking to turn the UK’s notorious weakness, our inability to choose between America and Europe, into a strength, by getting each to show us some leg.

This means that the UK should enter into parallel conversations with the EU to see what they’ll put on the table to stop us throwing in with the US. There is no harm in letting the Americans know what we’re doing: Trump respects toughness in a negotiating partner.

To anticipate our conclusion, at this point in our history the Americans seem to have more to offer than the EU, as (1) the US economy is motoring; (2) the EU is at a low ebb; and (3) we have largely exhausted our possibilities with Europe over the near-fifty years of our engagement from 1973 to 2020.

On the other hand, for all that we share a language, history and many aspects of law, the economic, social and political culture of the US is not ours. In addition, America is currently led by people to whom it is sometimes a struggle to warm, with some making a shibboleth of not liking our government at all. Mandy will have his work cut out.

We kick off with the following notes on what the UK’s red lines - what we don’t want. 

Red lines

America 

The following is not so much a red line as a note of realism. A trade deal with the US is a big ask. It is not just politics or Obama’s “back of the queue”. The US is a continental country embracing innumerable commercial interests, which trade officials struggle to marshal into a negotiating position - the EU has similar problems, for similar reasons. The approach we take in the following posts is to focus on specific sectors, where each side has something big to ask or to offer. This means that we aim off such incendiaries as chlorine-washed chicken, hormone-fed beef, or “privatising the NHS”, though we do address agriculture and healthcare.

Europe 

Now for some of those red lines. Starmer has ruled out rejoining the Customs Union or the Single Market for the lifetime of the current parliament. He has no choice but to stick to this, as Farage is breathing down his neck 

Meanwhile, it has become apparent to those in the know that benefits of the Customs Union and the Single Market were something of a chimera - for the UK at least. International bodies and academics in the field collect econometric data on international trade. This shows that leaving the EU presented the UK with negligible trade downside, if not paving the way to redress drawbacks intrinsic to membership.

  • The Customs Union put British exporters of goods to the EU at a consistent disadvantage. This is because the post-WW2 decline in duties from c12% to under 4%puts emphasis on non-tariff measures (NTMs), where the EU is a notable offender. In 2019, the OECD’s figures showed that the EU had higher internal NTMs than the UK in 20 out of the 22 sectors measured. Such differentials have been present for as long as the figures have been compiled, telling us that other member states could sell goods to us more easily than we to them.

  • In August 2020 the EU’s own analysis of business services showed that internal and external barriers for competition are identical in 104 of 115 measures. This means that by this measure, the Single Market is close to unavailing all round.

Advocates of Britain’s membership of the EU are given to dwell on the sheer proximity and size of the European market, following the “gravity model” of trade, but the reality of the EU‘s rigged or deficient arrangements make this irrelevant. So it will have to be other stuff.

This piece will discuss: The UK’s objectives and offer, Defence, Commercial: tax and tariffs, plus piecemeal free trade and inward investment, Labour markets, Housing, Energy and Public services.

Ask and offer

Not quite in line with our introductory post last week, it is the UK who is showing some leg, at this point more facing more to the west. In the FT on 13 January, the PM wrote, “We don’t need to walk down a US or an EU path on AI regulation - we can go our own way, taking a distinctively British approach”, but four days later in the same paper, he added, “Our ambition is to have a deal of some sorts with the US, a trade deal. That’s where our focus is.” So it’s game on for Mandy - always assuming the President accepts his credentials.

What we want

From the US, it’s not so much raw cash: we are already the largest destination for American direct investment, at c$1tn out of a total of c$7tn. We would, however, be keen on beefing up technology transfer, not just in AI, identified as an official target, but in less headline areas of world-beating Yankee know-how, such as housing and medical treatment. These have ample potential for local upset, so let’s park them till our forthcoming posts on the subjects concerned. Our other big ask from the Americans is continued defence commitment, covered in our next post. 

In dealing with the EU, we are set to disappoint Donald Tusk by ignoring its customs union and single market, irrelevant to us for the reasons drawn out in our introductory post. We might go for improved access for selected industries, with legacy chemicals to the fore; plus co-operation on border-control and other defence cooperation, also to be discussed in our next post.

What we offer

We offer both sides

We offer the US

  • manufacturing and professional labour, capable of being led by effective combos of investment and management, with lower wages than the US but higher costs of doing business, due to our sclerotic energy, land and regulatory regime. The possibility of a US deal would give the government cover to revisit fresh controls in prospect, though six months may be too soon for a such a reversal.

  • increased freedom of movement, at least for students and young people: not the free-for-all of former arrangements with Europe, but akin to the deals already in place between selected pairs of Australia, Canada, New Zealand, the US and ourselves, with such schemes a target for American negotiators; and

  • greater defence spend, subject to Reeves’ leaky fiscal rules.

We offer the EU

  • deep capital markets: the idea would be keeping down the costs of Euro funding, including possibly repealing stamp duty, while mutually ratifying the reality that the EU has given up  trying to repatriate the business;

  • increased freedom of movement, which the EU much misses: full restoration of the former position is off the cards, but a properly policed youth scheme could be a runner; and

  • fishing rights, which mean a lot to France, and might encourage greater co-operation in the Channel.

Defence

Underlying strategic position

Our security relations with the US have been asymmetric for over eighty years, with nuanced dealings embracing 

  • intelligence, which the "five-eyes" Anglophone nations share; 

  • bases, where Cyprus, Diego Garcia and the UK itself are of great value to the US; 

  • nuclear, whose reliance on US technology means that we cannot be sure that our "independent deterrent" really is, particularly if serving one of its principal purposes, a tripwire for American escalation (France is in like position); and

  • conventional forces, now vestigial, with independent "out of area" expeditions now unrealistic for lack of airlift, carrier protection and surveillance. Problems with border control, that is the English Channel, are not so much military as legal and political, as discussed below. 

Since Suez, the US has struck a balance with its allies, whereby they shoulder enough of the burden to show willing, but not so much as to be capable of strategic independence. Trump seems to get only the first.

Since the fall of the Berlin Wall, we and our neighbours have fallen into a doughnut habit and let our gym membership lapse. The Americans kept in training with their forever wars, initially popular, but eventually discredited. Our own military was discredited by consistent failure in its spear-carrying responsibilities, eventually accumulating so much disrepute as to be obliged to accept cuts which have reduced our warmaking capacity to inanition.

British defence procurement is also complicated by the generally futile, but nonetheless costly and time-consuming, effort of our Ministry of Defence (MoD) to keep up enough indigenous technology to be strategically independent; and the position of the UK's largest manufacturer, BAE Systems, whose American subsidiaries enjoy the privilege, rare for foreign-owned companies, of US security clearances enabling them to take sensitive American contracts directly.

Dealings with the US

Increased military spending is common ground between the NATO allies and our major political parties. Three percent of GDP was the recent target; we now hear of five. A deal is waiting to be struck, heralded by recent UK briefings that even the smaller figure is an effort.

We have agreed to stay the Chagos deal till Trump's appointees vet it. They will be unmoved by a non-binding judgement from the International Court of Justice, which America has never recognised. Then again, the US State and Defense Departments are jammed with lawyers: it is for them to find a form of words which placates Starmer's pieties.

In an ideal world, defence procurement calls for a grand transatlantic bargain whereby each side cedes an iota of strategic independence to the other. Joint staff targets (ie, specifications) in AI, cryptography and electronic warfare promise most, but stubborn national bureaucracies will fail to agree. It's hard to see Trump or Hegseth getting involved in such intricacies. 

Failing this, a transactional approach: we quit the Tempest joint fighter programme, with cancellation fees or compensatory side-deals to our partners, the Italians and Japanese, in return for better access for BAE to the NGAD (USAF) and F/A-XX (US Navy) sixth-generation aircraft programs. 

Finally, it is in both our interests that we collaborate on out of area capacity. This means augmenting our two new carriers with deployable aircraft, plus naval screening, for which tomorrow's fix is drones, today's is lend/lease from the US Navy. As to aerial and satellite surveillance, airlift, guidance, etc, we need to decide whether we roll our own or forge stronger transatlantic links. Regardless, much of the technology is Stateside, eg, Bezos' Project Kuiper and Musk's Starlink (communications); and Lockheed Martin's C5M (airlift). More deals waiting to be struck.

Equivalent to Europe

Europe has a fragmented defence industry, scant political will, depleted budgets and generally little to offer apart from proximity, as much a liability as an asset. Given the geography, we cannot but co-operate, for choice through NATO, and possibly by sticking to the Tempest fighter programme. On the other hand, no-one wants a Europe so much able to defend itself that it gets ideas. As noted above, once America's leadership got this.

Control of the English Channel is stymied by the traffickers' weaponisation of the "law of the sea", which obliges mariners to rescue the survivors of sinkings. The UK would find it politically impossible to walk away from this. The solution is enhanced co-operation with the French, raiding small boat departures just before launch. This calls for collaboration and money on intelligence, surveillance and enforcement. We can throw in continued access to our waters for French fishermen. Something of this sort is needed, regardless of the more ethereal topics of this note.

Commercial

Dealings with the US

Tariffs 

Lord Mandelson has his agrément. Once he presents his credentials, his central objective will be to avoid new American tariffs. He will rely on US figures which show a surplus in their trade with us of $15bn, aiming off ours which show the reverse, a surplus in our favour of £67bn. His priority is then to ensure we are not caught in the crossfire of some other Trumpian manoeuvre; so too to avoid being singled out as a teacher’s pet, lest we upset our neighbours unnecessarily. 

Taxation 

Trump has announced withdrawal from the International Tax Treaty. This is in line with the bully-boy tactics of the IRS (the American tax authorities) forever. For example, the IRS succeeded in using 9-11 as a pretext to push other governments into comprehensive restrictions, nominally targeting terrorist money-launderers, but really going after old-fashioned tax-dodgers. A bilateral deal might be welcome to the US as giving them cover for this round of one-sidedness: our ask would be taxing Internet firms more effectively, maybe too much for an administration so close to the tech bros. What’s more, this would upset those which whom we’ve just signed up. 

Then again, we could tolerate local upset for the right sort of progress with the Americans on the topics of these posts. We set out a framework in our conclusion. 

Piecemeal inward investment 

Lord Mandelson should promptly explore collaboration in AI, which the Prime Minister has declared a national target. Trump’s $0.5tn commitment to Stargate in his inaugural week was thrown into uncertainty by the dramatic launch of DeepSeek the following week. Whether the Chinese programme is a genuine breakthrough, a dead end, or a deception, we should be realistic about what we can offer. We can’t throw in much cash and our datacentres are hampered by high energy prices. On the other hand, we do have skilled people and could focus on training more. 

For a couple of decades, apologists for the NHS have plugged its records as its hidden gem. AI makes this timely, but unfortunately our datasets are so chaotic that we will have to pull up our socks to stop the AI trainers making do with smaller but more tractable datasets from (eg) the Californian integrated provider, Kaiser Permanente; or records, skewed but amenable to adjustment, from the US Veterans Administration. Better to offer to square the circle with a collaboration to clean our datasets, using what else? AI!

Tariff free trade 

Outright free trade is ambitious: if he has time, Lord Mandelson may explore it in agriculture, on the basis of mutual observance of local standards (so no chlorine-washed chicken or hormone-treated beef, unless we OK them); or manufactured goods; with a view to investments in EV car or battery manufacture. In return, the US would want us to prevent “Trojan Horse” investments by third-country manufacturers targeting them. Overall, however, targeted sectors are likely to serve our mutual purposes better, as well as being more realistic: in future posts we will address housing, energy and public services.  

Equivalent to Europe

Reeves says she will consider Maros Sefkovic’s Pan-Euro-Mediterranean Convention, simplifying rules of origin for supply chains. If disputes are subject to the ECJ, it’s not on politically. Anything more is the same story, for the reasons set out in our introductory post. Nonetheless, while Brussels continues to cast such lures, it makes sense to remind the Americans that we have options; so too to see what concessions the EU might offer to sign us up. Its current woes should ease negotiations. 

The International Tax Treaty was to pre-empt turnover taxes on Big Tech companies booking their profits in low-tax jurisdictions. If the Treaty falls apart, turnover taxes are likely to come back. If the UK fails to agree a bilateral tax deal with the US, we will want to revisit them ourselves, possibly in concert with our neighbours. 

We should, however, exercise caution. So far, the UK has squandered Brexit’s promise of regulatory divergence. Even so. it remains essential that we steer clear of renewed entanglements in Europe’s self-harming policies. Brussels itself is having a wobble on this score, promising to simplify its green rules , but this purported conversion calls for a pinch of salt. For a couple of decades, the EU has aspired to be a “regulatory superpower”, making it unlikely to have changed its spots. 

Otherwise, we exhausted these avenues while we were in the EU, so it is hard to see what else to do.

Labour Markets

Underlying position

The very dilemma that confounds so much of British policy, are we more American or European? makes the country irresistible to the prosperous world’s footloose youngsters. We offer a Europe-lite to North Americans - the art, architecture and traditions without the strange languages or baked-in corruption and red-tape; and a US-lite to the rest of the world - the freedom and popular culture, without the dangers of gunplay or baked-in racial antagonism. 

Couple this with brand-name universities, free-ish labour markets and a languid work-ethic and it’s easy to see why the country is such a draw, not just for prosperous youngsters but apparently for the whole world. It is beyond the scope of these posts to address the disaster of the country’s immigration policy, but our underlying attractions give our negotiators, including Lord Mandelson, some top Trumps (oops) to play. 

Dealings with the US

The Office for National Statistics estimates that there are 716,000 Brits living in the States, with 55,000 registered as arriving in 2023, compared to 203,000 Americans counted in the 2021 census as living here. All such statistics are approximate and out of date, as government bodies have become reluctant to collect and publish data on the subject.

The current climate makes it impolitic to explore comprehensive loosening of mutual immigration rules. Even so, Lord Mandelson will discover that the Americans will welcome enhanced mutual university exchanges, which pose few problems for us. So too young persons’ work programmes, along the lines of those we currently have with Australia, Canada, New Zealand and South Korea, calling for the US to modify its visa regime. 

We would also welcome easier immigration rules for retirees, for whom Europe is becoming less welcoming. Both sides also have an interest in mutual recognition of professional qualifications, bearing in mind the complication that, in America, some of these are conducted at a state level (insurance), or on a hybrid basis (law). 

Equivalent to Europe

There are an estimated 1.2m Brits living in the EU, of whom 71,000 are students and around 210,000 are retirees. This compares to a census count of 3.6m EU expats living here, though this could be on the low side, indeed the reservations set out above apply equally to all this data. And once again the current climate makes it impolitic to contemplate a comprehensive loosening of mutual immigration rules. 

Here too, however, there is a deal to be done on youth mobility. Europeans pine for British participation in the Erasmus programme of scholarly exchanges, which was much taken up by their students coming here. A new such scheme would be little skin off our nose, provided qualifications for any transition to permanent residence reflect our economic objectives and arrangements for repatriation are robust. Perhaps such a scheme can be bargained for lightening rules on touring artists: this would benefit our popular musicians, who have more currency in Europe than the reverse. The Europeans are in little mood to revisit mutual recognition of professional qualifications, as they were struggling with this before Brexit.

As noted above, Europe is becoming less welcoming to British retirees, with Spain, for example, mooting a scheme for 100% surcharges on property bought by persons from outside the EU. This is not worth trying to reverse, as even if such arrangements were enacted, future British retirees have options, for example in Florida or Australia.

Negotiating objectives

In general, these posts have encouraged Lord Mandelson to work with his colleagues in leveraging negotiations with the Americans for concessions from the Europeans and vice versa. In this instance, the UK has something both sides want which costs us little. This makes his objective to ensure that our open-handedness in these matters finds reciprocity from our negotiating partners on the other topics in these posts. We set out a framework in our concluding post.

Housing

Underlying position

If you find it weird that a series on US trade touches on housing, please soldier on for a few paragraphs. To kick off, everyone agrees that Britain needs more houses. Then again, not everyone gets how much we are confounded by a toxic brew of restrictive planning rules; obsolete building (and fire) codes; Dickensian trade skills; housebuilders whose core business is so problematic that they must hoard land or lose out; and generations of architects stymied from pleasing the public, instead embracing fads: yesterday brutalism, today vernacular revival.

At long last, the authorities are revisiting planning, following our prolonged campaigns, including “Cooped up”, “Rooms for debate”, “Homes for all” and “Build, baby, build”, this last repeated by Starmer himself. We are delighted to see a start on land-use reform, would welcome more, and now park the topic for the balance of this note. 

What follows goes to supply-side problems, going well beyond apprentices spurned or squandered, leaving us reliant on plumbers from Poland. Let’s start with some analogies. When Marriott Hotels went to Warsaw, they rejected anyone previously in Polish hospitality. The American bar chain, TGIF, acted similarly when first arriving in Britain. When Heathrow Express launched their service, they excluded anyone formerly on British railways. Or take British mass-production of cars: a poisoned legacy prevents operation with all three of domestic capital, labour and management.

In short, industrial cultures can become irreparable. British construction reached that point in the seventies: thereafter, it became impossible to succeed with the Full Monty of local architects, contractors, developers and planners. Those with ambition learned to

  • do without all four, as at Canary Wharf, where the local authority was replaced with a development body, who then worked with Canadian developers, American architects and international contractors; or 

  • work with international developers, as with the Australian proprietors of Westgate shopping centres; or 

  • dispense with local architects, as in almost all new developments in the City of London; or 

  • bring in overseas contractors, as with Hochtief at the Bishops Bridge Road Bridge.

None of this is housing, which remains hamstrung by its complex dysfunction, leading to a modern housing-stock unloved by its occupiers and despised by tastemakers; to new-builds now the smallest in the OECD, on estates ever more densely packed; and to social housing and new towns all too often reduced to latter-day slums. Starmer’s “next generation of new towns” recognises some of the symptoms of our failure, eg, dismal design and sclerotic process. Unfortunately, his plans are almost bound to disappoint as sidestepping the deep-seated supply-side deficiencies.

Dealings with the US

So to cut the Gordian knot. If Lord Mandelson visits the top three American housebuilders, he will find that they are so little cowed by regulators that they offer attractive master-planned communities, extensive customisation, affordable prices and the latest home technology, based on 

  • cheaper land, largely reflecting the lack of regulatory pressure on prices (as noted above, you can find our land-use recommendations elsewhere);

  • cheaper construction costs, largely due to techniques whereby factory-build dispenses with erratic “wet trades”; and

  • building codes which support these techniques. 

Lord Mandelson should invite US trade negotiators to work with us with a view to reforming our regulatory regime and opening the door to American technology and supply chains. In 2024, the completions of the US top three housebuilders were six times those of the UK top three, so the Americans are big enough to make a difference. Nonetheless, Lord Mandelson will need all his fabled skills, as such departures will provoke fierce blowback from local incumbents. There are, however, few greater services he could do his country.

Equivalent to Europe

Before Brexit, the largest European general contractors entered British markets. None has introduced technological innovation in housebuilding. Instead, they went with the flow, compromising themselves accordingly and ruling themselves out as part of the solution. Specialised German and Scandinavian housebuilders have system-build skills, but they are too small to invest on the scale needed. So, nothing doing here.

Energy

Fundamental situation

British hydrocarbons should be a national success story. Reserves were last officially estimated in 2020. Then they were between twelve and twenty-five years at current rates of consumption (ten to twenty billion of barrels of oil equivalent (Bboe), with consumption at 0.8 Bboe in 2023, the last year for which we have figures). This is an underestimate: reserve calculations include assumptions about prices, depressed by Covid in 2020 and now 90% higher. Today, correspondingly more reserves would be economic.

A second success story should be the “small modular reactors” (SMRs), where Rolls Royce leads American and European competitors. SMRs are to replace decommissioned nuclear plants supplying “base load”, come wind or shine. A large number of small generators is more resilient than a few large plants. SMRs also offer rapid build and a small footprint, making them an easier planning battle. 

In the event, the country is struggling, with policy whipsawed between three objectives: 

  • Decarbonising. Central, sustained by the Climate Change Act; a political climate embracing the manifesto on which the government was elected and the leanings of Ed Miliband, the energy secretary, all underpinned by Labour party and popular sentiment.

  • Security. Disorderly, with obsolescent nuclear capacity, retreat from indigenous hydrocarbons, reluctance to develop new fields leading to net imports representing just 40% of our consumption, further imports of biomass and investment focussed on renewables, inherently intermittent.

  • Economy. De facto abandoned, with subsidies for inefficient producers, leading to wholesale electrical prices four times the US, around 2.5x Korea or Japan, and around 1.5x France and Germany. We are also in for new distribution costs from renewable farms.

The balance of this post calls for new thinking. We are encouraged by Rachel Reeves’ remarks at Davos that “growth trumps net zero”. She was talking about the expansion of Heathrow, so it is early days to see this as a full change of course. This makes what follows something of a thought-experiment, a Plan B conditional on the manifest failure of current policy. Tests for such a failure include blackouts, avoided so far this winter; or shifts in European policy - see below.

Dealings with the US

Lord Mandelson should respond to openings from the US Energy Secretary, Chris Wright, however graceless. On 17 January, Wright condemned plans to achieve net zero carbon emissions by 2050 as a "sinister goal"; and criticised British attempts to meet them. He was thinking of our reluctance to replace depleted fields, with production falling by 72% from the 2000 peak. He reminds us that development depends less upon geology - the UK sits atop abundant oil and gas-bearing strata - than politics. He may also want us to reverse our anti-fracking policy and renew exploitation rights for American companies. This makes economic sense, with current prices thirty percent ahead of the breakeven for American frackers; and a new gas discovery in Lincolnshire said to have reserves of 2.9 Bboe, equivalent to five years’ consumption.

However economically sensible, our mood-music isn’t yet ready for this. Lord Mandelson could, however, remind Mr Wright of Rolls Royce, which could enter into joint ventures with American manufacturers or licence its designs to them exclusively, rather than entering into such arrangements elsewhere.

Equivalent to Europe

European policy is moving away from its unqualified commitment to early decarbonisation. Draft rules promise an “an unprecedented simplification effort”, preparing for fuller correction of overreach in sustainability . In parallel, Friedrich Merz, the German chancellor-in-waiting, has spoken of reversing his country’s longstanding objection to nuclear power-plants and cementing steps to relieve it of its dependence on cheap Russian gas. This opens the way for the UK to bring European interests into a reinforced development of our own hydrocarbons - this would be money rather than technology or feedstock, both of which the Europeans lack. So too may we tender Rolls Royce’s technology, the appetite for which is attested by the call at Davos from Ebba Busch, the Swedish deputy prime minister, for Britain to join a pan-European venture for such purposes. 

Negotiating objectives

In energy, Britain’s cards are as good as in labour markets. The country has reserves, nuclear technology and (making a plus out of a minus) an economy already accustomed to high prices. On the other hand, it’s all in the play. It will be no stretch to remind both the US and Europe of the prize represented by Rolls Royce’s technology. Elsewhere, we would have to alter current policy to make the most of our strengths. We can then either offer markets to the US for gas and fracking, with a view to a more orderly transition to decarbonised power; or bring in such European interests as may present themselves. Either way, we should be getting concessions elsewhere. 

Public Services

Fundamental situation

After the chaos and disorder of the 1970s engulfed local authorities, Thatcher and Major encouraged them to replace “direct labour” provision with contractors. Some came from Europe, including RATP for buses and Veolia for sanitation. After Blair registered that state education was held back by the collusion of local education authorities with teachers’ unions, Blunkett instituted academies, privately run and directly funded by central government. These have brought standards up smartly, but their independence is now under attack by Phillipson’s Children’s Wellbeing and Schools Bill. This threatens a return to the conditions making for Britain’s pre-academy underperformance in state education.

Regardless, the balance of this note extends this approach to the largest item of public service, health, together with the fastest growing, social care. As with last week’s  post about energy, this is not current policy, so once again it should be taken as a Plan B. It is not clear how this might be triggered. British healthcare is largely publicly funded and provided, all under the aegis of the NHS. For decades, it has been viewed by the Treasury as a money-pit, with its post-Covid productivity failings now notorious. In consequence, the Head of NHS England has just been forced out and her organisation is to be shredded as duplicating activity elsewhere. One day, the NHS will cease to be able to turn lack of provision into an argument for more money. So far, we are not there. It retains its grip on the public imagination and marshals a formidable lobby. Fiscal constraints precipitated by increased miliary spending might reverse policy, if not sentiment. Social care presents different prospects, as although it is generally funded by central government and disbursed by local authorities, it is almost entirely provided privately. 

Negotiation objectives

The premise of these posts has been that the UK should engage in parallel negotiations with the US and Europe. They have argued that, where possible, eg, tariffs, taxation, piecemeal inward investment and free trade, Lord Mandelson and his colleagues should orchestrate a bidding war between the two; or bargain British strengths in one field, eg, labour markets and  energy for concessions elsewhere (as well as more narrow bargains, eg, fishing rights for border control). Then again, in some sectors only the US has something to offer, eg, defence and housing. In this instance, public services, we see the US and Europe as having distinct and non-conflicting attractions, if only we can open our eyes to them. Specifically, the US offers skills and technology in healthcare provision; Europe in funding. This simplifies the task of our negotiators - always assuming they can bring themselves t0 raise the topic!

Dealings with the US

Four out of the world’s top five hospitals are in the US; none of the top 25 is British. Cleveland and Mayo Clinics already operate here. This introduces scope for Lord Mandelson to explore best of class provision. Even so “privatising the NHS” is unsellable at present. If, however, the Treasury were to do its sums, it would discover that the realisable value of the NHS’s hospitals approaches £300bn (authors calculations), not a sum to be sneezed at. 

Parenthetically, the US also has world-class integrated systems, combining funding and provision of hospitals, specialist clinics and general practice. The largest private provider is Kaiser Permanente, whose labour productivity is 40% above that of the NHS. Unfortunately, Lord Mandelson will have to set this aside as impolitic. Neither public nor professional opinion in this country is in a mood to lift its gaze towards this, for as long as Brits remain possessed by the cautionary tale they take from American healthcare insurance.

As to social care, the US provides attractive counterexamples of retirement communities (so too Australia and New Zealand), but the principal issue is land use, where we’d like to think there may already be some movement - see our earlier post on housing. This should open the door to domestic investment.

Equivalent to Europe

If Lord Mandelson can bring himself to raise healthcare provision in the US, his colleagues in European capitals should be doing likewise for funding. As noted above, while we were in the EU, the precedent was established for public provision by European contractors. This continues successfully and could make exploring European models for healthcare funding an easier domestic sell than the US equivalent. Insurance companies would shell out for future healthcare funding according to its continuity. 

The net present value of the earnings stemming from public cash flows is some £250bn, if funded from taxes indefinitely; reducing to £100bn, if migrating gradually to private provision beginning after five years (authors calculations); These figures exclude social care, where similar calculations show values of £20bn, if publicly funded indefinitely; and £12bn, if migrating to private provision (authors calculations). More sums not to be sneezed at. 

Conclusion

Earlier posts put off certain topics to this conclusion: one was the arrangements with the US for which it would be worth upsetting Europe and vice versa. The stakes have become so much higher that we can no longer do so. Would restated defence commitments from the US be reassuring? would freedom from tariffs be worth that much? Not really. On the other side, is there is anything the EU can offer to make up for alienating Trump? It’s not just the old stories of the trauma of Brexit, sovereignty, the ECJ, and so on; it’s more that at present we are all so close to defenceless without US support. So tread nimbly with both. 

The other such topic was the concessions to be sought for our strong cards in labour markets and energy. The current turmoil suggests a couple of approaches to (eg) the soft power of youth mobility. It can be bargained for corresponding arrangements with friendly countries to build up future goodwill. The usual suspects would be the US, for whatever succeeds the current disruption; our European neighbours, en bloc or nation by nation; and the Anglosphere. Other configurations embrace such friendly countries as Japan and (more daringly) Taiwan, or (if hopping that way) fellow citadels. Alternatively, youth schemes can be bargained for objectives in unrelated fields, eg, military (basing, training, other joint endeavours); or economic (markets or supply). These options are not exclusive; it is too soon to choose between them. 

As to energy, recent events argue for shifting away from the transactions ventilated in our original post, to a narrower programme of self-sufficiency and resilience. This calls for the rapid local introduction of Rolls Royce’s SMRs and the development of indigenous hydrocarbons including fracking. 

Despite recent upheavals, everyday relations continue. Those with Europe should follow, inter alia, Mario Draghi’s confirmation in the Financial Times of 14 February of the central premise of our introductory post: that the EU’s single market is illusory. His figures from the IMF are even more damning than ours. Summarising our subsequent posts, the US seems to offer more across the board. This would always have been a hard sell domestically, all the more so in the current climate. So, to revisit our selective approach.

Defence 

The security upheavals since our post of 31 January are addressed above. This leaves reconfirmed US security guarantees as essential as ever, but now harder to credit. US joint-ventures involving fighters and B.Ae Systems now look rash, but Lord Mandelson should do what he can to flush the covers. Supporting our carrier fleet remains as urgent as ever. The dynamics of the Chagos deal have altered, making it arguable that we need more persuasive reasons to shell out £9bn for a US base. As to Europe, Starmer’s 3 February ask, “…military mobility and logistics…cooperation to prevent state threats…and sabotage…greater cooperation on missions and operations”, were transparently holding requests. They should be made more concrete with joint staffs and procurement, either permanent or programme-specific. More participants should be invited into the Tempest fighter programme. Nothing has changed on border control since our post argued for a deal with France in exchange for fishing rights.

Piecemeal commercial 

Since our post of 7 February, Trump spoke warmly about a trade deal after his meeting with Starmer on 26 February, but it is not clear how seriously to take this. Regardless, it is unlikely that the US will relax its position on taxes or extensive tariff-free trade. Lord Mandelson could do worse than pursuing the possibilities with AI and NHS datasets which we outlined. Starmer’s 3 February ask to the EU, “research and development…deepening industrial collaboration…” represented more holding requests and has been overtaken by events: wide-eyed partnership is not what it was five weeks ago. 

Labour markets 

As stated above, since our post of 14 February, it makes sense to develop the youth mobility schemes which have such international currency for strategic concessions. 

Housing 

No change since our post of 21 February. Starmer’s push on new towns is half-baked and ignores supply-side problems. The US has pertinent expertise, which Europe does not. Current policy for land-use deregulation is promising but needs to be beefed up.

Energy 

Also as stated above, the turmoil since our post of 28 February makes it a priority to aim off international transactions for local resilience, pushing to install Rolls Royce’s nuclear technology and to frack domestically.

Public services 

Here too, no change since our post last week. The US has expertise in healthcare technology, Europe in its financing, but there are no deals to be done without changes in public sentiment or policy, only likely if budgets get badly squeezed.

Other 

We have touched on regularising the position of London’s capital markets with the EU to reduce the cost of their funds, made more likely by the increased European appetite for defence borrowings. We have argued for steering clear of the EU regulatory web and for caution about promises of reform. Otherwise, however, we would treat the EU with courtesy, neither labouring the current wrong-footedness of its members, nor being provoked by talk of the UK as a demandeur.

Context

In 1919, US President Wilson presided over the peace treaties which ended WW1 but kindled the discontents leading to its successor. He also promoted the League of Nations which he was unable to sell back home. Conventional wisdom had it that a stronger international body and American participation would keep the peace after 1945. In the event, the UN failed to offer more than a fig-leaf or a wrist-slap for great power aggression. Other flagship international processes, for example the COP and ICC, have largely become the weaknesses of fond Europeans, ignored or gamed elsewhere. During the Cold War, the “international rule of law” was slighted by the US to suit its book in Latin America and the Middle East; thereafter, it only prevailed, eg, in Bosnia and Kuwait, with American enforcement. The success of these last led to the overreach of the “forever wars” of Iraq and Afghanistan, where Trump is the standard-bearer of popular blowback.

Finally, some precedents of post-WW2 crises which ended up counting for less than their immediate shock. In 1956, America joined with the Soviet Union to vote against its NATO allies, Britain and France, in the UN Security Council. The US also collaborated with Saudi Arabia to cut off oil to its allies. These steps were part of Eisenhower’s campaign to force Britain and France to abandon their invasion of Egypt. He succeeded, the Prime Ministers of both countries fell, and each then went its own way. Britain threw in whole-heartedly with the US. The French ostensibly took a more independent line. They stagily kicked NATO out of its Paris HQ; built up a nuclear force de frappe, nominally independent but reliant on American components; and withdrew French forces from NATO, nonetheless shortly entering them sotto voce into operational agreements with the alliance and eventually altogether returning. 

In 1971, the Nixon shoku suspended the dollar’s convertibility to gold, forced the revaluation of the yen and paved the way for decades of bullying Japan into “managed trade”. The Japanese were horrified but adjusted, boosting their exports from quantity to quality, prospering further and maintaining amicable relations throughout.

In 1973, Australia and New Zealand felt profoundly betrayed when the UK abandoned its longstanding trading arrangements with them on joining the (then) EEC. It took the Antipodeans more than a decade to adjust and they have never forgotten what they took as the mother-country’s self-serving callousness. Even so, these days relations are warm: the ties which bind have prevailed.

Miles Saltiel
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