Julia Bach – 25 Mar, 2021 UK and Ireland Perspective

Without a doubt, the last several years have been a turbulent and uncertain time. The Brexit referendum in 2016 precipitated tense, high-stakes negotiations between the UK and the EU that frequently threatened economic and political instability. President Trump sparked multiple crises over trade, security and climate policy. And, the COVID-19 pandemic has cost millions of lives all over the world and disrupted the global economy, thrusting the UK into its steepest economic decline in 300 years.

Pending any other unforeseen political or economic earthquakes, we may be entering a time of comparative certainty and stability. The UK has agreed free trade agreements with the EU and a raft of other trade partners and has ongoing negotiations with the United States, amongst others. Its most important ally, the US, has a new president who is charting a more predictable – and more responsible – course through global politics. The UK has also excelled in its vaccine rollout, providing a clearer path to reopening the economy; the UK ranks sixth globally for the number of vaccinations per 100 people with 28 million receiving the first dose so far.

It therefore makes sense for the government to bookend this time period and start a new chapter with the release of the Integrated Review. The Integrated Review outlines the UK’s vision for its role in the world, describing the strategic defence and foreign policy goals that will define UK policy over the next decade.

It shows the UK striving for a leading position within science and technology, aiming for a more open and collaborative international sphere as it seeks to establish its global presence post-EU; and, in a reversal of post-Cold War policy, boosting its national security and defence capability as security threats broaden and become less tangible and overt.

These goals are in tandem with the government’s Net Zero ambitions set out in the Ten Point Plan and its efforts to ramp up innovation through R&D support as set out in the R&D Roadmap (£22bn of public investment by 2024-25!). Delivering on these many goals will be key to attracting inward investment, without which the UK will almost certainly fall short of its growth targets. After a decade of stagnant productivity – particularly in comparison to its economic competitors – the UK desperately needs the productivity boost that both public investment and inward investors can provide.

To achieve all this, the UK is turning to the Indo-Pacific region, with the Middle East increasingly falling by the wayside and reflecting President Biden’s own strategy. The region is home to about half the world’s population, 40% of global GDP, and a significant share of the world’s investments in digital technology and sustainability innovation. In September, President Xi Jinping announced China would work towards net zero carbon emissions by 2060. The UK wants to tap into this market not just by finalising relevant bilateral trade agreements but by applying to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). However, according to the Institute for Government, this political and economic tilt is unlikely to make up for the economic losses from leaving the EU, a bloc that makes up 43% of UK exports and 52% of all UK imports.

This pivot to the East also brings up some uncomfortable tensions regarding the balance the UK needs to strike between upholding its core liberal values – pledging to be ‘a force for good in the world’ – and maintaining good business relations with China. The just-announced sanctions from the US, Canada, EU and UK on high-level officials in the Xinjiang region have already been answered with retaliatory travel bans and asset freezes. As China continues to grow and increasingly flexes its geopolitical power, these incidents will only continue and will be the source of significant concern for businesses looking to trade and invest.

Other unanswered questions still linger, notably regarding foreign aid and how lack thereof will impact the UK’s global presence and soft power. The Integrated Review talks up the value of UK soft power and the newly formed FCDO, and yet the November spending review saw Overseas Development Aid cut drastically, approximately 35%. Of all the many announcements made by the government, the review mentions only that the UK will return to its goal of spending 0.7% of gross national income on development ‘when the fiscal situation allows’ – a rather noncommittal commitment.

Nonetheless, with the end of Brexit uncertainty, the UK is well placed to make significant progress on its many goals for the next ten years. The government’s ambitious commitments – including luring in investment through the Super Deduction tax rebate on investment spending announced at the recent Budget – combined with existing economic strengths across its focus areas (i.e. the space sector; green energy solutions including offshore and hydrogen; technology including cyber, AI, and fintech; and the life sciences) will certainly continue to attract investment and spur international trade to benefit the UK and its people. The UK also has opportunities soon, notably at COP26 and its presidency of the G7, to demonstrate its aspiring global leadership and build on the potential within its most promising sectors. Whether it has the wherewithal to capitalise on them remains to be seen.

 

Sources:

Institute for Government, ‘Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),’ Feb 2021.

House of Commons Library, ‘Statistics on UK-EU Trade,’ Nov 2020.

RUSI, ‘UK Integrated Review 2021,’ Mar 2021.

Financial Times, ‘China retaliates after sanctions move by US, EU and UK,’ Mar 2021.