After the Rose Garden

Introduction
first published 11 April 2025

These posts take their title from the White House’s Rose Garden, where on 28 February, President Trump and Vice President Vance turned on President Zelensky; and where on 2 April, President Trump imposed near universal tariffs. The takeaway can only be that Trump’s America is no longer reliable; perhaps no America is.

Trump is upending European security and global trade, also spooking public and private sector players with conduct at best seen as short-sighted, at worst as arbitrary and unpredictable. Europe and China are moving from gaming a nominally free-trade regime to unapologetic mercantilism. Smaller countries are confounded. Multinationals are war-gaming altered configurations to split ownership of US and non-US interests; create “supply chain islands” derisking reliance on Chinese supply and US reshoring; and generally, reduce exposure to US jurisdiction.

The UK is at risk of being marginalised between trading blocs. Can Starmer turn a minus to a plus, assuming liberal leadership by intermediating between them? This would involve:

• Mediating between Europe and (rich, trading, non-US) rest of the world (ROW), essentially the CPTPP (Pacific Partnership) plus Canada, which at present is feeling even more bereft than we are;

• Assembling a “coalition of the willing” (COW), embracing civil elements, that is the rule of law, reliability and trade partnerships; plus military elements, that is pushing our defence industry, bases, intelligence and nuclear capacity;

• Deepening and internationalising London’s capital markets;

• Reinforcing the UK’s status as a preferred jurisdiction for capital issues and commercial dispute-resolution; and

• Recasting our immigration regime to attract a US brain-drain and generally for exclusively economic objectives.

Britain isn't in this position just because of Trump. Save for a couple of years under Lawson, the country has had a grim fiscal position since WW1; the UK has yet to realise much benefit from Brexit; and more broadly the rise of China has changed the face of the global economic system. This means that Trump’s actions are better seen as a catalyst rather than the sole cause of change. They leave these options before us:

1. Do nothing: allow the dust to settle or wait Trump out.
   For. Assumes the moral high ground, avoids false positions and making bad worse. Trump may reverse himself or be frustrated: campaigning for the mid-terms starts in less than seventeen months, with falling stocks signalling a recession which will trim his sails.
   Against. Supine and irresponsible. Trump has been committed to tariffs for decades; those around him think they will bring down an overvalued dollar. If Treasury yields resume their fall, they will ease US fiscal pressures and improve the chances of MAGA sticking around for twelve years. Doing nothing cuts us off from joint action. 

If opting to do something, the alternatives are:

1. Liberal leadership: act as intermediary between Europe and (rich, trading, non-US) ROW.
   For. Assumes the moral high ground. Nowhere else is better qualified. Taking this course may make it easier for the EU to respond to the seriousness of the position by getting off the high horse of its acquis. It also affords the benefits of free-ish trade within the bloc and something of a leadership role.
   Against. It is not clear the world is still in a liberal mood; Britain’s links are not what once they were; the EU will be slow to revisit its intrinsic mercantilism to accommodate incomers; and it is not clear that parties so divergent could agree on external tariffs. Then again, the momentum for joint retaliatory action risks participation in an outright trade war.

2. Singapore on Thames.
   For. Assumes the moral high ground. Keeps the cost of imports down, flexible in the face of regulatory and technical uncertainty and offers a haven for capital flight and brain-drain.
   Against. We have 11x Singapore’s inhabitants; a populace fragmented by class, region and imperfectly assimilated immigration, with priorities distorted by a century of state overreach; plus a slew of legacy manufacturing, with high tech and services reliant on continental, transatlantic or global links. 

3. Align with an existing or emergent trading or security bloc, without seeking leadership or intermediary role
   specific options are explored below.
   For. The default option. It looks like the way the world is headed.
   Against. Not every trade bloc is congruent with a security bloc (see below). If involving a common external tariff, this course commits us to unalloyed trade war. 

If opting for (4) blocs, the alternatives are:

1. Anglophone
   For. Comfy old sweater, ie, familiarity.
   Against. It is not clear that this is on offer. It involves geographically diffuse and small markets and has little to do with local security. 

2. Citadels (Israel, Singapore, South Korea, Switzerland, Taiwan)
   For. This is congruent with security and the UK defence industry offers a leadership role. It sits well with Singapore on Thames.
   Against. This course involves geographically fragmented and small markets, making it unclear how to marshal diverse trading policies. Our defence industry is five to ten years from self-sufficiency. 

3. CPTPP (Pacific Partnership)
   For. These are the most vital economies in the world.
   Against. They are, however, remote and fragmented, also introducing the ambiguous figure of China. They have little to do with local security. 

4. Europe
   For. This has to be seen as the default alternative as local and most congruent with our immediate security. The UK’s defence industry helps.
   Against. This course reopens Brexit wounds and exposes the UK to the all too familiar economic, political and security weaknesses of the EU set-up. 

5. The US itself
   For. This offers the largest market and the most comprehensive security guarantees.
   Against. It is not clear that this course is on offer or could be taken at face value given the current administration’s appetite to disrupt. It would also be a tough domestic sell. 

It is impossible to set a priority between a security and a trading bloc. In an ideal world, the two should be consistent but they need not be absolutely congruent. For example, for fifty years we threw in economically with the EU but took security guarantees from the US; over the last thirty years, Australia has come to trade energetically with China but remains aligned militarily with the US.

…more follows…
The Adam Smith Institute is devoted to free markets, making the alternatives we propose to explore either “liberal leadership” with a view to restraining retaliatory impulses, or “Singapore on Thames”. Although we see inaction as irresponsible, we would not rush to premature positions. We expand on the country’s options in the following posts, with a view to teasing out our theme, sovereignty without illusions.

Reliability
first published 18 April 2025

No-one knows where Trump’s on-again-off again tariffs are going to end up. The only certain thing is that the rest of the world is in for an overdose of once-bitten-twice-shy, scrambling for new supply-chains and trade relations amid a general atmosphere of increased distrust. This post addresses the UK’s course in cultivating a reputation for reliability with a view to opting for one of the courses set out in our introductory post: liberal leadership or Singapore on Thames, specifically as it

1. cultivates trade partners, either nation by nation or en bloc; 

2. attracts business streams, in particular in the financial, legal and other professional services in which the UK excels, with local courts promoted as the most reliable jurisdiction for issuers; 

3. attracts investment by companies in new plants and businesses;

4. attracts portfolio investment, not so much in UK securities, as global assets traded in London;

5. attracts flight capital, moving on from the recent mainstay of oligarchs fleeing Putin, to US persons or entities seeking a more reliable or otherwise friendly environment; and

6. attracts skilled immigrants, in principle from all over the world, but largely disaffected American scientists and academics, trying to avoid importing the toxic politics sometimes professed by the latter.

The first four objectives sit well with the liberal leadership which is one of the two strategies we are considering; all six are consistent with the more hermetic alternative of Singapore on Thames. We now turn to the various elements which establish reliability. 

Compliance with international obligations
Trade partners wish us to honour our obligations to them. Save for the EU, which is faddy on the topic, they are capable of distinguishing between political and economic matters; and between mutual commitments between trading nations and submission to third-party jurisdiction. Those responsible for the business streams, corporate and portfolio investment we seek are most concerned with the enforcement of domestic law - see regulation below. Those undertaking capital flight or immigration are less interested in the topic, possibly preferring an independent stance on (eg) tax treaties. 

It would be mistaken for the UK to confine itself to whistling our post-WW2 signature tune: we are jolly good chaps who won’t act in a disruptive way, sticking to diplomacy, rolling the pitch ahead of changes, doing what we say and generally not rocking the boat. Instead, we need to go beyond our national comfort-zone and raise our game, for example on inflation and tax - see confiscation etc, below. Being the good sports we like to paint ourselves isn’t enough - indeed it isn’t even how we are seen by those in the know - once again, see confiscation etc, below. 

For all that international treaties and suchlike have been a post WW2 watchword of UK policy, there is a gathering sense that it’s time to get over our crush: that we need to retreat from hostages to fortune which risk our interests. Britain’s position on this topic will be tolerated by its partners if it seeks liberal leadership, save for the EU’s foibles on extra-national jurisdiction; it will have to raise its game in this and other areas if opting for Singapore on Thames, courting local blow-back throughout.

Confiscation
This also embraces sovereign default, the general concept of “sound money” (conversely currency depreciation) and fair taxation. The trade partners we seek will not tolerate default and will expect high standards of property protection but will be realistic about currency depreciation and the local tax regime. The professional business streams in which we specialise are transactional, so will be indifferent to the topic. Portfolio investors will take a similar view, pricing the risk. Those conducting capital flight or immigration will take outright confiscation seriously but will eat the other risks. By contrast, corporate investors are in for the long term and will take every aspect of the matter seriously .

Outright confiscation and default are not serious risks. On the other hand, loudly proclaiming Britain’s commitment to the rule of law recalls the alcoholic who strenuously claims to be clean on the basis of drinking nothing but the best quality London gin. This is because the UK is one of the G7’s most notorious defectors from that most central element of the rule of law: paying our debts. This is not so much the interwar default, which affected all the Europeans; it’s more the country’s baked-in policy of currency depreciation. The Bank of England’s policy target of 2% inflation means that over the 30-year lifetime of a long gilt, it loses just under half its value -45% for pedants. In reality, the Bank misses its target, with the inflation rate over the last thirty years running at 2.38%, more than halving the value of money. Such looseness accommodates the ambitions of Britain’s perennially fractious unions, these days largely confined to the public sector but still beyond control. These days, no-one these days prizes the “sound money” which smacks of JP Morgan’s top hat and was overtaken ninety years ago by Keynes’ whizzy deficit financing. Nonetheless, currency depreciation has a price: the UK pays more for its borrowing than its peers, reflected in the spread (extra interest) of Gilts over Bunds and Treasuries. Best to accept this as intrinsic to British politics. 

Britain’s taxation is problematic: high, poorly constructed and arbitrary. The country’s level of taxation stems from longstanding priorities and accumulated debt; it is unlikely to change. National Insurance is a tax on employment which has defeated any attempt to reform; stamp duties are opportunistic and could be reversed, together with other concessions on financial transactions, including tax free wrappers for collective funds managed for small overseas savers. 

Here too, Britain’s mixed position on this topic will be tolerated by its partners if seeks liberal leadership. It less well with the longer-term approach called for by Singapore on Thames, which would call for hard to sell reform.

Regulation
The objective is always the Goldilocks balance of light-touch consistent with risk management, plus consistency and fair enforcement. This is desirable, if not essential for the business streams, corporate and portfolio investment in the nation’s sights. Potential trade partners will feel differently, valuing reliability over the weight of regulation as this may throw up arbitration opportunities. The topic matters little to those undertaking capital flight or immigration 

In the nature of things, much of the regulatory regime is subject to fine-tuning to reflect changes in local and international conditions. The UK is currently moving away from the conspicuously risk-averse approach it erected after the ’08 financial crisis; with luck, GDPRS is also for the bin. These developments barely affect the option of liberal leadership, but sit well with Singapore on Thames, unless the UK wishes to set out its store as low risk.

Turmoil
Domestic order is desirable, if not essential, for every objective. A desk audit is encouraging. The nation’s streets are no more given to disorder than our neighbours; the administration of government is honest by the standards of our peers, with corruption no more than intermittent and outright breakdown confined to rare local failures. The poison which Brexit introduced into public life still flares up: the tenacity of Leavers and Remainers will be treated by future historians as latter-day Dreyfusards and anti-Dreyfusards. The advent of Reform is of a piece with populism elsewhere. Immigration raises the customary tensions, most recently manifested as complaints about two-tier justice, while DIE regimes still bedevil the public sector. Nothing, however, stops an official circular smacking down waywardness in the administration of justice, plus a determined reversion to recruitment and promotion on merit. In short, domestic order can be pretty much taken for granted, and such issues as arise are readily addressed, with Britain’s position sitting equally well with liberal leadership or Singapore on Thames

Ease of doing business
This is essential to new corporate investment and desirable to trade partners and business streams. It matters less to portfolio investors or those conducting capital flight or immigration. Britain’s position is good, with a position in the top ten of the World Bank’s index throughout the fifteen years of its publication. There is however always more to be done. The World Bank’s methodology is in the public domain and the Department for Business, Energy & Industrial Strategy should be learning from the best performing countries: New Zealand, Singapore, Hong Kong and Denmark. And before we lapse into complacency, let’s remind ourselves of our record in building airports, houses, power stations, railways and roads. Even so, Britain’s strong position on the topic sits well with both options: liberal leadership or Singapore on Thames

Conclusion -EU obstinacy vs British dysfunction
The discussion above shows that the principal problem facing the option of liberal leadership is the obstinacy of the EU. Conversely the principal problem for Singapore on Thames is domestic policy, with it particularly unclear that the Chancellor understands the dysfunction of her tax regime. 

This discussion has neglected the extra-territorial claims of the US authorities, for example anti-laundering rules, tax treaties and suchlike. We will defer this to our conclusion.

Growth and Investment
first published 25 April 2025

Growth and investment make for a post which is easy to write, but tricky to realise. Consider: the UK has floundered economically for a century, squandering all too many of the benefits of postwar catch-up and technology on our toxic legacy of early industrialisation, by way of workplace bitterness and regional dysfunction. We’ve done ourselves no favours with home-grown foibles: on-again off-again nationalisations, ungainly healthcare, producer-led schooling. That’s without getting into our perennially butterfingered welfare regime or our equally perennial high-school pashes for one BFF or another.

Now comes Hurricane Trump, disrupting the postwar trade order, holding out the equivocal prospect of a US trade deal, and throwing us into the arms of whoever will join us in our latter-day lamentations. All of a sudden, our priorities have reverted to the narrowly economic. To be fair to Starmer, he instituted an industrial strategy last October, with the bromidic Invest 2035. This conspicuously failed to follow the wisdom of Pierre Mendès France, altogether declining choices. Now it is overtaken by events.

Industrial strategy?
This begs a larger question: do such plans have any point? In his elegant and incisive How industrial strategy killed British industry, my colleague, Sam Bidwell, points out that picking winners has never worked for HMG, though there may be a case for government-industry collaboration, particularly in infrastructure and security. Let us briefly explore some avenues along these lines.

What with Trump’s tariffs and the Scunthorpe fiasco, today’s theme is reshoring and reinforcing basic industry. We have new language to sweeten the pill: “sovereign industry”, signalling alignment with national security. Dr Johnson may have been too hard on patriotism, but it still makes sense to caution against failing CEOs wrapping the flag around campaigns for regulatory relief and subsidies, for all that such arrangements might help the country’s regions. All in all, better beware of the comfy sweater of industrial nostalgia and balance any such concessions with a proper regard for the industries of the future which will pay for them.

Key industries
What are those industries? Starmer’s paper identified eight in a catalogue best characterised as inclusive to a fault. It took in “advanced manufacturing, clean energy industries, creative industries, defence, digital & technologies (duh!), financial services, life sciences, and professional and business services”. This is a bit weird, with overlap between advanced manufacturing, defence and digital & technologies; one sector, creative industries, which absolutely does not need government intervention, lest it dry up or distort the imaginative process; another, defence, which couldn’t be more supported by public funds, to the detriment of business and technical effectiveness; and a third, clean energy, which qualifies for separate treatment below as a national dilemma. But let’s say tech stuff, pharma, and the financial and other services which feed off each other. 

Tech needs regulation and taxation which is consistent, robust in the face of extra-territorial challenges from the EU and US and balances the permissiveness which boosts innovation with a respect for property rights (scraping data) and dangers to consumers (addictive SM algorithms). In sum, this is a time for policy to be “on-risk”. 

Pharma needs NHS purchasing decisions which balance the national interest in value-for-money monopsony with reasonable returns on research. NICE could push things along with an accelerated approval regime, learning lessons from the Covid vaccine rollout; and an approach towards “indications”, ie, conditions qualifying for treatment, which joins with industry in taking a view of expected developments in biotechnology and demography. An accelerated programme to map human biochemical pathways lends itself to collaboration between government, industry and universities. 

Financial etc services It is tempting once again to call for more of an “on-risk” regime: certainly, the post ’08 arrangements (for ring-fencing and suchlike) were too restrictive. On the other hand, Trump is introducing sufficient turbulence for caution to be in order, particularly if rates come down. Specific moves would be promoting UK law (actually the law of England and Wales) for sovereign and even corporate bond issues, reducing or abolishing stamp duty on secondary market transactions, and providing tax-free wrappers for collective investment schemes for small savers from overseas. We will expand on this in our forthcoming post on capital markets.

Energy policy is ever in tension between price, security and (of late) decarbonisation. Britain’s energy prices are notoriously crippling, making heavy industry uneconomic. Developments in Ukraine and the general uncertainty attaching to Trump call for prioritising security. Not everyone gets it: Ed Miliband continues to argue that Britain’s energy security is totally aligned with decarbonisation, which will also bring prices down. This is hard to credit and Starmer should slap him down, somehow reconciling this reverse to the Climate Change Act and his own zealots.

Elsewhere, as touched on in our last post, the government has the low-cost option of attracting participants in any brain-drain from US tech and universities, along the lines of the 1950s Hollywood scriptwriters fleeing McCarthy, while keeping a weather eye out for academics with loopy luggage. And how wonderful, if Starmer could bring himself to engineer the abandonment or amendment into innocuousness of the anti-growth Children's Wellbeing and Schools Bill, Employment Rights Bill and Renters' Rights Bill.

Conclusion – everyone’s ideal
Growth and investment are like motherhood and apple pie: everyone is all for them. The comments above apply equally, whether Britain is seeking to assume liberal leadership or recast itself as Singapore on Thames, though arrangements to welcome brain-drain immigrants from the US may come up against freedom of movement issues with the EU and others. 

Fiscal balance
first published 2 May 2025

A century of fiscal incontinence
It is unpleasant to admit it, but dear old Blighty has been a deadbeat for over a century. Our central fiscal characteristic is that we don’t pay our way. To modern eyes, this is not a hanging offence: everyone is at it, what with war, depressions and of late the ‘08 crash and Covid. But it’s not trivial. What matters is how we stack up against the competition? answer - not so hot; and how is our freedom of action affected? answer - increasingly, given Trump’s disruptions. Thus this post, exploring how to position ourselves fiscally for the two options before us: bridging Europe to other trading nations - liberal leadership; and going it alone - Singapore on Thames. 

The ASI is all about the fiscal responsibility attaching to restrained government. Postwar, this has been an uphill slog. The chart below depicts government finances since 1700. It shows that public deficits, once a feature of war, have come to be a peacetime commonplace. 

The chart above only runs to 2016. Since then, the position has deteriorated, as the more up-to-date chart below illustrates, with deficits in every year but three since 1970-71. 

Since 2020-21, it’s worse still. Some is the £229bn of public support over Covid; some is further pandemic hangover, where we can’t do much; some is policy dysfunction, where we certainly can. 

Money out
First, expenses: HMRC sends the figures below to all taxpayers.

Let’s focus on the biggies. Defence is on the up and spend beyond foreign aid will have to take the strain. Our thinking about health etc can be found in the post on public services in our earlier series of “Manifestos to Lord Mandelson”; maybe we are approaching the agony-barrier which propels such heresy into the Overton window, as explored below. The other candidate for the Overton window is tough love for welfare recipients. The chart below shows how Britain’s level of economic activity has deteriorated by comparison with the competition, calling for fixing slack medical and self-certification.

This is no time for generous pay settlements. Let’s also take a more general scythe to expenditure, while avoiding Musk disruptions. Better to alter incentives at the top. Let civil servants on Grade 5 and above be awarded early retirement on full pensions and £10m tax-free for every one half of one percent they delete permanently from public spend. Let task forces be instituted for the purpose, with similar arrangements. Let’s throw in KBEs and keys to the lodges of Oxbridge principals as vacancies arise. The politics of hope indeed! 

Money in
Now for income: the table below applies to the same year. 

NIC’s are a tax on employment, which has fallen after Reeves’ recent rises. This is a typical Treasury own goal, also seen in the capital flight and reduced returns from CGT following the removal of the Non-Dom regime, the fall in tourist spend following the removal of VAT refunds after Brexit, and the reductions in receipts from earlier increases in income tax rates. Company taxes call for the same: we should be attracting investors, not fleecing them, all the more so if setting out our stall as Singapore on Thames. It would be easy to blame zealots overruling civil servants, but in truth the Treasury consistently mistakes elasticities and second-order effects. Some taxpayers are physically mobile and most can doctor their books. So, an easy win is revisiting the Treasury’s models, with a view to better tax decisions. There’s a much tougher win in public services, with the prospect of over £400bn of receipts for a government willing to face reversing a lifetime of secular religiosity. 

Balancing the books – or not
Finally, there is the balance between income and expenditure. On 23 April we learned that last year, Britain’s public deficit was £152bn, some 11% higher than the OBR’s estimate a few days earlier. The deficit was always planned to grow this year; now it threatens far worse. Gordon Brown introduced the liar’s contest of “fiscal rules” which kick the can down the road: Reeves’ promise was that deficits will reduce by the end of this parliament. Now who knows? Mervyn King thinks she should abandon her rules because they’re unbelievable; Labour activists think she should abandon them so they can splurge. 

Fat chance! The bond markets are less forgiving than a few weeks ago, with vigilantes set to pick off the weak. Let that not be us: Reeves needs to sharpen her pencil with what industry calls “zero-based budgeting”, that is starting from first principles. To recap our points above, the Treasury should goose up its models, bringing in elasticities and second order effects more reliably, in particular revisiting higher tax rates, to promote economic activity. As to expenditure, we need tough love in wages and welfare, prizes for civil servants who slash expenditure and (if braced for iconoclasm) capital raising from public services. We defer tax reforms bearing upon capital markets to our next post. 

These remarks apply more fully to Singapore on Thames than to a campaign of liberal leadership drawing us into close contact with the EU. The Europeans are loosening their own disciplines for increased defence spend, some of which we’re hoping to see. But let’s not catch their cold. 

Capital markets
first published 9 May 2025

This post risks an ungracious tone, a few days after learning that Trump’s first trade deal is with the UK. The thin five-page document is not legally binding, as much an agreement to agree as anything else and far from the ambition of our Manifesto to Lord Mandelson. What follows is all about turning Trump’s minuses into a plus: taking the uncertainty he promotes as an occasion to further the UK’s capital markets by hosting defence funds; boosting London for emerging market bonds; and serving as a haven for US flight capital.

Defence borrowing
Trump has put the wind up Europe, now scrambling to find money for defence. What with ’08, Covid and several generations of welfare entitlements, the continent is tapped out. Its leaders flinch from hard choices, so extra spend can only come from borrowings. The EU itself has proposed borrowings of some €150bn. If efficiency were all that mattered, this would happen in London which has deeper expertise and liquidity than elsewhere in Europe. Such arrangements would, however, provoke residual post-Brexit blow-back and the ambition of European financial centres to get in on the act. Neither would affect the multilateral Defence Security and Resilience Bank, whose promoters envisage up to £100bn of capital according to formulas yet to be agreed. Nor the third idea in the air, an unquantified proposal by the UK for an intergovernmental vehicle outside the structures of the EU, to purchase military equipment, subscribed by investors comfortable with the sector. 

However urgent the need, Europe’s finances grind but slowly. Even so, something of the sort is in prospect: developing such capacity in London cannot but help Britain’s option of “liberal leadership” of intensified relations between Europe and trading nations elsewhere, provided the EU can get off its high horse. It’s good that the country is already putting its best foot forward; let’s not break stride.

Emerging market bonds
Since ‘08, bonds have come to be the thing. The OECD reports that at the end of 2023, around $100tn were in issue, just under half by non-OECD members - emerging markets. Some come under local law, but most use “international law”, that is the courts of New York State or England and Wales as creditors’ confidence in these jurisdictions makes for lower interest rates. Other things being equal, Trump’s chaos will encourage emerging market borrowers to specify the law of England and Wales. The UK authorities should discreetly push this along, as it adds to London’s attractions for issuing, underwriting and trading every kind of bond. In 2024, the total bond revenues of the top ten banks were $40bn. Moving just a quarter of that to London would bring in enough new taxes for eight new provincial hospitals a year.

As global capital imbalances alter over the medium term, US Government borrowings, “Treasuries”, may lose their place as the default sovereign instrument, creating further opportunity for London’s bankers. All of this sits equally well with liberal leadership or Singapore on Thames.

Flight capital
Serious money flees confiscation, undue taxation and arbitrary regulation. Of late, it has been dodgy oligarchs who have bolted the first, but anyone with good sense shuns all three. Trump cultivates unpredictability, challenging America’s reputation for scrupulous dealings. We may expect an incalculable flow of greenbacks seeking sanctuary. London is well placed as a safe haven, with a strong record of treating overseas parties fairly. First, the authorities will have to reverse their post 9-11 policies of leaning over backwards to co-operate with the IRS - the American taxman. Well-judged policies will attract US institutions, corporates or private persons seeking to avoid disruption. Specifics include a judicial presumption of confidentiality in selected holdings or transactions; special tax treatment likewise; and (probably a bridge too far, even for policymakers of the most daring disposition) introducing numbered accounts for foreign beneficiaries, with title transmitted by power of attorney along classic Swiss lines.

We need to pull off a balancing act, not least to keep up the developments envisaged by Thursday’s trade deal. The US also uses its financial muscle to coerce its antagonists with direct and secondary sanctions, with the UK and other liberal trading nations bound to share American objectives from time to time. The standalone stance of Singapore on Thames would permit greater flexibility. We expand on this in our next post on foreign policy. 

Conclusion – EU obstinacy may force choices
These three themes apply differently to the alternatives of liberal leadership or Singapore on Thames. Bond issuance poses no problems for the EU as no European jurisdiction competes with New York State or England and Wales. On the other hand, European defence borrowing is likely to come up against EU ambitions to regulate and repatriate. The EU is also likely to be sniffy about arrangements to encourage US flight capital, as Europe itself has long been a source of jumpy money. On balance, this could eventually push the UK in the Singaporean direction. 

Foreign policy
first published 16 May 2025

Pandora’s box
This post takes foreign policy as first serving the people of the UK, then our friends, then the rest of the world - unapologetic realism. This week saw Trump’s first foreign trip. Choosing the Middle East reminds us how little weight he attaches to Europe; and that although there is enough meat in our trade deal last week to nettle China, it is a fragile foundation for foreign policy. 

Our post-WW2 approach served us well enough: immersion in international institutions coupled with reliance on US security, initially without unqualified devotion to every Pentagon adventure (eg, Vietnam), but with increasing commitment and decreasing technological and logistical independence since 9-11. Now, the provocations of Vance and Hegseth have made it impossible to carry on - indeed that was their intent. The thrust of this post is to explore the Pandora’s box which they opened.

Limited options
No matter the urgency we attach to security, the disagreeable truth is that our immediate options are limited. We are locked into American supply, while our relations with our neighbours remain piqued by Brexit, if not longer historical memories. In addition, all concerned are constrained by American control of chokepoints, both geographical, eg, the Straits of Hormuz and Molucca; and institutional, eg, high tech, payment systems, and smart capital.

What then are our alternatives? We need not descend into overwrought visions of American antagonism to wish to increase our independence. This will take years, if not decades, calling for delicacy all round to maintain the political and economic dealings most needed or valued, while developing alternatives. Once the Royal Navy despaired of finding enough oaks to mast its ships; during the world wars, the nation feared for its very food. How now, to defray imported essentials with high tech and services? We need a joint military-industrial taskforce to examine our supply chains and chokepoints, proposing arrangements to secure them.

Allies, local…
So to the next question: with whom else should we throw in? Certainly our neighbours, with whom we trade energetically and whose territory, once the source of threats, now acts as a buffer against Russia. For an adult lifetime, European forces have been led by America, with scant alternative homegrown structure. Our immediate priority is to flush out appetites: first sight shows divergent views between those closest to, or with bad experiences of, Russia, eg, the Balts, Germany, Poland and the Scandies; selected mavericks like Hungary and Slovakia; and France’s perennial exceptionalism. It flatters our own exceptionalism to believe that we can play much part in dissolving this. We kick off with Starmer working his way back into Europe’s good books at his reset summit next Monday. Let’s wish him good luck.

…or remote…
Is there scope to sweeten the pill with our most immediate neighbours by acting as a bridge to others more remote, but of similar mind, in particular the rich English-speaking democracies? There is no doubt that Australia and (even more) Canada are feeling bereft. Suddenly, playing honest broker between Europe and the Anglosphere is a good look. But let’s not resort to sentimentality. No-one else will. Once again, the most fruitful framework is a joint examination of vulnerabilities, leading to proposals to correct them.

The East Asian trading democracies, Japan, Singapore, South Korea and Taiwan, will value support against China which relieves them of total reliance on the US pivot to the Pacific. They throw in economic muscle, technology and critical geography. More candidates for the vulnerability exercise. It’s also worth remembering that Japan’s first overseas military alliance was in 1902 with the UK, directed against Russia. What goes around…

Finally, West Asia, including the problematic (and imperfectly aligned) powerhouses of Israel, the Gulf States and Saudi Arabia. All are dependent on the US. Even so, we cannot overlook them. Israel has intelligence, military and technical nous which it would be foolish to ignore; we rely on the Gulf States and Saudi for energy. Our first departure should be negotiating naval bases in the region and finding ships to deploy.

…or a citadel
These “coalitions of the willing” continue the UK’s 300 years of global engagement, after WW2 extending to wholehearted subscription to international bodies. There is another course: Israel, Singapore, Switzerland and Taiwan offer templates as successful citadels - the foreign policy equivalent of the economic “Singapore on Thames”. Then again, in a world of global supply chains, a true citadel may be impossible - even the US is scrambling for chips and rare earths. Nonetheless, the examination of vulnerabilities we propose should explore the option of maximising narrow self-sufficiency. And make no mistake, nothing is likely to replicate the eighty years of general peace since WW2. Pandora’s box is open.

Defence
first published 23 May 2025

Trump and his crew have shone a harsh light on European defence, showing it up as dysfunctional, all the way from boots on the ground to budgets to production capacity. For the thirty-five years since the Berlin Wall came down, the industry watchword has been consolidation, in Europe perforce across borders. We don’t have to be spooked about US kill switches to see this as due for reverse, with break-up and repatriation the new agenda. 

Decision framework
Defence planners love to reduce chaos to command structures. It never altogether works, but let’s play along. First, political decision-makers need to order their thoughts. In our last post on foreign policy, we called for analysis of key national vulnerabilities to flush out strategic priorities, in concert with identifying those with whom to throw in. 

This leads to joint staff and procurement by those concerned. The setting is unpromising: the UK’s fiscal constraints, set against the perennial bloody-mindedness of France and the spectre of German financial hegemony, demand that we wring every penny of value from defence spending. Monday’s reset paves the way for the UK to have at the EU’s €150bn defence fund. Meanwhile, the new agenda challenges the collaboration which cultivated economy at the cost of dependence on others, a perilous bargain in an era of fragile supply chains and resurgent great-power rivalry. This particularly applies to safeguarding our interests against US chokepoints and Chinese expansionism.

Shifting supplies
Since the 1950s, defence supply has revolved around fighter contracts, with each generation of aircraft doubling in unit cost. Sixth-generation fighters are budgeted at $300m per aircraft, turning the loss of a single plane into a consequential charge on the national accounts. Small wonder that planners are dwelling on the low-cost alternative of drones, together with shielding costly equipment from the heat of battle as “stand-off platforms”. 

Planners take clues about tactical developments from combat. For three years, Ukraine has been the cockpit of drones, replacing scarce manpower, dominating the land battlefield and intruding upon long-range aerial offense. Recent skirmishes over Kashmir illustrated novel stand-off combinations, enabling Pakistan to deploy Chinese and Israeli technology to down some five jets (reports are contested), including France’s trophy fighter, Rafale, never before defeated in combat. China itself is experimenting energetically, with announcements earlier this week of test-flights of an airborne mother-ship releasing drone swarms.

Equipment dilemmas
Aircraft carriers remain the default stand-off platform, but at c$10bn a pop their vulnerability to hypersonic missiles, if not airborne or maritime drones, obliges planners to consider a future of dispersed, networked capacity. Out-of-area expeditions call for new cargo planes, but Europe lacks a high-wing, rear-loading aircraft capable of lifting 150 tons over 10,000km. Does the UK stick to Airbus, or revive domestic capacity at eye-watering cost? Combat, navigation and surveillance need a combination of high and low altitude satellites as well as Aerial Early Warning systems, all in sufficient number to survive combat losses, as well as hardened against electro-magnetic pulse and jamming and firewalled against hacking. None of this is yet to hand. The 6.5x jump in Eutelsat’s share price on 5 March shows that the market has got the picture. 

Collaboration or autarky?
Military requirements call forth industrial capacity. The fundamentals of aircraft supply endure: airframes, engines and electronics. Rolls-Royce’s independence in engines is a rare bright spot for the UK; elsewhere, the hybrids of BAE Systems (airframes and electronics, with a “golden share” held by HMG, plus ring-fenced US interests) and Thales (French with substantial UK electronic interests) exemplify cross-border sprawl. If Britain attempts to carve out local elements from the latter, look out for fireworks from the Elysée Palace, still nettled almost four years after AUKUS blindsided French suppliers. Repatriating capacity and reintroducing competition will be neither easy nor tidy, but at this point outsourcing sovereignty is worse.

Conclusion
Spending must rise, borrowing is inevitable, the Treasury’s room for manoeuvre is slim and Berlin’s coffers loom large. The leadership customarily ceded by Berlin to Paris risks the joint European defence fund becoming a dirigiste project by stealth. Our own options need goosing up: the MOD’s Falklands-era agility proves rapid mobilisation is possible, with engineers flown out to upgrade kit on the southbound fleet. In the absence of crisis, however, inertia prevails. For the "liberal leadership" camp, joint procurements are a bridge to European strategic relevance. For the Singapore-on-Thames vision, they’re a snare. The former must navigate EU protectionism; the latter, the grim maths of going it alone. Either way, the MOD’s procurement machinery needs a kick-start - speed mustn’t be confined to wartime.

Conclusion – sovereignty without illusions
first published 30 May 2025

Part one: Britain’s dilemma

It’s Morton’s fork for poor old Blighty. As our neighbours face Trump’s disruptions, they are held back by the EU’s clumsy decision-making, its mercantilist instincts and rigid acquis. Meanwhile, for over a century (save for the Thatcher interlude), Britain’s default response to problems has been more government. This leaves us considering two imperfect options:

1. Liberal leadership
   Bridging Europe and the trading world (CPTPP, Canada, etc), leveraging London’s capital markets, and rallying a "coalition of the willing” around a global rule of law.

2. Singapore on Thames
   A pivot to deregulation, tax competitiveness and the shiny new promise of a financial haven, paving the way for a break from postwar collectivism.

The catch? Liberal leadership founders on EU’s self-serving inflexibility, gussied up in its trademark bombast; Singapore on Thames clashes with Britain’s entrenched statism, long tail of provincial underperformance and antipathy to enterprise forged in the excesses of the industrial revolution.

Testing the waters
It may be the doctrine of perfection, but we would have Starmer’s team pursue both tracks in parallel. Lammy should be probing the European appetite for liberal leadership, offering mediation with like-minded partners, joint retaliation against bully-boy tactics from the US, and catalysing ad hoc security pacts. The EU’s reaction to Trump’s tariffs will be telling: if Brussels prioritises protectionism over pragmatism, Plan A looks that much more of a stretch.

At the same time, Reeves should be holding her nose and working up Plan B: slashing tariffs, unwinding self-harming tax rises, and courting offshore capital. Key tests: can the Treasury model elasticities less disastrously than of late? can Labour and Whitehall tolerate a smaller state? This last is the longest shot of all, but needs must…

Non-negotiables
Whichever path is chosen, the UK must

• cultivate reliability.
  Britain needs to build on its reputation for stability and as a good place to do business and resolve disputes, with Goldilocks regulation and policies to restore fiscal credibility with the Treasury imposing zero-based budgeting, pressing for welfare reform and declaring a truce on self-destructive tax hikes. 

• double down on high-tech and services.
  HMG should push London as a global financial hub, including for emerging market bond issuance, streamline financial regulations, and lure US flight capital and skilled emigrants with tax neutrality and legal safeguards.

• re-arm aggressively.
  Defence spending must rise to at least 3% of GDP (we like 5%), with a focus on drones, logistics, stand-off platforms and supply-chain sovereignty.

-o-

Part two: after Trump

Even if the courts limit Trump or MAGA loses in 2028, Pandora’s box will remain open. The US must try to rebuild trust, while we proof ourselves against future whimsy. Here’s how:

Defence
Forward deployments
Europe should encourage more robust US tripwires, troops based near the Russian border, together with forward-deployed materiel (eg, aircraft, fuel, missiles, shells and vehicles). 

Robust supply
Money always talks: if a future US administration is in a contrite mood, let it support Europe with matching funds to reshore arms production, from airlifters to chips to satellites. 

Chokepoint taskforces
The US should also be invited to rebuild trust by co-operating with an independent European naval presence to safeguard the Straits of Hormuz. Similar patrols bringing in Pacific states should safeguard the Malacca Straits, also deterring Chinese threats.

Trade and foreign policy
Energetic diplomacy
We have learned that the impulses of a US president make global waves. The best hedge is diversification: wider CPTPP accession, ad hoc pacts elsewhere, and “supply-chain islands" beyond American or Chinese dominance. The UK should also join with others in Africa and Latin America to restrain China’s adventurism; and universally to offer reliability in the face of US caprice.

Survivable global infrastructure
The UK should work with others on an energetic programme to deploy, harden and protect subsea cables and surface microwave networks, together with civil and military comms, location and surveillance satellites.

Capital markets
Reduce global dependence on Treasuries
Emerging markets should be encouraged to issue bonds under English law, with the IMF pushed to diversify its reserves.

Plumbing fixes
US secondary sanctions, its extra-territorial anti-laundering rules and tax regime should be circumvented by developing alternative clearing systems, as well as digital or other innovative currencies for oil and other high-volume trade.

-o-

Last words
Confidence in the arrangements underpinning the last eighty years of general peace and prosperity now smacks of a fool’s paradise. There is no easy way back to Pax Americana, now fractured, at worst incurably. Britain must navigate the rubble, either as a broker between blocs or as a nimble outsider. The EU’s rigidity and the shadows of our own past argue for a pivot to the latter, but the mood music isn’t there and as ever, political courage runs short. It may help if we recognise Trump as a symptom, not the disease. Progressive overreach provoked the blow-back which begat him, while the UK’s descent into statism and Europe’s sclerosis well predate him. Whether through liberal leadership or as a Singaporean citadel, the goal for our sea-girt isle is identical: sovereignty without illusion. That means tough choices - and soon.