More than a century ago, that most renowned of British economists John Maynard Keynes said: ‘When the facts change, I change my mind. What do you do, sir?’
It is probably what Sir Keir Starmer would say now following his defence spending hike to 2.5 per cent of GDP after slashing it to 2.3 per cent when he came into office.
Last April, the then Prime Minister Rishi Sunak and I pledged to grow the MoD’s budget, funded by paring back the Civil Service to its pre-pandemic levels. Labour cancelled both.
But, as Keynes said, we should not begrudge someone changing their mind if it is the right thing to do.
However, as I told the Prime Minister in PMQs last month, we will need to go further.
If we are to keep Nato together, we and other European countries will need to spend closer to the 3.4 per cent of GDP that the US spends on defence.
Another 1 per cent of GDP on defence from currently planned levels would cost around £30 billion – equivalent to an eye-watering four pence in the pound on income tax. How could we possibly afford the rise?
In fact, it need not cost us anything like that. It could even pay for itself. To understand how, we just need to look at what happened when the United States almost tripled defence spending in the 1950s.
Jeremy Hunt MP has called on Labour to go even further with its plans to increase defence spending
The UK needs to match US defence spending of 3.4 per cent of GDP, according to Hunt
For each additional 1 per cent rise in defence spending, it will cost an estimated £30billion, but Mr Hunt believes the UK has the potential make the costs far less severe
There was panic when the Soviet Union launched the Sputnik 1 satellite in 1957, suggesting that Moscow was making giant technological strides that Washington could not keep up with.
But, instead of just throwing money at big arms manufacturers, the US Department of Defence turned to California’s Stanford University.
Its dean of engineering was a visionary patriot called Frederick Terman who had set up Stanford Industrial Park, a cutting-edge research facility in nearby Palo Alto. Attracted by funding from both the defence budget and Nasa, the best new technology companies flocked there – and Silicon Valley was born.
Since then, Israel has pulled off a similar trick, turning its need for military investment into a globally successful tech sector.
It has to spend not 2.5 per cent of GDP on defence like us, but 5 per cent because of the immediate threat to its security from terrorist organisations on its doorstep such as Hamas and Hezbollah.
They have turned it to their advantage with an Israeli tech revolution that has helped make it the most powerful economy in the region. As prime minister Benjamin Netanyahu said to me when I was foreign secretary, Britain could do the same.
As Chancellor, I always said the best way to pay for the costs of the NHS and an ageing population is to become the world’s next Silicon Valley. The foundations are already in place. Outside the US, we have the most respected universities, including three of the world’s top 20.
We have more AI graduates than anywhere else in Europe. We have the world’s second largest financial services sector to help provide the capital for start-ups. My Mansion House pension fund reforms (continued by Rachel Reeves) will help nurture more home-grown tech giants, which has previously been a weakness.
Last April, the then Prime Minister Rishi Sunak and Jeremy Hunt pledged to grow the MoD’s budget until those plans were scuppered in Labour’s opening weeks of power
Hunt has urged Prime Minister Sir Keir Starmer to go even further when raising the defence budget
Modern warfare requires increased spending on aspects other than just sheer manpower, writes Hunt
Now we have more ‘unicorns’ (tech companies worth more than a billion dollars) than anywhere else in Europe.
Our tech ecosystem – stretching from life sciences to quantum engineering, gaming and even film production – is now the third largest in the world after the US and China. In 2023, social media tycoon Elon Musk told me that London and San Francisco have become the world’s two leading hubs for AI.
But if we want the extra defence billions to nurture a British Silicon Valley, we will need to spend it differently. Instead of just funding big contracts with traditional suppliers, we must make sure the new funding flows to brilliant university spin-outs in Oxford, Cambridge, Imperial, Manchester and Edinburgh.
The big defence contractors are masterly at signing up the MoD for a ten or 20-year project and then jacking up the price.
Sometimes it is caused by the ministry changing specifications. But often, the money simply disappears down an enormous military plughole.
Instead, we need to find a much nimbler, smarter way to get the latest technological developments into the hands of our troops on the frontline.
Ukraine has shown how cheap drones can destroy expensive tanks, radically changing the way modern warfare is fought.
Shadow Defence Secretary James Cartlidge championed such an approach when he was minister for defence procurement, so let’s hope the Government is continuing with his excellent work.
But the risk, of course, is that the opposite happens and the extra money disappears down a black hole. Heaven forbid it is wasted – for example, on the disastrous and mistaken Chagos Islands deal.
But there is an alternative. Thanks partly to a technological edge nurtured by defence spending, the United States has become one of the most powerful countries on the planet.
If we play our hand wisely, the UK could do the same.
