The war in Ukraine will make an already crippling cost of living crisis a whole lot worse.
The global economy was in turmoil before this war began following the two-year disruption of the pandemic and associated supply chain difficulties, but it had been hoped that high energy prices would be temporary, and that by the end of this year inflationary pressures would be reduced. Now it appears the opposite will be true. The war itself, sanctions, further supply chain disruptions and the remilitarisation of Europe will all play their part.
Energy prices have already skyrocketed; if Russia decides to cut off Europe’s gas completely Goldman Sachs has predicted energy bills for the average UK household could reach a staggering £4,000.
And it’s not just oil and gas – yes Russia is the world’s second biggest producer of crude oil, but it also provides 20% of the world’s supply of wheat, while Ukraine provides another 10%. As wheat production grinds to a halt in Ukraine, and sanctions prevent the import of Russian wheat, consumers could see price rises of 50% for wheat products.
UK inflation, currently at 5.5% is expected to soon reach 8%, and later in the year it could hit double figures. The Treasury expects inflation to remain high for several years to come.
And still the war chest needs filling.
Germany has already announced it will be doubling its military budget and now the UK is under pressure to massively step up its military spending commitments.
In 2021 the UK spent 2.3% of GDP on defence – that’s £40 billion per year. In cash terms Britain’s contribution to NATO is the largest in Europe, but with the rise in Germany’s payments this will no longer be the case; Germany will soon have one of the largest military budgets in the world. And for some this cannot be tolerated: “Britain risks being overtaken by Germany” cries the Telegraph, lamenting this relegation will mark an end to Britain’s leading role in the Alliance.
So pressure is growing on Rishi Sunak to increase defence spending in his spring budget next week.
The Ministry of Defence is pushing hard for a budget boost, claiming previous increases have been negated by energy price rises; hence the military is faced with a decreasing real terms budget just when it is moving onto a war footing.
Former Foreign Secretary Jeremy Hunt has called for the UK to raise its military spending from 2.3% to 4% of GDP: “If we want America to remain the leader of the free world, other democratic powers, especially in Europe, must commit to matching US defence spending as a proportion of GDP.” He has won the support of the current Foreign Secretary, Liz Truss in this bid.
Labour leader Keir Starmer has also joined the chorus, saying the government must halt its proposed troop cuts to the armed forces, saying: “With Russia’s invasion of Ukraine and threats of further aggression to NATO members, we need to reassess our military capabilities.”
But to raise UK spending to anything like the amount demanded would require an increase of tens of billions of pounds over the coming years. Who would have thought we were at the beginning of the greatest cost of living crisis for over 60 years?
Kwasi Kwarteng, the Business Secretary has said the British public are prepared to “endure hardships” in solidarity with the people of Ukraine. That may be so, but the British public know that these hardships, although exacerbated by the war, were neither entirely caused by it nor will they help end it.
The US and Britain have been pouring weapons into Ukraine since way before war broke out and have since committed to pouring in $billions more. Military budgets across the NATO alliance will soar as NATO’s battlegrounds grow with massive troop deployments and military hardware. But this is a recipe for more not less war.
The current frantic rearmament and militarisation of eastern Europe will only exacerbate tensions and risk raising the stakes in this war. NATO has said “no” to direct involvement, but an accidental hit on a weapons convoy could literally have nuclear consequences.
In the coming months it will be increasingly difficult to disentangle the economic impact of the war from that of the pandemic, but some of the economic fallout could clearly be avoided. The National Insurance tax hike which comes in next month could so easily be abandoned. Profits of companies like Shell and BP could be properly taxed, utility distribution companies could be prevented from skimming off vast dividends as ordinary people struggle to heat their homes. And tax payers money destined for the MoD to help feed arms dealers and warmongers could be redirected to help feed the poor.
Don’t be fooled that our suffering is a sacrifice for the victims of war. It is blatantly not.