Reflections on politics of the week

The Scottish Government will need a new civil service boss, Harland and Wolff is sold to the Spanish and the Ministry of Defence wants a 50 per cent budget increase

In domestic political terms, we’re in the final straight before Christmas now, with Parliament adjourning today to return on Monday 6 January; the House of Commons is scheduled to consider “business to be determined by the Backbench Business Committee” (though that could be a place holder) and the House of Lords will debate the Second Reading of the National Insurance Contributions (Secondary Class 1 Contributions) Bill. In the news agenda’s second tier, there were a few items that I wanted to scoop up and flag in the now-traditional way.

The taxman goeth

The government has announced that the Permanent Secretary and Chief Executive of His Majesty’s Revenue and Customs, Sir Jim Harra, will stand down next April after five and a half years in post, and 41 years after joining what was then the Inland Revenue as a tax inspector.

He will be succeeded by J.P. Marks, currently Permanent Secretary for the Scottish Government. Marks’s role is effectively the devolved Scottish equivalent of the Cabinet Secretary: he is the principal official policy adviser to the First Minister of Scotland, head of the Scottish Government’s civil service (around 9,000 employees) and secretary to the Scottish Cabinet. Marks is only in his mid-forties and took up the post in January 2022 so will have a short tenure compared to his four predecessors: Sir Muir Russell (1998-2003), Sir John Elvidge (2003-10), Sir Peter Housden (2010-15) and Leslie Evans (2015-21).

Marks is, like Russell, Elvidge and (in part) Housden, a product of Whitehall. He joined the civil service in 2004 after reading social and political science at Cambridge and international relations at Boston University, at first working at HM Treasury, then moved to the Department for Work and Pensions. He was Principal Private Secretary to Yvette Cooper and Iain Duncan Smith as successive Secretaries of State, Strategic Design and Planning Director for the Universal Credit Programme, Director General for Operations and then in April 2019 was appointed Director General, Work and Health Services.

The new Permanent Secretary will take office at a challenging time. Elections for the Scottish Parliament are scheduled for 7 May 2026, just over a year into his or her term, and it is very difficult to predict the outcome. At the beginning of this year, the Scottish National Party looked like it was in serious decline, as Scottish Labour leader Anas Sarwar had brought his party more or less level in the opinion polls with the government, and at July’s UK general election the SNP fared very badly, dropping in support by 15 per cent and losing 39 of their 48 seats in the House of Commons, almost entirely to Labour. The Scottish Government had suffered crisis after crisis, with Nicola Sturgeon resigning unexpectedly as First Minister in March 2023 and her successor, Humza Yousaf, managing only 13 months in office before he too stood down. The SNP ducked a potentially internecine leadership contest earlier this year and 60-year-old Holyrood veteran John Swinney became First Minister unopposed; he had led the SNP before, in 2000-04, and had not been successful.

Since the summer, however, Scottish Labour has struggled, perhaps now being held accountable (or at least responsible) for a Labour government at Westminster. After holding a one-point lead over the SNP in Scotland at the end of June, it has fallen behind badly, and the most recent opinion poll earlier in December put Labour a huge 16 points behind the SNP. Intriguing, some of the party’s support seems to have bled away to Reform UK, who could only muster six per cent in polling in June but have now doubled that. Could the SNP hang on to form another minority administration after 2026?

By the next Holyrood elections, the Scottish Nationalists will have been in government in Edinburgh, alone or in coalition with the Scottish Greens, for 19 years. Their leadership is visibly weary and fraying: Swinney was not so much a safe choice as leader so much as merely deferring the decision entirely after the bruising battle in 2023 between Humza Yousaf and the young, able but devoutly Christian and socially conservative Finance Secretary Kate Forbes, who is now Economy Secretary and Deputy First Minister. The new Permanent Secretary will find a government increasingly fixated on the forthcoming election and struggling for a “big idea”, and could have to oversee a number of scenarios after May 2026: a new party of government if Scottish Labour can somehow revive its fortunes, a reinvigorated SNP if Swinney and his colleagues can find a new narrative and a revived sense of purpose, or a fractured Scottish Parliament and attempts to assemble some kind of stable coalition government.

(There is a degree of irony here: from its very foundations in the Scotland Act 1998, the Scottish Parliament was designed to embed coalition government into the country’s political culture, with an electoral system which effectively made majoritarianism impossible. After the first election in May 1999, Labour and the Liberal Democrats formed a centre-left government that seemed sustainable and perhaps impregnable; it comprised 73 of the 129 MSPs, and the two other significant parties were no immediate threat, as the SNP (35) had no obvious coalition partners and the Scottish Conservatives (18) were still barely recovering from their electoral rout in 1997.

The Labour/Liberal Democrat partnership survived the 2003 election, though its majority was diminished, but the fundamental calculus remained the same: for different reasons, the SNP and the Scottish Conservatives were pariahs in coalition terms. In 2007 the SNP emerged as the largest party with 47 seats, but the Liberal Democrats rebuffed an offer of a coalition. Alex Salmond, with the additional support of the two Green MSPs, became First Minister of a minority SNP government and survived long enough to face the polls again in 2011, when the supposedly impossible happened: the SNP won an overall majority, with 69 MSPs out of 129. Although the party then fell slightly short of the line it has retained power at the 2016 and 2021 elections, while the Scottish Conservatives have revived and ebbed again.)

A potential challenge for the next Scottish Parliament is a situation like that affecting the National Assembly in France: several party blocs of significant fighting weight among whom there are deep political, cultural and personal divisions and scant prospect of stable partnership in government. The SNP is unlikely to be able to co-exist with a Unionist coalition ally—assuming one was even willing to contemplate such an alliance—while a Labour/Conservative combination is surely a non-starter. The Liberal Democrats, the potential friend of every centre-left party, seem becalmed at around 10 per cent of the vote and may not have the weight to be decisive in any combination. There is then the very real prospect of a parliament in which several parties can prevent an outcome they dislike, but cannot ensure one of which they approve.

It will be interesting to see what sort of candidate emerges to succeed Marks. His predecessor, Leslie Evans, joined the Scottish Government after 20 years working in local authorities both in England and in Scotland, holding a variety of senior positions before becoming Permanent Secretary. Sir John Elvidge was also promoted from within the Scottish civil service, though he had made the transition from the pre-devolution Scottish Office in Whitehall and had served for a time in the Cabinet Office.

By contrast, Sir Peter Housden, like Marks, came to the post of Permanent Secretary directly from the UK government, having served as Permanent Secretary to the Office of the Deputy Prime Minister and its successor, the Department for Communities and Local Government. However, he was not a Whitehall native, having started his career as a teacher and then a local government education official. The inaugural holder of the role of Permanent Secretary, Sir Muir Russell, was by definition sui generis, but, like Elvidge, had spent most of his career at the Scottish Office with a short stint in the Cabinet Office.

Candidates from within the Scottish Government, the UK and devolved administrations and local government will want to consider, among other factors, what the role of Permanent Secretary might then lead to. Russell moved to be Vice-Chancellor and Principal of the University of Glasgow, while Elvidge, Housden and Evans all retired. Marks has set a different path by returning to a senior Whitehall post after what has proved only a short stint away. His trajectory suggests that another career path is possible. We shall see.

Save our ships… this time

The future of the shipbuilders Harland and Wolff has been secured after Spanish firm Navantia’s UK arm agreed a deal to buy the struggling enterprise. Navantia UK was already a partner of Harland and Wolff (and BMT Group) in the Team Resolute consortium building three new Fleet Solid Support ships for the Royal Fleet Auxiliary. According to the government’s announcement, the purchase will retain all four of Harland and Wolff’s facilities in Belfast, Arnish, Methil and Appledore and preserve the 1,000-strong workforce. The government has also agreed “an amendment to the existing FSS Programme contract on commercial terms” which will secure delivery of the three vessels to the Royal Fleet Auxiliary, though it refuses to disclose details of these changes on the grounds of commercial confidentiality.

The fundamental elements of this announcement should be welcomed, insofar as it seems to maintain shipbuilding capabilities at four UK sites, not least Harland and Wolff’s icon shipyard in Belfast which built RMS Titanic, her sister ships RMS Olympic and HMHS Britannic, aircraft carrier HMS Formidable and cruiser HMS Belfast among others. The confirmation of the contract for the Fleet Solid Support ships is also important, especially given the government’s recent decision to retire the Royal Navy’s two assault ships HMS Albion and HMS Bulwark; that said, as I wrote last month, the FSSs are not due to be delivered until the 2030s and there is a potential capability gap that could have serious consequences for the role of the Royal Marines.

There is more to this announcement than is at first apparent, however. The sale of Harland and Wolff to Navantia UK was brought about by the fact that the company had entered administration in September (for the second time in five years) and so faced a bleak future. In July, in an attempt to remain in operation, Harland and Wolff had applied to the government for a £200 million loan guarantee, hoping to borrow money to restructure its existing debt and improve its financial health. Jonathan Reynolds, the Business and Trade Secretary, had refused the application for the loan guarantee, telling the House of Commons that government “funding would not necessarily secure our objectives and there is a very substantial risk that taxpayer money would be lost”. In a phrase which sat slightly oddly from a Labour cabinet minister, he added that “the market is best placed to resolve the commercial matters faced by Harland and Wolff”.

Whether Thursday’s announcement is the manifestation of the market resolving commercial matters is not wholly clear as long as some of the details of the agreement remain secret. At the time, however, I was suspicious of the government’s decision not to provide the loan guarantee. I wrote in The Spectator that it the government had found a grant of £500 million to help Tata Steel modernise its Port Talbot steelworks and had underwritten a loan of £136 million to a paper mill in Deeside, while Harland and Wolff was not actually asking for the payment of any money at all, merely the guaranteeing of a loan (which, certainly, might have been defaulted on).

Reynolds celebrated the Navantia purchase by saying that “this deal will guarantee our sovereign shipbuilding capability… and ensure the industry can continue to deliver economic growth and boost coastal communities right across the UK”, a very Starmerian formulation which subjugates everything to “economic growth”. The Defence Secretary, John Healey, offered the same argument, that it “keeps vital defence manufacturing in the UK and protects skilled jobs at historic shipyards across our nations”.

This is true as far as it goes: if, as claimed, the four Harland and Wolff sites remain open and continue to function as they have, the agreement has “guaranteed our sovereign shipbuilding capability”, more or less. However, it is only fair to observe that Navantia is, of course, not a UK company; indeed, it is wholly owned by the Sociedad Estatal de Participaciones Industriales (SEPI), the Spanish state-owned sovereign wealth fund which evolved from the Franco-era Instituto Nacional de Industria and is supervised by the Ministry of the Treasury. That means that Harland and Wolff is now owned not only by a foreign company but a foreign government, albeit one which is a NATO ally.

The central questions are: whether these results could have been achieved, and Harland and Wolff remained independent, if the government had agreed to the loan guarantee in July; and, given that it did not, how much, if anything, the implementation of this agreement and Navantia’s purchase will cost the government and therefore the taxpayer.

The former is of course impossible to answer definitively. Announcing the new deal to the House of Commons in a rather snide and partisan speech on Thursday, Reynolds implied very strongly that Harland and Wolff would not have survived in its previous form, even with the £200 million guarantee, as he stressed that “the British taxpayer would have been put at significant risk of losing millions of pounds, without the safeguarding of any yards, jobs or ships”. He also claimed that “the former Government’s inability to make a decision left the yards and the workforce in limbo”, and chided the Opposition with unnecessary and undeserved moral superiority:

I was dismayed that… Conservative Members opposed that, knowing as they did that with a guarantee or loan there stood a significant risk of losing an eye-watering amount of taxpayers’ money. That was deeply irresponsible.

Reynolds does not know whether Harland and Wolff would have survived, nor do we. Yet his argument almost relies on the assumption that the company would have collapsed and the taxpayers’ money been forfeited. That is not certain.

Then second point is not currently clear. Reynolds told the House that “there is no support going directly from Government to the business to subsidise the transaction”, which is somewhat reassuring, but the word “directly” is unlikely to have been put in that sentence by accident. There must be a possibility—I would say a strong supposition—that part of the agreement includes some provision which would fall into the category of “indirect support”. What that might be, we do not know. When the Shadow Business and Trade Secretary, Andrew Griffiths, pressed Reynolds for details, he declined to elaborate.

There have been amendments to the contracts supported by my Department and the Ministry of Defence. He asked for the details. I will not reveal it in the House because of the commercial sensitivity, but I will find out whether there is a way to share that with him.

We must rely on the relationship between Reynolds and his shadow to see that this is properly scrutinised.

One nagging point is that Reynolds is muddying the water somewhat by suggesting strongly that the purchase of Harland and Wolff by Navantia essentially represents all the benefits of the company’s survival without any of the risk of having provided the £200 million loan guarantee. This is not quite true: the provision of the guarantee could have resulted in a substantial loss to the taxpayer, certainly, but the other possible outcome would have been Harland and Wolff’s survival as an independent, UK-based company. This deal does not provide the same benefits as that, but slightly different, most would agree lesser, ones of maintaining the facilities and jobs but ceding the ownership of Harland and Wolff to a foreign government. It is not, as Reynolds sometimes seemed to be hinting, the best of both worlds.

This episode is not over. We can see the benefits but unless or until there is full disclosure, whether publicly or to the Opposition on some terms of confidentiality, of the financial details of the Navantia purchase, it is very hard to know how good or otherwise the news really is. We can at least say that a bad outcome—the closure of Harland and Wolff and the delay or loss of the FSS contract—has been avoided. But we cannot say very much more than that.

Main building still doesn’t get it

As regular readers will know, I am deeply sceptical of the current government’s approach to defence. I think the Defence Secretary, John Healey, as an individual is a straightforward, dedicated and level-headed politician, though he is sometimes moved, either by excitement or leaden obligation, to produce some ludicrous, stilted, sloganistic phrases which suggest he needs a few days away from the Prime Minister. However, I think the government’s defence policy as a whole, if you can call it a “policy”, is flimsy, distorted by political imperatives and incoherent.

None of this is helped by the fact that the Ministry of Defence is one of the most self-deluding and dysfunctional departments in Whitehall. There is currently a strong tendency, which has been in evidence since before July so I do not blame it wholly on the Labour administration, to brush off criticism with increasingly emphatic statements of purpose, and an unwillingness to acknowledge reality even when it is laid out before them.

This is not to say there are no good people in Main Building, both civilian and military: the Chief of the General Staff, General Sir Roly Walker, is a brave, respected and gifted officer, as I acknowledged in The Spectator last September, though he has a reputation for seeing issues through the prism of the Special Forces in which he served for 10 years; Madelaine McTernan, Chief of Defence Nuclear, is a highly effective and able administrator with a private sector background who shone as first lead negotiator then Director General of the Vaccine Taskforce during the Covid-19 pandemic; Lord Coaker, Minister of State for Defence, is a very experienced politician who was a whip under Sir Tony Blair, a junior minister under Gordon Brown and Shadow Defence Secretary under Ed Miliband.

Collectively, however, the leadership of the Ministry of Defence is out of touch with reality, insanely optimistic and ambitious, and shows no kind of insight into the appalling problems that the department faces across a range of issues. An article in The Financial Times demonstrated a number of these failings. It began by announcing that MoD calculations had concluded Britain “needs to spend 3.6 per cent of GDP on defence if it wants to modernise its military while protecting its nuclear deterrent and meeting NATO obligations”. I take on trust that someone in the MoD has said that, and they may even have reached that conclusion by painstaking and well-considered means. More still, it may be about right. But the chances of the department being given that kind of increase in resources, which would be a rise of 56 per cent on the current defence budget, are absolutely zero.

I’m prepared to accept that it may not be an earnest suggestion but rather an opening bid in the never-ending war with the Treasury, and that the MoD’s leadership hope to bargain down from 3.6 per cent but arrive at something still considerably in excess of the current spending level of 2.3 per cent. That is understandable though I question its efficacy as a tactic. One anonymous senior official is quoted in The Financial Times as saying:

Either we are going to have to delete some capabilities or reduce headcount further. There is a gap between our ambitions and reality … even 3.6 per cent may not be enough.

That is a fair assessment. Earlier his year, a report by the House of Commons Public Accounts Committee showed that the MoD’s Equipment Plan for 2023-33 had a shortfall between commitments and resources of just under £17 billion—some commentators have suggested it is actually much larger than that—but ministers and officials have refused to engage with the crisis. Instead there have been upbeat assertions that all will be well and reassurances, widely disbelieved, that significant improvements are imminent.

One phrase from the article struck me as particularly significant and dismaying. It recounted the various commitments the armed forces have, and noted that the single largest item in the defence budget of nearly £60 billion is the maintenance of the independent nuclear deterrent. Keeping the Royal Navy’s fleet of four Vanguard-class ballistic missile submarines—which will be gradually replaced by the new Dreadnought-class from the early 2030s—in operation costs something of the order of £15 billion a year, a fifth of all defence spending. The authors then noted “Defence officials believe the UK does not get enough credit for the nuclear deterrent it has declared to NATO”.

Credit? From whom? For what purpose? It is true that NATO places great importance on its nuclear capability and states explicitly that “as long as nuclear weapons exist, it will remain a nuclear alliance”. That capability is provided for the protection of all member states by the United States and the United Kingdom; France’s air- and sea-based Force de dissuasion is the fourth-largest nuclear arsenal in the world but is not integrated into or committed to NATO’s defence in the same way. If America’s contribution to the European strength of the alliance were to be downgraded, as many believe will happen under President Trump, the UK’s continuous at sea deterrence would become a more important part still of NATO’s armoury.

Nevertheless, under the current circumstances, the facts are that Britain’s nuclear capability is wholly secondary to that of the United States, and it is maintained primarily for the protection of British interests. The government does not spend £15 billion a year to help shelter our NATO allies; that is a convenient by-product and one which, certainly, gives the UK some diplomatic leverage. But the complaint that we do not get “enough credit” for it is abject and baffling, couched in the language of a spouse who feels his or her contribution to the household income is under-appreciated.

What should we infer from this attitude in the Ministry of Defence? Do senior military and civilian leaders believe our allies should expect less of us in terms of contributions to conventional capabilities because we are putting our financial resources into nuclear deterrence? Do they feel we are not being given sufficient privileges and status within NATO? Or, as I suspect, is it indicative of a collective mentality which feels embattled and under pressure, and is responding to that pressure with a prickly defensiveness because it has not absorbed its own very many failings and shortfalls? It is simply not the language of serious international diplomacy.

The Strategic Defence Review is due to report to the government in the first half of next year. That, I suspect, will be as much the beginning of a process as the end of one, as the government then decides how to respond to its conclusions and recommendations, and the perpetual struggle between the Ministry of Defence and the Treasury intensifies again. This is very far from over.