Can we be truly economically independent of Russia?

Less than a month ago I was unashamedly focused on getting our politicians to go for growth. To raise their ambitions for the UK economy and take bolder action as the only way out of a trap that necessitates high taxes to pay for high spend.

But that was then. The conflict in Ukraine is devastating and now dominates all of our attention. I’m so very proud that many firms around this country are responding to the humanitarian crisis by providing logistics, aid, finance and indeed jobs for refugees.

As for sanctions, we’re seeing every firm in the country backing them, complying with them – and looking to go further if they can. There is an economic cost to firms – for us, this is war where the cost won’t be measured in tanks and soldiers but on corporate balance sheets. But the business leaders I talk to are convinced we must respond to the Putin regime.??

For many companies it’s possible to draw a surgical line around their Russian interests and divest them or close them down. We’ve heard about them in the news and the list is growing.

But the truth is, for others, unwinding from Russia is complicated.

Take into account that Russia has 90% share of the global market in neon (needed for semi-conductors) and over 50% in pig-iron (used to make steel), as just two examples, it’s easier to understand why unravelling supply chain dependencies will take time, replacements will be extremely costly and production will face delays.

Meanwhile, some firms have contractual commitments worth millions that can’t legally be breached. And many also want to do the right thing by their staff in Russia who fear retribution as firms exit and face impending hardship.??

We need to focus on resilience

The whole conflict is a wake-up call to make our own economy more resilient. Our supply chains, our energy sources and our cyber security aren’t where we need them to be. And we need to retain high levels of business confidence to invest, in the face of the natural uncertainty such a conflict brings.

This is about the next phase of the Russian conflict. Because until you have a robust domestic economy, you can’t truly stand up to aggression overseas.

We’re starting to think about this now. About having greater economic autonomy and resilience.

Have we got the right trading relationships in place outside of Russia to meet the UK’s critical mineral and commodities needs? What’s our strategy to secure them? It will probably involve new trading partners.

How can we move far faster towards clean energy? And double down on successful strategies for wind power and nuclear, and deliver investible models for carbon capture and hydrogen? It will need more domestic oil and gas for the transition I’m sure, but fracking for us is the wrong response.

We’ll need to think about how we overcome soaring energy prices – and how we support those companies that will struggle to cope in the next six months without help, whether we’re talking about energy intensive users, SMEs or any firm in between. And what about the millions of consumers facing fuel poverty in the months that follow??These are hard decisions for government to take but if the next price cap decision for consumers is six months away, the work on possible answers should begin immediately.?

The cyber security threats are real. The UK’s 2022 Cyber Strategy highlighted the joint approach needed across society and the economy – as well as international collaboration – to build our resilience. So how do we see that through to delivery, with a laser focus on building the UK’s cyber skills, and supporting cyber security throughout supply chains?

This crisis is also likely to have a negative impact on firms' investment intentions – with bad timing, as those intentions were high coming into 2022, bouncing back from Brexit and Covid uncertainty. Most of our business investment is not impacted by the conflict and if anything the need to invest in new clean energy grows. But there’s always a hit to sentiment that needs to be overcome.

That’s why the Spring Statement, now only a fortnight away, remains an important tool in the government’s box. A chance to confront economic consequences head on. It won’t be a Budget – Rishi is keen that we return to one major Budget a year in the autumn.

But I think government need to signal now that they are committed to stimulating business confidence and investment to maintain UK growth. Putin’s aggression shouldn’t dampen our resolve. It should strengthen it.?