For almost half a century, the Treasury has served as the institutional guardian of Britain’s post-industrial settlement. Under this neoliberal consensus, success was measured almost exclusively through fiscal restraint and balanced budgets. Heavy industry was dismissed as an inefficient relic of the past, with the opportunities of the future expected to flow from financial services and the knowledge economy. Defence was viewed as an unproductive drain on public spending - ignoring its potential as a powerful industrial engine.
Today, those assumptions lie in ruins. Russia’s invasion of Ukraine has exposed the hollow fragility of Western manufacturing capacity; successive energy shocks have highlighted the cost of foreign dependence; and Donald Trump’s return has underscored that NATO security guarantees are ultimately beholden to the political choices made in Washington, not London or Brussels. In such a world, economics and national security can no longer be treated as separate disciplines. The ability to manufacture steel, refine critical minerals, or build autonomous systems has become a fundamental measure of state sovereignty.
With Andy Burnham in Downing Street and John Healey taking charge at Number 11, the political chessboard has been upended. Burnham’s vision of the "productive state" offers a radical departure from the passive market-led consensus of the past forty years. Rather than asking how little the state can do while keeping the wheels of the economy turning, the productive state asks a different question: how can the state deploy its purchasing power and procurement rules to rebuild the very foundations upon which all prosperity depends?
In Healey, Burnham has installed a Chancellor uniquely prepared to dismantle the dead hand of Treasury orthodoxy and treat defence spending as our most potent economic weapon.
To succeed, however, Healey must first reject the false dichotomy between "welfare" and "warfare". In this model, the market coordinates production, while the welfare state merely redistributes the proceeds through taxation and cash transfers. Westminster debates have fought over the boundary between them, with progressives finding comfortable ground in arguing for an expanded welfare state to cushion the fallout of deindustrialisation.
We treat social security as a sticking plaster for neglected communities, while ignoring the root causes of their stagnation: corporate extraction and underinvestment.
As Aneurin Bevan famously remarked of post-war scarcity: “This island is made mainly of coal and surrounded by fish. Only an organising genius could produce a shortage of both at the same time”. Today, a different set of organising geniuses have managed to produce a hollowed-out state that suffers from a chronic shortage of both national security and sovereign industrial capacity.
The material crisis confronting our armed forces is too urgent to ignore. Peacetime bean-counting may suggest that defence is not the most efficient pro-growth investment on the table, pointing to spreadsheets that claim spending on healthcare, education and technology yields more immediate jobs per pound. But such critiques miss the wood for the trees; they treat national security as a discretionary lifestyle choice rather than the existential prerequisite for any domestic economy or welfare state to exist at all. A country cannot enjoy the fruits of economic growth if it lacks the material capability to secure its supply chains, protect its critical infrastructure, or defend its shores.
To build a truly resilient Britain, rearmament must double as our de facto industrial strategy. Every munitions plant onshores skilled manufacturing jobs, every shipyard trains a new generation of apprentices, and every investment in artificial intelligence strengthens our domestic technological capability.
Reaching 3 percent of GDP on defence will require tens of billions of pounds in additional expenditure over the coming years. Markets have already demonstrated their sensitivity to any suggestion that Britain intends simply to borrow without restraint. When Burnham’s bid for power gathered momentum, gilt investors were quick to react. Fears that a left-wing government would unthinkingly loosen borrowing limits, combined with the inflation shock of conflict in the Middle East, triggered a massive sell-off in government bonds. Burnham cannot afford to trigger another crisis of confidence in the gilt market, nor can he abandon the inherited manifesto commitment not to increase taxes.
To escape these fiscal constraints, Healey has revived plans to join the Canadian-led Global Defence Bank. Joining this multilateral institution - championed by Mark Carney - allows Britain to pool capital with G7 allies to finance defence and security infrastructure. It represents a profound geopolitical realignment away from Atlanticist vassalage, where our nuclear missiles are leased from a shared pool and serviced in Kings Bay, Georgia, and our security services rely on Amazon Web Services.
This agenda is a profoundly patriotic social project - one designed to rewrite Britain's social contract and restore economic dignity to the working class. Decimated manufacturing heartlands watched secure skilled jobs vanish under a succession of unfulfilled political promises - where the state’s only response to structural collapse was to redistribute wealth through welfare, keeping communities barely afloat while the core structures of their local economies continued to erode.
The progressive-realist solution is to realise that reindustrialisation and rearmament are not competitors to welfare, but are the ultimate structural reform of the welfare state itself. By placing these peripheralised, working-class communities once again at the heart of our sovereign manufacturing base, we can shift the dial away from a disempowering status quo of passive compensation towards one of active contribution. Reindustrialisation through rearmament does not require punitive benefit cuts; instead, it lifts people out of welfare dependency by providing secure, high-skill, and dignified employment close to home.
This is the driving force behind the newly formed Reindustrialisation Research Group (RRG) within the Parliamentary Labour Party, convened by Andy MacNae MP. Bringing together around forty backbenchers from groups as diverse as Tribune, the Red Wall, and Blue Labour, the RRG has set a bold target for the new PM and Chancellor to deliver: one million more jobs in production over the next decade.
The battlegrounds that will decide whether Burnham can overturn Labour’s fortunes and win the next election, whenever it may come, are the coastal towns, mining villages, and manufacturing hubs that once built Britain’s heavy industry. These communities are indifferent to abstract GDP growth figures; they care about whether their children can find secure work without being forced to move away.
Rebuilding Britain’s productive capacity after decades of neglect will require a level of political discipline and sustained capital investment unseen in our peacetime history. There will be intense resistance from those who insist the Treasury return to the comfortable terrain of balancing Britain's books, but John Healey has been appointed to do something far more ambitious: to help Britain stand on its own feet once again.
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All blog posts represent the views of the author alone and not necessarily those of Mainstream.
Charlie Davies currently works for a Labour MP. He is interested in the intersection of security and democracy, with a particular interest in how rising populism is reshaping international politics. He is also the founder of the Labour Digital Rights Network, an organisation that promotes discussion across the Labour movement on digital rights and technology policy. You can follow its work on X at @LabDRN.
