True economic independence from Russia requires bolder moves

With UK government sanctions rightly being put in place, the next phase of economic actions must be to secure greater economic independence from Russia and to build a far more resilient UK economy.

1. Setting out some of the actions the UK can start to take, Tony Danker, CBI Director-General, said:

“The actions of this Russian government are making their country an economic no-go area.

“Sanctions have been a successful start to global efforts to isolate the Putin regime. But the next phase will require global economies, including Britain, to be economically resilient to further threats.

“This conflict shows us quite clearly  that we need to start bolstering the UK’s future economic resilience, from our supply chains and energy sources to our cyber security.

“To do that, the Government will need to fast-track progress on some of the big policy issues and help firms invest. Business stands ready to support them in that endeavour.

On energy

“Firstly, this crisis shows we must move far faster towards clean energy solutions. We need to double down on successful strategies for wind power and nuclear. And we must go further and faster to deliver investible business models for carbon capture and hydrogen. Government is moving too slowly on these solutions.

“Secondly, we do need to stand behind domestic oil and gas in our energy transition. That’s why the government is right to take forward the aims of its North Sea Transition Deal with industry.

“Third, we need to recognise immediately the looming crisis in domestic and business energy bills. We need to move immediately towards energy efficiency in homes to dampen down demand. And government will need to think urgently about consumers’  as bills go higher still later in the year.

“We also need to support Energy Intensive Industries that lie at the heart of our critical supply chains but are threatened by soaring prices. And we must recognise that smaller firms unprotected by the energy price caps will face significant cashflow constraints. –

On minerals and commodities

“We must assess the UK’s critical mineral and commodities needs  and identify new trading partners and a strategy to secure them. We will have to accept a new reality for energy and mineral costs whilst alternative supply is developed.  The demand for these resources will not wane and we are competing globally.  This will have an impact on our Global Britain strategy – we need to open up new trade alliances around the world to have  far more resilient supply chains.

Cyber security

“Cyber security must also be better enhanced and embedded across society and business. Threats are real and constantly evolving in a society built on integrated systems and data. The UK’s 2022 Cyber Strategy shone a light on the joint approach needed across society and the economy – as well as international collaboration - to build UK cyber resilience. Now it’s time for delivery, with a laser focus on building the UK’s cyber skills, and supporting cyber security throughout supply chains.”

Business Investment

“The crisis is likely to have a negative impact on investment intentions of UK firms following Brexit and Covid. This is the worst timing possible, as business investment intentions were high coming into 2022. So the Government must move now to stimulate business investment to maintain UK growth, thereby demonstrating true independence from Russia.

“New clean energy markets are an opportunity to do just that, as are new trading relationships. Introducing investment tax deductions are another way to signal that the UK can continue to benefit from tailwinds in the economy and not be put off course by Russia’s actions.

2. All firms are fully supporting sanctions. But further unwinding from Russian interests is more complicated than many believe and will take more time – revealing how connected western economies are to Russia.

Tony Danker, CBI Director-General:

“Firms fully support sanctions despite their cost. Meanwhile the CBI will continue to advise companies on what’s required and ensure the government understands the implications of its decisions for UK firms domestically and overseas.

“Some firms have been able to go way beyond sanctions – closing local stores or manufacturing or stopping exports to Russia.  Although the decisions have been difficult, they have been technically possible. But for others, there are  numerous barriers to unwinding immediately.

• For companies relying on Russian supply chains, finding alternatives will take time and be extremely costly (e.g. automotive industry use of metals, food and drinks manufacturers use of fertilisers etc.)
• Many companies have contractual commitments worth millions of pounds that can’t be breached legally
• Firms have moral obligations to their own staff in Russia who fear retribution as firms exit and face impending hardship

“Moreover, it’s clear that the UK and other Western economies now need to confront the economic consequences of unwinding from Russia. This most obviously includes energy independence, significant cost inflation flowing from energy and other commodity costs, anticipated cyber security attacks, and dampening climate for investment.”

In conclusion, Tony said:

“Since the start of this crisis, the CBI has been guiding thousands of firms across the country to support economic sanctions on Russia and to get behind humanitarian efforts for people in Ukraine and for refugees. Convening its councils and roundtables across the UK, CBI members are supportive of sanctions, despite the real costs involved in doing so.

“The next phase must be finding our economic resilience, better ensuring our fate remains in our hands on this conflict and for the future.”