The Truss era begins: Britain and Israel seek an ever-closer relationship

 This article appears in the edition of the Jerusalem Report dated 3 October 2022

            On September 5 Liz Truss emerged as the winner of the bruising contest she had been engaged in for leadership of the Conservative party, and thus became Britain’s new prime minister.  Liz Truss it was, as UK foreign secretary, who met Yair Lapid back in November 2021 to sign the UK-Israel agreement that heralded the negotiations for a new Free Trade Agreement.  She is on record as saying: “Israel and the UK are already closely intertwined with deep relationships in trade, security, culture and tourism. If I am elected as the next prime minister I will set about ensuring that alliance grows even closer.”

On August 6, just after Israel had responded to the rocket strike on Ashkelon by targeting launch sites in Gaza, Truss issued a statement: “The UK stands by Israel and its right to defend itself. We condemn terrorist groups firing at civilians, and violence which has resulted in casualties on both sides.  We call for a swift end to the violence.”

The deep UK-Israeli trade relationship seems to stem from Britain’s general election in 2010, which resulted in a Conservative-Liberal Democrat coalition government headed by David Cameron.  Within a year of his taking office as prime minister, UK-Israel bilateral trade witnessed a hitherto unprecedented growth of 34 percent, and in 2011 it amounted to £3.75 billion ($6 billion).

One key component behind this explosion of business activity was the little-known UK Israel Tech Hub – a highly innovative concept born out of an agreement between Cameron and Israel’s then prime minister, Benjamin Netanyahu.  Launched in 2011, it was to be a proactive UK-Israel hi-tech partnership, based in the British Embassy in Tel Aviv. Nothing of the kind had ever been attempted before by the British government. 

The UK-Israel Tech Hub aimed at a win-win partnership – to provide Israel with the benefits of a close working relationship with the UK in developing its rapidly expanding technology and start-up sectors, but also to ensure that the UK market could benefit from the breadth and quality of Israeli R&D and innovation.  

Announcing the appointment of its head a little later, Cameron said: “We want to work much more closely with Israel on innovation and technology.  That’s why a year ago we launched the UK-Israel Tech Hub at our Embassy to link up with UK Israel Business, the Israeli Embassy here in London and countless talented young people in both our countries.”

What followed was years of slog, determination and entrepreneurship by scores of British and Israeli business executives and officials, and the result has been the flourishing bilateral UK-Israeli trade figures that show no sign of having peaked, or how high any peak might reach.

            The UK has been under Conservative administration for the past twelve years.  Despite some difficult trading conditions, the mushrooming of UK-Israel bilateral trade has continued.  In the year ending March 31, 2022 total trade in goods and services between the UK and Israel stood at £5.4 billion ($6.5 billion), an increase on 2021 of 19%.

   These ever-expanding trade figures reflect a UK-Israeli trade relationship in excellent shape.  In January 2019, anticipating Britain’s departure from the EU, Israel was among the first countries to sign a free trade agreement in principle with the UK (a full-scale agreement was impossible until Britain had actually left the EU).  Now the UK-Israel trade relationship covers all Britain’s major industries, but with a natural focus on the technology and services of the future.

Some 500 Israeli companies are currently operating in the UK, employing thousands of people, while a surprising number of UK companies have major operations in Israel, including Unilever, Barclays bank, pharmaceutical giants GlaxoSmithKline, and Rolls Royce. Rolls-Royce was responsible for the UK’s largest ever export deal to Israel back in 2016, when it signed a £1 billion agreement to provide Trent 1000 engines for El Al’s new fleet of Dreamliner aircraft.

The rapid expansion of UK-Israel trade over the last decade has closely followed Israel’s emergence on the world scene as a global leader in high tech. Israel is now home to the highest density of start-ups anywhere in the world.  It also houses the hubs of some of the world’s major technology powerhouses, including Google, Microsoft, Intel and Motorola.  Meanwhile Foreign Direct Investment (FDI) from the UK in Israel in 2020 was £1bn, most in financial and professional services, electronics, and Information and Communications technology.

The term “tech unicorns” is not yet in common usage, but these business entities are a real measure of the extent of hi-tech activity in any nation.  Tech unicorns are privately owned technology-based startup companies with a valuation of over $1 billion. As of August 2021, there were more than 800 unicorn companies globally, and the number was growing.  The UK boasts some 115, while Israel’s 53 secured £18.5 billion of new funding in 2021.

Israel’s coalition government was keen to build on the UK-Israel success story.  November 2021 saw visits to the UK by President Isaac Herzog, then-prime minister Naftali Bennett, and then-foreign minister Yair Lapid.  Lapid’s purpose was to launch a new initiative aimed at even closer trade relations between Israel and Britain.  He found an enthusiastic ally in the UK’s new foreign secretary, Liz Truss.

On the day after Lapid arrived, November 29, the Daily Telegraph achieved a journalistic coup – an article written jointly by the British and Israeli foreign ministers, Liz Truss and Yair Lapid.  Headed: “Together we can propel both our nations to safety and prosperity”, the piece heralded a new UK-Israel agreement, to be signed later that day, which they described as “a major step forward, transforming our close friendship into an even closer partnership by formally agreeing a new strategic plan for the next decade spanning cyber, tech, trade and defense.”  Lapid later described this UK-Israel Strategic Partnership as “a major moment in the relationship between the United Kingdom and Israel.”

That declaration has recently been transformed into full scale negotiations for a new UK-Israel Free Trade Agreement (FTA).  On July 20 Britain’s then-International Trade Secretary, Anne-Marie Trevelyan – she visited Israel early in 2022 – met with Israel’s ambassador to the UK, Tzipi Hotovely, to launch negotiations for a new “innovation focused” FTA aimed at creating new opportunities for tech firms and professional services in both countries. 

“It will seek,” states the official UK government release, “to establish a modern, revamped trading relationship between two of the world’s services superpowers.”

To accompany the formal launch of negotiations, the UK Department for International Trade issued a 40-page document explaining the strategic approach to the proposed new Free Trade Agreement.

“The UK is proud of its deep and historic relationship with Israel,” it declares.  “As open, innovative and thriving economies, the UK and Israel are close allies and strategic partners. Israel is one of the largest, most vibrant economies in the region, with which we already enjoy a strong trading relationship. But there is scope to go further, and we have a golden opportunity to do just that through a new FTA.”

It goes on to explain: “Israel’s economy is growing rapidly, with its service sector growing by 45% over the last 10 years. A new FTA will allow us to take advantage of this growth, generating ever more opportunities for UK firms to export their goods and services. Upgrading our trade deal with Israel will help unlock a stronger, more advanced partnership. The new deal will play to our strengths, reflecting the realities of trading in the 21st century and allowing us to take advantage of future innovations.”

The benefits to Israel are equally real, paralleling those outlined in the UK document.  In particular, perhaps, the proposed trade agreement for services, as well as encouraging mutual investments, will provide Israeli companies with access to UK government and public projects.

One of the major problems facing Liz Truss as she takes up the reins of the UK premiership is how to ensure continuity of gas supplies over the coming winter.  Most of Britain’s needs are met by pipeline from Norway, direct from the North Sea, and liquid natural gas (LNG) imports from Qatar.  Given the global energy crisis, experts estimate the UK could be facing a shortfall during the winter of 2022-23.  In June 2022 the EU, Israel and Egypt signed an agreement that would see Israel exporting LNG to Europe via Egyptian facilities. In view of the close relationship between Truss and Lapid, and the ever-tighter trade bonds to which both the UK and Israel are committed, perhaps Britain’s new prime minister might turn to her Israeli friend to help close the UK’s looming energy gap – and perhaps Israel might find a way to do so.

          A commitment to ever-closer ties between the UK and Israel, both in trade and more generally, was common ground between both candidates competing as the UK’s new prime minister – a post Truss is likely to hold until the next general election, scheduled for 2024.  The future beyond that is shrouded in mystery, but the ties binding the UK and Israel are particularly strong. They are not only likely to stand the test of time but, given a fair wind, to become even stronger to the benefit of both nations.