The financial markets are nothing if not efficient at pricing in risk. But the risk of homegrown terrorism is a different beast entirely, one that does not show up on a yield curve or a balance sheet. This week’s developments in San Diego, where the suspects in a mass shooting have been unmasked, have sent a shiver through the political establishment on both sides of the Atlantic. For the City of London, the implications are clear: the cost of security is rising, and the return on investment in anti-extremism programmes is looking increasingly dubious.
Let us begin with the facts. Two individuals, identified as British nationals, have been charged in connection with a shooting spree that left five dead in a San Diego shopping centre. The suspects, who had reportedly been radicalised online, had slipped through the net of the UK’s flagship anti-extremism strategy, Prevent. This is not an isolated incident. A recent report from the Home Office revealed that over 6,000 individuals were referred to Prevent last year, yet only a fraction were deemed to require intervention. The question is not whether the programme has merit, but whether it is cost-effective.
As a financial editor, I am trained to look at balance sheets. The UK government spent £112 million on counter-terrorism prevention in 2023, a figure that has risen steadily since the 2017 Manchester Arena bombing. Yet the number of terrorist-related arrests has remained stubbornly flat. This suggests a classic case of diminishing marginal returns. The Treasury, ever watchful of fiscal discipline, should be asking whether these funds might be better deployed elsewhere. Perhaps in strengthening border security or investing in digital surveillance, rather than in community-based programmes that seem to produce more paperwork than results.
The market’s reaction to this news has been telling. Sterling dipped slightly against the dollar in early trading, a sign of jitters about the UK’s ability to manage security risks. Gilt yields edged up, reflecting a modest flight to safety. Nothing dramatic, but enough to remind us that terrorism is a persistent drag on economic confidence. Tourism, retail, and commercial real estate all suffer when the perception of safety erodes. In San Diego, local businesses are already reporting a decline in foot traffic.
What lessons can we draw? First, the Prevent strategy appears to be suffering from a misallocation of resources. The emphasis on deradicalisation in community centres may be politically palatable, but it does not address the root cause of extremism: the cheap, unregulated flow of toxic ideology across the internet. Until we close the regulatory gap on online content, we are merely treating symptoms. Second, the fiscal hawks in the Treasury should demand a cost-benefit analysis of all anti-terror spending. Every pound spent on a Prevent counsellor is a pound not spent on CCTV, cyber patrols, or intelligence sharing.
The Home Secretary has defended the programme, citing high satisfaction rates among participants. But satisfaction is not a metric of success. We need to see recidivism rates, conviction rates, and, most importantly, attacks prevented. In the absence of such data, the strategy looks like a sinecure for social workers rather than a serious security measure.
Financial markets hate uncertainty, and this case has introduced a new variable: the possibility that UK-born extremists are being exported as a problem to our allies. The American government will not look kindly on this. There could be diplomatic repercussions, perhaps even a reassessment of visa waivers or intelligence sharing. That would be a costly consequence.
In the meantime, investors would do well to monitor political risk indices. The UK’s score on the Global Terrorism Index has improved in recent years, but this incident suggests the underlying threat remains. I would advise a small hedge in defensive assets, like gold or short-dated gilts, until the full picture emerges.
To conclude, the San Diego shooting is a stark reminder that the market for security is imperfect. The UK government is spending heavily on a product that is not delivering. It is time for a portfolio review. Otherwise, the taxpayer will continue to pay a premium for underperformance.
