Why are Granny Ivy and Mr. Lamb in disagreement over the decorations for National Day?

The dispute between them is political, representing the divisions that existed in society at that time. In the story, Belize is still a British colony, a remote outpost of its empire. Granny Ivy, however, has no time for British colonialism and rails against those who "talk British, act British, and go on 'home' leave." Bill, on the other hand, believes that British colonialism, though not ideal, is a lot better than the potential alternative of neighboring Guatemala taking over.
The political tensions between Granny Ivy and Mr. Lamb come to a head during Belize's National Day celebrations. Granny provocatively decorates the room in the blue and white colors of the PUP, a pro-independence political party. Bill accuses Granny of associating with people who are in league with the Guatemalans and are so glad to see the end of British colonial rule that they're prepared to sell out the country's interests to Guatemala. Bill is not against independence for Belize; he's just worried about the potentially dangerous consequences if the British leave too soon. Equally provocatively, he pulls down Granny Ivy's decorations and replaces them with British flags, or Union Jacks, as they're commonly known.