Crisis in Defence Spending

By Bill Kincaid, Editor, RUSI Defence Systems

General Lord Guthrie of Craigiebank, Chief of the Defence Staff from 1997 to 2001, said last week that, 'Underfunding is having consequences both for our overall defence capabilities and for our Forces at the sharp end, which are too thinly spread and being required to go to war with equipment which is often outdated and not fit for purpose.'

The Government, however, is quick to point out that we have had the longest period of sustained growth in the defence budget and that the Comprehensive Spending Review will have provided an additional £7.7bn for Defence by 2011, equating to 1.5 per cent average annual real growth. This may sound like a good deal to many, but with defence inflation running at about eight per cent, far higher than the national average, this equates to a significant cut in defence budgets. Admiral Lord Boyce, who succeeded Lord Guthrie as Chief of the Defence Staff, acknowledged that spending had been increased in the most recent review, but that it 'goes nowhere near addressing the fundamental issue of proper funding and overcommitment'.

Why is there such a shortfall when the Treasury is paying the extra costs of the operations in Iraq and Afghanistan? There are a number of reasons.

Firstly, defence spending has been squeezed over the last decade, at the same time as commitments have increased beyond the planning assumptions on which the defence budget is based; the result being, amongst other things, a shortage of badly needed equipment, such as helicopters and strategic lift, and the long-term deterioration of accommodation for both single and married soldiers; in the October edition of RUSI Defence Systems, General Sir Mike Jackson, says that, 'What really makes me angry is accommodation – that’s just the result of not putting enough money into it'. Putting to right the results of this decade of underinvestment cannot now be delayed any longer.

Secondly, major equipment projects have continued to cost more than originally projected – the so-called 'conspiracy of optimism' is explored by the RUSI Acquisition Focus in the latest RUSI Defence Systems. Bureaucratic processes and culture governing defence equipment acquisition are hugely wasteful and, with the sudden departure of Lord Drayson, the champion of change, this waste is set to continue.

Although equipment procured under the Urgent Operational Requirements procedures (costing some £2nn to date) is paid for by the Treasury, most of it will, after a relatively short while, have to be supported by the defence budget.

All this adds up to a serious situation. What are the options for managing it?

As the Treasury pays for most of the extra costs for operations, cutting commitments will only help marginally – unless they are cut so much as to allow a significant reduction in the size of the Forces. In which case, would we still be capable of carrying out our inescapable defence responsibilities?

An obvious place to look for major savings is the equipment programme, as it consumes some 43% of the defence budget. However, we are now short of much essential equipment on operations, and the Government is committed to two new aircraft carriers, the future combat aircraft (probably JSF), the new nuclear-powered submarines and Type 45 destroyers. Cancellation of Tranche 3 of Typhoon production is unlikely to yield major savings because of the tight contract. Any major cut in the equipment programme would, therefore, have to include such programmes as the Future Rapid Effect System (FRES) and the Future Surface Combatant (FSC). The former has been in the pipeline for some thirty years and is desperately needed by the Army for both counter-insurgency and high-end warfare, while the latter is a must at the very least for maritime security operations, where numbers matter.

Only if we give up the capability for state-on-state warfare could the necessary room be found in the equipment programme. And if we give up such capabilities would we ever be able to get back into them? Moreover, cancellation of a number of major programmes would undermine the Defence Industrial Strategy with its concept of 'appropriate sovereignty' and damage the new relationship that MoD is trying to forge with the on-shore defence industry.

Those involved in this winter’s planning round are wrestling with these problems. Whatever their decisions, the coherence of the capabilities of the Armed Forces is almost certain to be further undermined.

All this points to the absolute need for a further, and significant, increase in the defence budget, preferably tied to a percentage of GDP, which given sustained growth would offset the effects of defence inflation. What percentage? The RUSI Acquisition Focus, in the Winter 2006/07 edition of RUSI Defence Systems, recommended 2.5 per cent (exclusive of Treasury funding of operations). The former MP, Winston Churchill, calls for 3 per cent. Whatever it might be, it has to be rather more than the current 2.1 per cent.

As General Sir Mike Jackson said in the 31st Richard Dimbleby lecture: 'It is our soldiers who pay the cost in blood. The nation must, therefore, pay the cost in treasure.'

 

 

The views expressed above are the author's own, and do not necessarily reflect those of RUSI.