Defence “cuts”

The public spending debate in the media continues apace, with the crucial numbers left out. The debate about defence spending has been one of the most active, presumably because the lobbies in defence have been especially keen to put their views to the media whilst arguments rage within Whitehall.

The meetings at Westminster on this topic have tried to keep up with the ever more lurid portrayals of cuts. The Secretary of State, Liam Fox, has explained in various meetings that many of the stories are unreliable, without being able yet to replace them with accurate guidance based on agreement about the future. The new line in some of the papers is that this Defence Review is proceeding too quickly and will not be thorough enough, yet day after day brings evidence of every stone being overturned.

When I have attended meetings I have asked a couple of simple questions. Will Defence be in receipt of rising sums of cash current spending, given the fact that current public spending overall rises from £600 bn a year to £690 billion 2010-15? What is the scope to buy better, given the many criticisms of past weapons procurement, and the cost overruns on one off designs and some programmes? I can get no answer to these questions. Without an answer it is difficult to have a worthwhile discussion of what might be needed and what can be achieved.

The debate in the newspapers is conducted around the proposition that there will be cuts of 10% in defence spending. Does that mean that current spending will be 10% less by 2015? Does that include the cuts in capital spending as well? We know that by 2015 the Afghanistan war will be over for the UK, so we would expect a saving from that happy release. If we are talking of a five year programme, efficiency and effectiveness improvements and better buying could achieve a cumulative 10% if they run at a modest rate of under 2% a year.

I read some very odd ideas. Apparently an economy could entail selling or mothballing expensive ships we already have in the Navy. Another could involve buying two new aircraft carriers but not many of the planes that were meant to be on them.

Many of our leading retailers regularly cut costs by at least 2% a year. They do not do so by announcing the closure of the bread department, or by failing to stock milk and butter anymore. They do so by working away at doing more for less. The managers and staff do not parade difficult choices over which costs to cut in our daily newspapers. They know they are all in it together.

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19 Comments

  1. Mike Stallard
    Posted September 20, 2010 at 8:56 am | Permalink

    You are so right. Although we are promised swingeing cuts, Jeff Randall and your noble self have shown quite convincingly with figures that in fact government "spend" will increase over the course of the parliament.
    What is going on here?

  2. Dan
    Posted September 20, 2010 at 9:38 am | Permalink

    Well said, the debate in defence is one of the most apart from reality of all of those going on as part of the run up to the CSR.

    Trident: there is a sensible proposal to extend the life of the existing boats by 3 to 5 years and delay that aspect of capital spend. It is met with a response as if the proposal was total unilateral disarmament immediately. The real issue is giving work to a shipyard in Barrow as if we do not keep them employed they will not be there when needed in 5 years time!

    Fast jets: we have to phase out the use of Tornado or Harrier or both to make way for Eurofighter and JSF. Wel if tornado is still a viable useful machine why are we replacing it, if not what is the fuss about. The answer is we are replacing it because we have got ourselves into a contract which says we will buy a certain % of the eurofighter whether we need it or not, and we are in danger of doing the same with JSF. We are now in the ridiculous position of buying something we do not want and can not afford.

    We have to decide is the defence budget for the preparation of the UK and its interests or is it a make work programme for the employees and shareholders of the equipment companies.

    • Sebastian Weetabix
      Posted September 22, 2010 at 5:36 pm | Permalink

      Tornado has to be replaced because the aircraft is coming to the end of its 6,000 flying hour design life. Which means there are a few options:
      1. ground them and lose the capability completely
      2. do nothing, and watch them fall out of the sky due to structural failures
      3. spend many millions to rebuild the existing airframes and extend their life (probably ~£40m per airframe)
      4. replace them with eurofighters

      As for "we do not want eurofighter" – balls. You are falling for the propaganda (usually put about by the Navy & the Army who want the budget for themselves) that this aircraft was designed to fight the Russians and since the cold war is over, etc etc.

      Eurofighter is a weapons platform that can beat any other aircraft in the air, thus ensuring air superiority which is a necessary requirement for the army & navy to perform their roles. It will be the backbone of the RAF for 30 years or more. Can we really be sure that we will never in the next 30 years be involved in a state conflict, rather than an insurgency?

  3. Brian Tomkinson
    Posted September 20, 2010 at 9:41 am | Permalink

    The sooner the government announces their real plans, rather than those imagined by the media, the better. The daily dose of impending doom and gloom as a result of the "spending cuts" dispensed by the media is has become very tiresome. If you can't get answers to simple questions to allow you some meaningful contribution to the discussions then the meetings would appear to be a charade and a waste of valuable time.

    • Alan Jutson
      Posted September 20, 2010 at 5:14 pm | Permalink

      Brian

      Agreed.

      The Party Conference should at least be a sensible platform for a once and for all, clear announcement, on all future Government spending plans and cuts (if any).

      The Government needs to nail this debate soon with some hard facts and figures, to avoid any continuing speculation.

      Spending is either increasing overall or it is not.

      Cuts will be made to existing budgets or they will not.

      Failure to be absolutely clear will give the opposition and the media room to attack.

  4. Iain Gill
    Posted September 20, 2010 at 11:48 am | Permalink

    yes as much as the forces themselves we do need a bare minimum submarine/ship/fast jet/tank building capability in this country, barrow for one needs to be kept going for strategic reasons

    the real problem is that anyone above Lt Cmdr in the navy and equivalent ranks in the other forces thesedays is nothing but a pure politician

    and there are far too many civil servants and HQ staff per combat role

    At least the Ken Morissons of this world could run a supermarket, I dont think the average general could run a regiment in combat

  5. john Laity
    Posted September 20, 2010 at 2:04 pm | Permalink

    The published SDSR is interesting as it states:

    "Running alongside delivering capability to the front line in Afghanistan, feeding into the SDSR and CSR, is a programme to cut 25% from the running costs of the MoD."

    Where is Lord Heseltine when you need him? He would expose such cowardice!

    Thankfully, the SDSR does recognise that public opinion is very strong as to the safety and welfare of our serving troops. I have my (protest-ed) ready for the revolution should the Coalition revert to Labour's "death by snatch land rover" spending…

    Joking aside, there are some really easy ways for the MOD (and most Government Departments) to save millions, simply by doing stuff that happens everyday in the private sector! Example:

    The MOD has 272,365 staff: 196,420 Armed Forces, 75,942 Civil Servants, 450 Temp. Staff and about 8 or so Minister / Advisors.

    Armed Forces Staff are provided the Armed Forces Pension Scheme (AFPS 05) a non-contributory defined benefit. Where as Civil Servants receive the Principal Civil Service Pension Scheme (PCSPS) an unfunded mutli-employee defined pension scheme.

    Now TOO BE CLEAR I DO NOT condone reducing either benefit! NEVER NEVER NEVER!

    However, where an employee participates in a Salary Sacrifice scheme, such and Child Care Vouchers or Bikes to Work (both available across most departments) the employer/department will make a contributory saving on pension AND reduce the amount of Class 1A National Insurance it pays back to treasury.

    This is because National Insurance is only collected on the cash portion of your pay and both the employer and employee benefit where a non-cash benefit is provided.

    In other words, the MOD could save Millions in both Pension and National Insurance Contributions, by introducing a greater range of employee benefits…

    The reason it doesn't do so? Apparently, such things are seen as "Bad Form" by Government…Even though such benefits are widely employed across the Private Sector.

    I contest that this luxury of avoiding "bad form" went when Labour spent our defence budget bailing out a few greedy bankers !

    Here is a worked idea:

    If you are stationed in Afghanistan or Iraq at present, you are probably using a laptop computer or satellite phone to stay in touch with your family.

    (Currently, most Armed Forces staff are paying about £800 for 6 months hire for an Iridium Satellite phone + the cost of calls).

    Lets assume it costs them £1000 per tour. Which conveniently is the same cost as a laptop and software.

    If the MOD hired staff a computer or sat. phone and then recovered the cost of doing so from their pay (Salary Sacrifice) then under existing HMRC rules, based on providing a £1000 asset to an employee as a benefit over three years, then:

    The MOD would save £51.20 in Class 1A NIC
    The Soldier £191 in income tax and NIC.

    Assuming 10% of staff took up the offer, then the MOD would save £1.3 Million in NIC and the households of 27,000 staff would save around £5.1 Million.

    Now the not-so-bright wags will at this point state that the Treasury would loose £6.4 Million. HOWEVER, Treasury would save somewhere between 8 – 14% in Pension Contributions simply by recognising the pre-salary sacrifice notional pay AND it can collect VAT on the Sat. Phone, Computer, phone calls, etc. at a rate of 20%…There would also be increased revenue taken from the companies providing the equipment and services.

    So…

    Can it be "bad form" to make such savings, retain staff and support their communications need whist fighting abroad?

    But look, it is much easier to point the finger at a few Senior Officers. Spend less on helicopter maintenance and reduce the amount we spend on training. We can even send a few more reservist troops into war zones to do non-combat support…(I like to call all these "Desk Ideas" developed by those who don't spend the day in the dust.)

    Look it is simple – "Bad Form" is to stick to stupid cross-government accounting concepts, whilst young men and women loose arms and legs…

  6. waramess
    Posted September 20, 2010 at 3:07 pm | Permalink

    You don't know the scale of the cuts, if any ;the Press don't know; the MOD don't know- do you think the Government knows? Beginning to look like they don't.

  7. Ray Veysey
    Posted September 20, 2010 at 3:16 pm | Permalink

    But what does "usable and viable" mean Dan ?, last years Formula 1 cars are still enormously fast, but they won't win any races this year, partly because of new develoments, and probably more important, the rules have changed. It's the same in warfare capability the target keeps moving.

  8. Alan Wheatley
    Posted September 20, 2010 at 3:18 pm | Permalink

    Given defence of the realm is the most important task for government, the defence debate is being conducted from the wrong end. First is needing an understanding of what we need to defend against, not just now, but well into the future. Then we can have a sensible debate about what is needed to achieve the task. In extremus the question of whether or not we can afford it becomes irrelevant, as was the case in WW2.

    For those seeking to approach these issues from an economics point of view, to be credible such approach needs to take account of the cost of failing to defend. For instance what would have been the cost of failing to defend the Falklands, or what was the cost of failing to defend London from terrorist bombs, or what is the cost of every ship seized by pirates?

    Undoubtedly improvements can be made in defence procurement methods, but such improvements will not be found by comparison with retail grocers.

    • backofanenvelope
      Posted September 21, 2010 at 1:15 pm | Permalink

      I totally agree with this. We need a foreign policy review before we have a defence review. Are we going to continue with the overseas expeditionary policy? Are we still committed to NATO? Is NATO going to stick to defending the NATO territorial borders? Do we intend to keep the Falklands? Are we going to keep a SLBM based nuclear deterrence? Does anybody have the faintest idea what the answers are to these questions?

  9. Hugh
    Posted September 20, 2010 at 4:38 pm | Permalink

    John,
    I found roughly the figures you quote above in the Red Book Page 45

    Were the losses on the bank nationalisations, £ 69bn? , a recurring item? I think that you talked about this before.

    All the Best

    Reply: We hope the losses will not be recurring, but there may be more eventual losses when we know how the wind down of the bad loan protfolios has gone.

  10. Rollo Clifford
    Posted September 20, 2010 at 4:43 pm | Permalink

    No one can be sure that we'will be out of Afganistan by 2015' and certainly no one can be sure that we will not become embroiled in some other conflict or committment as yet unseen. History teaches us that both politicians, the Foreign Office and the Military have a truly abysmal record at predicting defence requirements and where the next conflict will be or aginast whom – after all in the 1930's the Royal Navy trained for a war agaisnt the USA while in 1900 it looked far more likely that we would fight France rather than Germany

  11. Adam
    Posted September 21, 2010 at 12:15 am | Permalink

    A cut of 2% a year might be relatively painless if everything was fine and on an even keel: it isn't. The problem for the MoD is that it currently has an unfunded spending bubble. To buy everything that's currently in the pipeline requires a big increase in spending. That won't be coming, so the cuts will feel very fierce.

    The reason for this spending bubble is two-fold. Firstly, the MoD has to procure based on taking a guess on what the budget it will have in 5-10 years time is. That's a near-impossible task. However, more importantly MoD Ministers have a long history of delaying and prolonging procurement in order to save money in the short-term (a nice quick efficiency drive) which ends up increasing the overall cost. We've already seen something similar with the proposal to delay a decision on Trident – it will save some money in this Parliament but increase the overall costs of renewing Trident when it actually happens creating another spending bubble.

  12. Richard M
    Posted September 21, 2010 at 8:22 am | Permalink

    Perhaps if we held onto our 45 million pounds a day EU tax, we could actually increase the number of navy ships, build some more tanks and start immediate construction of nuclear power stations. While Cameron continues to ring-fence the EU budget, we are hemmed in to these ridiculous choices. Defence of the realm is a number priority in a covenant with the British taxpayer. Cameron does not seem to care.

    • EJT
      Posted September 21, 2010 at 11:02 am | Permalink

      I'm as anti-EU as they come, but.

      Is it Cameron's decision to ring-fence the EU budget. Without a sovereignty confrontation, what else can he do ?

      Nuclear power stations – yes.

      MoD procurement – there are structural issues here – it's not simply about the funding.

      • Richard M
        Posted September 21, 2010 at 8:23 pm | Permalink

        Hi : yes.
        Options?
        Stop writing the monthly cheques immediately, and do the EU Referendum. This either gives a full democratic mandate to pay the increasing bills, as promised by Blair and Brown, OR, allows to regain control of our own money. Silence, total silence, expecting the taxpayer to yield millions a day, in a time of cuts, is just not acceptable. We pay his salary and David Cameron works for us, and should not forget it. We voted for change remember, not a perfect continuation of Browns policy.

        Defense, yes it is structural. Trident has always been funded centrally and should continue to be so.

        Nuclear? Well we are chucking huge subsidies at wind farms which achieve little. Even Denmark is abandoning them. If Huhne does not get us building NP now, the lights will go out, same as under Heath. Does Cameron want to be remembered as second Heath? Selling us out on democracy and the EU, and putting lights out?

        Best wishes

        • EJT
          Posted September 23, 2010 at 1:11 pm | Permalink

          Hi Richard,

          I'm sure we are in almost total agreement. I guess the only other point that I was trying to make is that maybe it is useful to be explicit about what could happen under today's politics, and what is pre-conditional on some form of rebellion.

          E.g. Kevin Lohse's point below. " Yesterday she was unknown in the UK, today she is unknown all over Europe".

          Regards, EJT

  13. Kevin Lohse
    Posted September 22, 2010 at 9:56 am | Permalink

    Dear John. Just before the Election, we agreed that Defence spending was largely dependent upon the requirements of Foreign Policy. I am not aware that the government has revised Labour's Foreign policy, though I may have missed any announcement. If the government has not addressed foreign policy, then this gross error of judgement would go a long way to explain the present chaotic state of the defence debate. Would you be kind enough to point me in the direction of the latest published Foreign Policy directive?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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