I may well be wrong, but while being well aware that past damage to defence cannot easily be repaired, I do at last get the feeling that both the Prime Minister and Secretary of State for Defence are more than just listening to the howls of anguish being raised about the prospect of further cuts to defence and that this time, they really are prepared to fight those calling for further potentially damaging cuts to defence on the Downing Street side of Whitehall. Wishful thinking on my part? No, this time it is far more than just that!
While it is also true that virtually every ounce of government energy is being drawn to the Brexit issue I do believe that the message is getting through. Every government department wants more money of course and funding remains in very short supply. But while it is clear that the public puts the NHS first on its list for funding increases it seems to me that this time Defence is not that far behind in the queue. The way forward for government and all of us is to realise and indeed, accept that taxation must rise to pay for it.
Yesterday, Johnny Mercer, the MP for Plymouth Moor, a huge supporter of defence and himself both a former Army Officer and currently a member of the House of Commons Defence Select Committee, tweeted in respect of the damming NAO criticism of the way that the MOD budgets for defence equipment expenditure saying “If I was chancellor even I would struggle to put more money into the MOD if they manage it this poorly”. Even though this comment ignores the hugely complicated structure that the MOD remains, the comment is itself a very telling remark and one that should not be ignored.
As I have written towards the end of this piece, whilst it is clear that after years of attempting to get defence on the cheap we must now rise to the challenge and properly fund defence. We must also not only take the opportunity to conduct a formal defence and security review that can prioritise what we need and form a correct strategy from which policy can be born but independently of this, conduct another review of MOD working practice that looks at all of the aspects and problem that the organisation faces in budgeting and responsibility for UK defence.
NAO Mauling of MOD Equipment Plan
Although published mid-way through last week it is only over this past weekend that I have now been able to read the National Audit Office (NAO) annual report on the Equipment Plan 2016 to 2026 in full.
As it has for most of the previous ten years, this years’ NAO Equipment Plan report makes for uncomfortable reading with a bottom line conclusion is that the MOD equipment plan is not only unaffordable in its present form but importantly, once again it fails to provide realistic forecasts of the costs that the Department will need to meet over the next ten years in respect of purchasing and supporting equipment it has determined that the Armed Forces need.
Worryingly, the NAO Report emphasised that the MOD has not included all estimated costs in the Plan and that is in part why it is facing a considerable affordability gap. The report adds a view that there remain significant financial risks that the affordability gap it talks of will widen for the simple enough reason that MOD assumptions in relation to future costs are almost always over optimistic. Finally in this context, the NAO believes that the MOD has wrongly assumed that ambitious £11 billion of savings set out in SDSR 2015 [the NAO refers to £7.9 billion of savings in this instance] would be able to be achieved in future years.
Spending under the ten-year 2016 to 2026 Equipment Plan had been projected by the MOD at £179.7 billion, including a £6 billion contingency. In respect of the previous ‘Major Projects Report 2015’ and the ‘Equipment Plan 2015 to 2025’ the NAO had said in a report published in October 2015 that the MOD Equipment Plan appeared to be ‘more stable than the previous year. Back then the NAO forecast overspend of £3.5 billion over forecast cost.
That report appeared before the EU Referendum Vote and there can be little doubt that Brexit is the main reason behind the near doubling of overspend risk projected by the NAO in its latest report. That figure is targeted by most observers of defence procurement can only get worse from here on without either concerted action to reduce the ‘new’ deficit that has appeared or alternatively, that the defence budget is increased.
On top of what it has calculated to be a minimum spending shortfall of £4.9 billion, the NAO Report last week on the 2016 to 2026 plan spend suggests that there is an extra potential affordability gap of £15.9 billion should all various risks of cost growth materialise and the MOD fails to achieve the cost savings that it had assumed in the Plan timetable. The total potential affordability gap could, according to the NAO, be £20.8 billion – this is equal to the minimum £4.9 billion plus the additional potential £15.9 billion.
It is almost six year now since the then Secretary of State for Defence, Philip Hammond told us that the [then] £38 billion ‘black hole’ in the defence budget had been filled. This in itself, coming just two years after the then Coalition Government had taken office and less than 18 months after the publication of SDSR 2010, always appeared a somewhat serious comment to make and few defence specialist paid credence to the official government line. It was clearly and unreal unwarranted statement for Mr Hammond to make.
That said, given the ruthless axing of defence equipment and capability in the five year period covered by SDSR 2010 a broadly more neutral SDSR 2015 containing plans to full various gaps and risks taken in defence was welcome. By then of course Mr. Hammond was long gone from Main Building but at least the legacy from those ill-chosen words [the ‘Black Hole’ in the defence budget had been filled] was, as he himself announced, that all major aircraft programmes would remain in place boasted Mr. Hammond and there would be further investment in rotary and complex weapons.
One can hardly dispute what the NAO has said in its latest review of defence spending risk and those of us engaged in defence recognise all too well that huge and very obvious risks not least in respect of currency need to be addressed. However, whether or not the current and immediate past Permanent Under-Secretary of Defence (PUS) and their respective staff are at fault for failing to buy the required amounts of currency required to fund [the NAO refers to a potential unbudgeted £4.6 billion of extra costs related to currency exchange] the US elements of the procurement programme or not most agree that tampering with numbers in order to reduce the amount of currency required is not the way forward. Neither is another round of slash and burn cuts to an already depleted and hollowed out defence capability, one that is being required to do so much with so little, the right way to go forward.
It is of course quite ridiculous that we now learn of £9.6 billion of ‘forecast’ costs on various planned programmes within the ten years covered by the MOD Equipment plan had been omitted due to internal MOD disagreement over budget allocation. Equally so that £1.3 billion of costs relating to five planned Type 31e general purpose frigates was missing within the planned ten year budget plan.
That the MOD should carry the main burden of responsibility for budget failings is not in doubt. Neither is the fact that after both Gray and Levene reports on MOD workings and procurement respectively and all the work that followed these in respect of how the MOD conducted its work and in how DE&S which is responsible for defence equipment procurement has attempted to make itself more efficient and fit for purpose, it seems that much work still needs to be done.
So too are the principle recommendations that the NAO provides such as that the MOD needs to be able to demonstrate, backed by appropriate evidence, realistic choices that are open to it in terms of capability and affordability and that it needs to be able to support a debate on critical prioritisation choices, both internally and in dialogue with HM Treasury about funding.
The NAO also believes that the MOD must also address the following weaknesses in the current Plan when developing its next 2018 to 2028 plan. This includes demonstrating that all equipment and support projects are costed within the Plan and developing detailed cost estimates for those projects in the Plan that still do not have them, completing its current nuclear programme costing exercise to ensure that all affected projects reflect the most up-to-date cost baselines and by updating its assessment of the cost of those projects denominated in foreign currencies by adopting exchange rates that better reflect the current market rate for all 10 years of the Plan.
The NAO also recommends that the MOD ensures greater consistency in how risk and uncertainty are reflected in project costs, that it should improve its understanding of the impact of risks across the Equipment Plan portfolio and then use this to inform decisions about the size of its contingency budget, explore potential for greater flexibility in how forecast costs are shown in the Plan and then set out within this a range of possible costs for projects rather than the current approach of providing point estimates.
Finally the NAO believes work to identify the full extent of savings assumed within the Plan should be quickly concluded and that it should then set out clear accountabilities for delivering savings. The NAO believes the MOD should transparently set out in its Equipment Plan Statement, an assessment of all equipment savings included in the Plan together with actual progress made in respect of achieving the objectives and finally, that the MOD should in future plans ensure that any critical prioritisation decisions are fully supported by a transparent evidence based system.
So what should be the answer to all this? Firstly, recognition that some of those to whom the MOD listens are not necessarily fit for purpose. Review after review, while we usually get the basics right we fail at the first hurdle on detail. Politics and the impact of this on timing, delay and subsequent change on defence programmes is partly to blame but equally so is how we arrive at and take decisions. I am not here and now having a go at senior defence civil servants although heaven knows, after one in particular who did so much damage in SDSR 2010 I easily could. Neither am I about to blame the individual Royal Navy, Army and Royal Air Force Chiefs who since SDSR 2010 have been responsible for their own budgets without necessarily having had that much training in order to so do.
We know what we require from defence but perhaps now we do after all need a more radical review conducted by a mixed group of those who understand the realities of defence to reconsider our future approach. If so we need to ensure that the bulk of those involved are not purely academics but that in the main they come from within defence, from within the military, from within the civil service and from within the UK defence industry and include members of the House of Commons and House of Lords. A broad church of opinion led by an independent – a group that is prepared to listen and that has the power to challenge the current order and earn the respect of the nation.
HCDC Talks of Notional Plans to Scrap/Sell Royal Navy Amphibious Landing Ships as Militarily Illiterate
Just as it should and despite several past attempts to scrap Royal Navy assault landing capability the House of Commons Defence Select Committee (HCDC) has lambasted well informed rumours of a notional plan that could see both HMS Albion and HMS Bulwark scrapped or sold and the number of Royal Marines being cut by a further 2,000. Using expressions such as the plan being “at odds with reality” and a move that would be in the “opposite direction to every other tier one military nation” and that are increasing defence capability in the face of a rising threat from Russia, given that this particular inquiry has been done with a degree of speed that the HCDC is not particularly well known for, it is very welcome for its content, sharpness and tone of criticism and in the manner that it has set out a number of challenges faced by the Royal Marines in recent years just as it has stressed their huge relevance and importance to UK defence.
Under the title of ‘Sunset for the Royal Marines’ the HCDC called potential cuts on the scale suggested as being “militarily illiterate” and that cutting back on the amphibious landing ships and Royal Marines capacity would significantly undermine UK security, adding also that to do this would “put the interests of this country at serious risk”.
Importantly, HCDC adds that if rumours of such drastic cuts to the already withered force of Royal Marines are true that “given the disproportionate contribution the Royal Marines make to defence and the sheer range and versatility of their military skills, both they and the country’s security would be significantly undermined. This last reference is a timely reminder that 40% of the nation’s Special Forces are Royal Marines.
Here-here to all of that.
Secondly I would remind that while it is absolutely true that the MOD was presented with various proposals in respect of cutting or indeed, totally scrapping of current Royal Navy amphibious landing capability this has, as far as I am aware all but ruled out subsequently by the current Secretary of State for Defence, Gavin Williamson. In the press over the weekend Mr. Williamson is reported to have said in response to the HCDC report that “If the price of such change is the sacrifice of this country’s amphibious capability, we can only conclude this to be a short-sighted, militarily illiterate manoeuvre totally at odds with strategic reality.” Prime Minister Theresa May has as far as I am aware also publically condemned the idea.
So where did the idea come from? Well, it was not volunteered by the Royal Navy although in the subsequent fight to ensure that the amphibious landing ships were maintained, one very senior officer of the Royal Navy, Rear Admiral Alex Burton resigned. At the very least that resignation confirmed that the idea of scrapping the ships was real.
All credit to the current Secretary of State for Defence, Gavin Williamson for very quickly realising that the new state-of-the-art aircraft carriers, HMS Queen Elizabeth and HMS Prince of Wales are no substitute for the amphibious landing ships on the correct belief that cuts of this nature could seriously risk the Royal Marines ability to operate as a ‘high readiness Commando force”.
My answer to the question posed above in respect of where did the idea come from would be that most probably it came from some unworthy member of the Cabinet Office or Treasury or even perhaps, from the former Secretary of State for Defence, Sir Michael Fallon himself. Whatever, having publically come out against such plans, should Gavin Williamson lose this particular battle and having publically said what he has, he might find it difficult not to resign!
CHW (London – 15th February 2018)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785