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OF DEFENCE ISSUES DEFICIT AND DEBT By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

fallon10 Jun 15. This morning I will provide a viewpoint on three aspects of defence that are currently being hotly contested and also provide a view on the Chancellor’s plan to bind future governments to maintaining a budget surplus:

Yesterday during Defence Questions in the House of Commons, Secretary of State for Defence, the Rt. Hon Michael Fallon said that the government hoped to conclude the SDSR 2015 process which, led by the Cabinet Office, was already under way by the end of the year. He said that the plan would be aligned with the ongoing review of government spending [Comprehensive Spending Review] covering the 2016 to 2020 period. Mr. Fallon rejected views that suggested the process would be influenced by the Governments stated objective of budget deficit elimination by 2017/18 and he suggested that while the decisions that emanated from SDSR 2010 still held good future threats needed to be addressed.

I would naturally change the last statement to read current or if you prefer, new threats that have piled up on us since the academics that decided what defence needed to be in 2020 and who failed to listen to the views of others produced SDSR 2015 and that in its wake has left Britain in a parlous state in regard to current let alone future defence capability. I live in hope that we will see strategy in SDSR 2105 as opposed to pure policy. I live in hope that those in the Cabinet Office do a far better job in SDSR 2015 than they allowed to occur in SDSR 2010.

A few days earlier the Chancellor took yet another £500m for the defence budget for the current year, a situation that many have rightly condemned.  Of course, if one adds up the underspend over the past four years that was made possible by pushing procurement programmes back, delay and the achievement of greater efficiency in defence – the latter is something that we all agree is necessary – the total comes to somewhere between £3bn and £4bn. Most of this, despite reassurance to the contrary from the immediate previous Secretary of State for Defence Philip Hammond, now Foreign Secretary and who said that most of that money would be rolled over for further defence projects as opposed to being sent back to the Treasury, has I am sure now been returned to the Treasury coffers.

On the basis that taking £500m out of the budget is achieved by further pushing back certain procurement we have no choice but to live with it. But there is a compound impact particularly if this cut is allowed to become £2bn over four years. Despite my current feeling that Whitehall has stated a view that SDSR 2015 will be light-touch I am bound to be concerned about a Treasury inspired review of defence being handled by the Cabinet Office particularly as, unlike what occurred in SDR 1997, this will likely exclude the views of senior military, industry and defence specialists on the basis that once again academics have all the answers. Heaven help us.

My second related issue concerns the spirited ‘defence’ provided by the Prime Minister to the accusation that UK defence is shrinking, that as nation we are retreating from the world, or as US Defence Secretary Ashton Carter put it far more succinctly, that Britain risks becoming ‘disengaged’ and losing its ability to ‘punch above its weight if it further cuts spending on defence.

Mr. Cameron answered his critic by saying that Britain remains a serious global player with a budget [on defence] to back this up. He is reported to have said that “the idea that the £160bn equipment budget that we have protected by inflation represents strategic shrinkage is nonsense” adding that “we have achieved (meaning spending 2% of GDP on defence] every year since he became Prime Minister” in 2010. The later point may well be true but with his Secretary of State grovelling in the House of Commons earlier this week saying that seven NATO members (out of 28) spend less than 1% of GDP on defence and that 20 spend less than 1.5% you can see where this argument is going inside Whitehall. The point is that none of those come anywhere near Britain in terms of size of their economy. Britain is after all still the sixth largest economy in the world.

I am afraid the Government loses the argument on this hands down. Mr. Cameron can defend the situation all he likes but the bottom line is that Ashton Carter has successfully summed up all the concerns expressed not only by himself and President Obama but also by a great many US generals and chiefs of staff. If the cap fits, wear it.

This leads me on to the third and final defence aspect and that relates to the agreed NATO ‘working toward spending 2% GDP’ debate. While some of us have known for some time that in order to be able to say from next year that Britain will be spending 2% of its GDP on defence the Prime Minister had requested back in March that there should be an examination looking at whether the ring-fenced £11bn overseas aid budget might be classified as defence and thus ‘buried’ inside the defence budget. When I originally heard this my first thoughts was what depths have we sunk to now!

Two months on and with the General Election behind us it would appear that the Secretary of State for Defence has now been ordered to test the water by coming out publically with a controversial statement suggesting that money used to supposedly prevent war and to stabilise countries and that presently falls under the international development budget should be categorised as defence.

Underhand manipulation of the defence budget if allowed to go through is perhaps the worst that I have ever encountered in a very long career built around defence. That we could stoop so low beggars belief. It is not the rights and wrongs and whether a satisfactory case of whether the international aid budget for which, even recognising that this needs cleaning up, I do happen to support should be moved into defence it is knowing the reason why they wish to do this. Yet again this is political policy overriding decent well thought out strategy. Is it any wonder that the US Secretary of State for Defense believes that Britain is now in great danger of being seen to have disengaged from the world? Is it any wonder that Mr. Cameron was given what some of us would prefer to call a ticking off by Barack Obama at the G-7 meeting in respect of concerns about UK defence?

Finally, a word or two on Chancellor George Osborne’s decision create a formal budget surplus requirement for all future governments. Once done of course this could hardly be undone but the point for me is that provided that emergency situations and war is eliminated from the equation I am content. Media critics will find plenty in this to grovel about and they will claim this as being an example of pure politics but thankfully the Chancellor is in a really strong position to ignore all of them.

With the prospect of national debt being £1.7 trillion by 2017/18, with a few more years to go before the current deficit is removed and having tied itself in knots in terms of raising extra tax revenue it is a good job that this requirement will not come into force just yet. Nevertheless, it is the right way to go.

 

hwheeldon@wheeldonstrategic.com

Tel: 07710-779785

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