I was somewhat alarmed yesterday afternoon when I learned that the highly respected Royal United Services Institute (RUSI) think-tank had published a paper suggesting that the Ministry of Defence is facing extra costs of up to £700m a year following the UK’s Brexit vote due to the fall in sterling and where military equipment purchases have been made in US dollars. Whilst I understand the concerns being raised by RUSI I am not sure that in respect of existing or already agreed procurement that this is necessarily correct.
The author of the RUSI paper, Professor Trevor Taylor who I have known and respected for many years, was also on BBC Radio 4’s ‘The World at One’ programme yesterday suggesting that the [purported] extra £700 million annual costs he refers to in his paper could lead to a “budget black hole” emerging and one that [could or would] present a serious problem for the UK’s defence stance.
Black holes are nothing new in defence of course as we know to our considerable costs through what was inherited by the former Coalition Government from Labour. There is in effect a black hole even now and it is in direct response to this that the government has maintained so much additional pressure on the armed forces to cut costs in 2015 and 2016.
SDSR 2015 also confirmed that the UK defence budget will rise by £500 million in each of the next five years and so it will. Spending on cyber security and intelligence is being significantly increased and major procurements of manned and unmanned military aircraft, significant spending to upgrade UK ISTAR and Maritime Patrol Aircraft capability, new frigates and submarines for the Royal Navy and not forgetting moving forward with the Trident replacement programme have all been subsequently confirmed as part of SDSR 2015. So too did SDSR 2015 confirm that in order to finance the various new defence procurement envisaged from 2019 onwards that £11.5 billion of defence costs would also need to be taken out.
There is as I mention above already a ‘black hole’ in the defence budget and that is why so much ongoing pressure is being put on the three branches of the armed forces to cut expenditure and make themselves more efficient. That there are limits to how much more can be done goes without saying but that will be a discussion for another day.
Whilst it is true that a reduction in the value of sterling does have some implications for defence I would say that before anyone attempts to cause further unnecessary panic they take note of the response that the MOD provided yesterday following the RUSI paper when they said that it took “appropriate financial precautions in all its procurement contracts” and “remained committed to the procurement set out in last year’s defence review”.
Now, I do not give many formal responses from the Ministry of Defence that much credence but on this one I will say that I believe what they are saying is correct. To imagine that on the already agreed orders announced by the MOD that include already agreed procurement of nine P-8 Poseidon Maritime Patrol Aircraft and 50 Apache AH-64 attack helicopters from Boeing had not already been ‘currency impact protected or limited’ is to my way of thinking absolutely out of order. The same applies to the existing number of F-35B fighter jet aircraft that have already been ordered from Lockheed Martin.
The BBC website quoted Professor Taylor mentioning that the UK had already committed to buying the nine P8 maritime patrol aircraft, 138 F-35B aircrafts and 50 Apache aircraft to replace the existing ones, all from the US. So it has BUT as yet in respect of the Lockheed Martin F-35 Joint Strike Fighter STOVL variant, the MOD has only ordered less than ten of the 138 to which Professor Taylor alludes. The greater element of the 138 total number of F-35 B and most probably, A variants that the MOD eventually intends to acquire (calculated to be 90 aircraft) will, as stated in SDSR 2015, only be acquired much later through the lifetime of the F-35 programme.
Nevertheless, in adding [as the RUSI paper did] that the MOD will also need to [continue] acquiring spares and support services for the existing US built aircraft, helicopters and much other equipment in the UK military fleet Professor Taylor is absolutely correct although once again, it seems to me that he has ignored any possibility that the MOD may already have protected itself in terms of currency movement.
By the way, just in case there are readers who do not know what the Royal United Services Institution is let me remind: RUSI is a research led defence institution. It is there to analyse through an ethos of accuracy, objectivity and policy relevance. RUSI maintains a wide range of multidisciplinary (note that they have spelled the latter word incorrectly on their own website) research specialisms. I suppose that I would say that RUSI is, just as I myself am in regard of matters defence, there to challenge as and when necessary.
I don’t know about anyone else, but I have noticed over the past year that RUSI is being far more outgoing and that it has cleared revamped its PR message. What used to be a not so quite but very professional organisation is now responding with far more comments than it previously ever did in order to keep its brand in the public eye and attention. True, as a so-called defence think-tank RUSI has lots of competitors, Chatham House and the International Institute of Strategic Studies to name but two.
What particularly worries me is that in writing this paper now RUSI is in effect speculating as opposed to providing the sort of research driven response that I would expect from it. I would have hoped for better from an organisation such as this and while I can hardly deny that on some aspects of what they have suggested they may well be proved to be right I consider that publishing material such as this now is both unnecessary and potentially harmful. We none of us have a clue what the positive or negative impacts of Brexit will be and none of us have any idea where the pound sterling will be against the dollar, Euro and Yen a year from now. No more so can we predict the price of gold, silver, copper and of course, oil either!
In response and as reported in the corresponding BBC website article Mr. Julian Lewis MP, Chair of the House of Commons Defence Select Committee said that defence had “fallen too far down the scale of national priorities” and that the 2% of GDP [that the UK spends on defence] was “nowhere near where we need to be spending and argued that the figure should be more like 3%”. Not surprisingly I agree absolutely.
While it is true that, as Major Tim Cross said yesterday, that defence spending overall was struggling” in what would in the past have been presented as a warning sign as opposed to ‘shabby’ attempt to portray the MOD as being unable to handle currency momentum and maybe to discredit defence procurement what I find most annoying about what I have read is that while it presents an issue or a potential problem if you like, albeit one that is basically speculation, there is no attempt at providing a solution.
Although it is unlike me to do this but let me say that, as if to make a bad situation even worse, the BBC chose, as it all too frequently does, to then wheel out a long past former First Sea Lord in the form of Lord West of Spithead to provide additional comment. If my interpretation is correct, Lord West suggested that the number of armed forces personnel could have to be cut to meet the [defence] ‘black hole’ and that the ‘plunging pound’ represents a ‘perfect storm’ and that he “is very worried about future cutbacks” and that Brexit “had caught everyone out”. Again, all this is dangerous and damaging speculation. Lord West knows nothing of what the government intends to do and neither do any of us.
Now I know what I would like to say in response to much of what Lord West said but prudence requires that I keep my mouth shut. By the way, even if just for fun, do look closely at the photograph of Lord West on the BBC website article – a former First Sea Lord wearing an admiral’s cap and a sporty fawn-brown coloured shirt? Please……time for the noble lord to have a rethink on his personal PR me thinks!
To all the concerns expressed by those people mentioned above including those that are probably correct, those whose comments are, shall we say, more speculative in their nature and those that may have been designed purely for personal PR purposes all that I can say is that if my reading of the new Governments interpretation of UK defence and of procurement and people requirements is correct, that defence really will be prioritised on Theresa May’s watch, I am not concerned by anything that RUSI or anyone else has said – well not yet anyway!
CHW (London – 11th August 2016)
Howard Wheeldon FRAeS