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UK Defence – Of Doubts, Uncertainties and Ambiguity By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

fallon13 Jul 15. Having spent all of last week with Boeing in the USA looking in detail at everything from Apache Helicopter build in MESA, Arizona, P-8 Poseidon long-range ISR aircraft capability completion at Boeing Fields on the outskirts of Seattle before taking in both Renton and Everett commercial aircraft plants that between them are responsible for 737, 747-8, 777 and 787 ‘Dreamliner’ build all that I can say is that when I heard late Wednesday that the Chancellor of the Exchequer had finally confirmed that the UK would after all commit to spending 2% of GDP on defence for the next five years I was absolutely delighted albeit just a touch sceptical.

Pleased as I was all this seemed just a little odd. After all, just a month ago the Chancellor was reportedly demanding that the MOD should make cuts amounting to £1bn a year in savings. Even so, it does appear that on the face of it that the Government has listened to what the US president, Secretary of State Defense and various generals, House of Commons back-benchers, defence commentators, lobbyists and defence writers alike have been pressing home for a long time – Britain needs to respond to raised threat levels by increasing as opposed to decreasing spending on defence and security capability.

Arguably of we are to spend 2% of GDP on defence over the next five years and if, due to continued economic growth, GDP rises over that time we may assume that spending on defence may need to rise by around £1bn on an annual basis over the next five years in order to comply. Perhaps of more importance is that this statement by the Chancellor might just open the door for a positive adjustment in thinking in respect of what may well emerge from the upcoming SDSR 2015 in respect of equipment capability.

Taking the agreed NATO 2% GDP figure as the absolute minimum level that a country such as Britain requires to spend on defence we should be able to see this excellent news. This after all is what we have all been fighting hard to achieve for most of the last year if not the last five. So far, so good then but caution must be advised – the point being that this can only be considered good news provided it is an absolutely honest account of real policy intention and also that it accompanied by sufficient reassurance that nothing directly outside of what NATO would properly consider as defence spending is added in so that the numbers stack up.

Listening this morning to what I considered to be an excellent interview with Secretary of State for Defence Michael Fallon on the BBC Radio 4 ‘Today Programme’ a number of doubts started to rise in my mind in terms of the absolute honesty and integrity of what was announced by the Chancellor last week and what is really intended by it,

In conducting the interview Sarah Montague appeared equally perplexed at some of the answers that Mr. Fallon provided on the subject of what was already and what might now be included in the defence budget. For instance, although clearly under some pressure and pushing the point that not all of it would be, Mr. Fallon failed to provide sufficient reassurance that the bulk of what the UK spends on intelligence gathering (GCHQ at Cheltenham) would not be dumped on the defence budget. He said that “there is a new fund being set up on intelligence and defence which we will bid into. Where there is defence work associated with that, where we spend money, then that will fall to our budget”. He then went on to emphasise that “this is not going to affect the 2% as we meet that anyway and easily”.

The latter point may well be questioned by analysts, serious defence commentators and maybe even by academics particularly those who share the view that the UK needs to spend more on defence. Neither, I note, was there any attempt by Mr. Fallon to hide from the fact that the part of what the Government spends on international aid that reflects humanitarian or peace keeping efforts should also fall on defence. Such ambiguity is and should be of great concern to all of us. It is all well and good for Mr. Fallon to remind us that Britain is one of only four or five NATO member states to spend 2% of GDP on defence but he should also remind his audience that we do so because we have more to lose than many of the rest. We are a large nation and although we may lack realistic ambition of where it is that we want to be in the world we are a nation that relies for our existence on international trade and we also remain the fifth or sixth largest global economy.

Mr. Fallon was at pains to state that it is NATO that decides what can and cannot be included on the defence budget. But the matter is not quite as simple as that. The UK for instance chose back in 2004 if my memory serves me correctly to move to a system of ‘Resource Account Budgeting’ across all sections of government. This involves accounting for expenditure on an accrual rather than a cash basis—interpreted this means that costs are accounted for when they are incurred rather than when they are paid—and includes items such as a charge for capital employed (this being based on an assumed return that could be obtained were the capital otherwise employed). True comparison between NATO member nations is made all the more difficult by inflation and differing purchasing power parities just as it also is by exchange rate conversion. GDP (Gross Domestic Product) is another somewhat loose and variable statistic.

As far as I am aware NATO breaks down defence expenditure into the following categories: personnel, equipment, infrastructure and other items. Spending on research and technology development, pensions of both military and civilian staff and personnel, are included but spending on what are defined as ‘other forces’ that are not structured, equipped or trained to support defence forces even though these may be realistically deployable are excluded.

Furthermore, although each nation is expected to adhere to a basic NATO requirement in terms of definitions given the sparseness of what some nations choose to provide, be this for economic or national security reasons, combined with reliability of statistics provided by some together with the lack of transparency it seems to me that there is ample scope for individual nations to use creative accounting and cross some of the basic NATO lines.

Nevertheless, I do note with great pleasure that the Chancellor of the Exchequer said last week that meeting the NATO 2% pledge would be done on a properly measured basis and that overall spending on defence would be ring-fenced, getting a real terms 0.5% increase in its budget every year until 2020. He also said that the intelligence agencies would enjoy, on average, a 1% annual increase in their funding between 2016 and 2020. The so-called Single Intelligence Account which if I read this correctly will benefit from a £1.5bn annual hike is used to pay for MI5, MI6 and GCHQ as well as the Conflict, Stability and Security Fund which is jointly managed by the Ministry of Defence, Foreign and Commonwealth Office and the Department for International Development.

I also note that ahead of visiting RAF Waddington this morning the message sent out from No 10 was that the Prime Minister has or will apparently be saying is that he has told his defence chiefs to spend more of their budgets on so-called drones (unmanned or remotely piloted aerial vehicles) and also the SAS. They are also being encouraged to spend more on ISR (reconnaissance, intelligence and surveillance) aircraft be these drones or specialist aircraft. We are of course taking delivery this year of our second of three Rivet Joint RC-135W signals intelligence aircraft for the gathering of vital intelligence and data from the US. In RAF parlance this excellent capability is known as Air Seeker and operated by 51 Squadron. Whilst we lack any form of Maritime Patrol Aircraft capability I hope that very soon that remarks by Mr. Cameron can be taken as a signal that in order to fill this very important gap caused by the premature scrapping of Nimrod MRA2 and MRA4 capability the Government will later this year confirm the intention to acquire proven Multi Mission Aircraft capability. I will be writing on that subject separately in a couple of weeks’ time after RIAT. In addition remarks such as this question the viability of prematurely scrapping RAF Sentinel long-range wide-area battlefield and ground surveillance aircraft in 2018 and that we might at last be able to look forward to the small fleet of Boeing E3-D Sentry AWACS (Airborne Early Warning and Control Aircraft) capability operated by the Royal Air Force being afforded a much needed upgrading of its capability.

It would of course have been very nice to hear Mr. Fallon completely dismiss the idea that there is any intention to use the raised level of spending outlined by George Osborne in his budget last week for any other purpose than spending on real defence capability options. He did not do that and in the process he left open the door of ambiguity. I regret that just as I do the overemphasis in a separate TV interview this morning when he sad that having found £5bn of efficiencies since 2010 there are more to come. Of course, while we are all for making operation of defence and our armed forces more efficient had the £5bn that has been saved been put back into defence we would have been more that satisfied. The bottom line for defence I suspect is a case of what the Chancellor gives he will take away meaning that the £0.5bn increase will likely be matched with £0.5bn savings that will go straight back to HM Treasury. The warning then is to be careful what you wish more.

(Please note that ‘Commentary’ will most probably not appear again until next Monday July 20th. Meetings, receptions, the Chief of the Air Staff Air Power Conference event later this week together with the Royal International Air Tattoo (RIAT) at RAF Fairford that will be held from this coming Friday until Sunday and which I will be there on all three days demand that my attentions must be drawn elsewhere).

hwheeldon@wheeldonstrategic.com

Tel: 07710 779785

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