SDSR UPHEAVAL: WHITEHALL AT EPICENTRE – INDUSTRY AWAITS AFTERSHOCKS
By John Reed

21 Oct 10. Historically, the United Kingdom defence community has been able to regard periodic Defence Reviews as processes that assess evolving threats and commitments and provide guidance on the capabilities that will be necessary to ensure national security in the mid-to-long term. They will also usually lay down a set of conclusions that may provide a framework for future procurement actions.

A Flawed Process?

To that extent the 2010 Review initiated by the incoming Coalition government flew in the face of the conventional wisdom.
* It was heavily criticised by the military that – with justification – argued that a review predicated on the grounds of near term deficit reduction would be fundamentally flawed as an instrument for long term strategic planning.
* There was also criticism from the House of Commons Defence Committee which warned that the speed at which the review had been ‘pushed through’ may not have permitted the full threat analysis that would in other less urgent circumstances be undertaken in its early stages.

That said, there may be a view in industry that in the absence of industry input into the review and a new Defence Industrial Strategy not likely until 2011, even an essentially near term view of the government’s intentions may be valuable – the Chancellor of the Exchequer having publicly expressed his dissatisfaction with the chaotic state of the Ministry of Defence’s accounts. The financial and investor communities may share this view.

Neither industry not its supporting structures appear to believe that believe that the impact of SDSR will be confined to the near term. One source quoted by the influential Flight International believes that SDSR marks only the beginning of a long painful process and will be followed by a second review ‘in the next five years’.

That prospect may in some respects gel with the view expressed by defence minister Liam Fox during the 2010 Conservative Party conference when he assured delegates that SDSR would have only a short-term effect. There have now been assurances that there will be a new defence review in five years time and strategy reviews on an annual basis.

Financial Management Issues

The SDSR process was conducted in parallel with the development of stringent measures to reduce national indebtedness. Specifically the Ministry of Defence accounts contained what has been described as a ‘black hole’ amounting to some £38bn – i.e. equivalent to more than one year’s defence appropriation. The reasons for this situation are now political and economic history but SDSR has identified needs for a reduction in headcount amounting to 25,000 civilian posts in the MoD and around 17,000 uniformed personnel. These cuts will necessarily be accompanied by review and where necessary renegotiation of outstanding contracts leading to reduction to conform with changed operational requirements, economic circumstances and/or defence strategy. Other programmes may be subject to deferment, and as in the case of Nimrod MRA4 outright cancellation. There will be requirements for drawdowns in equipment inventories that may include the retention of some assets at extended readiness, disposal of saleable surpluses (for example Typhoon and possibly heavy artillery) and scrapping (as in the case of the Royal Navy’s flagship Ark Royal)

Outcomes: The Strategic Dimension

Separate publication of strategy considerations in advance of the hard numbers made good political sense, as did the decision to put threats from international terrorism cyber warfare and natural disasters (including pandemics) in the Tier One list of priorities. The ongoing inquest into the deaths of the 7/7 bombing victims had conveniently raised the profile of International terrorism. The threats posed by cyber attacks would be reasonably well recognised a generally computer-literate public.

Ho