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U.K. ELECTION RESULT

U.K. ELECTION RESULT SPELLS BAD OMEN FOR U.K. DEFENCE BUDGET

06 May 05. As Tony Blair was elected with a drastically reduced majority cut from 167 in 2001 to 66. The Times reported that Blair returns to Downing Street for a record third Labour term today with a severe rebuff from voters over the Iraq war ringing in his ears. Not only will this majority give the leader less leeway to wage war, he has been involved in more wars than any other leader of modern times, the cross-section of Labour M.P’s reveals a strong Northern, left-wing bias and women, most of whom are anti-war and the defence industry. The failure to finalise the ’05 budget prior to the election and the promise that a number of key programmes such as Watchkeeper would be decided by the end of April spells bad news for the budget and the big-ticket items such as CVF and FRES. The £500m GBAD requirement being competed for by EADS and Lockheed has already been canned and renamed with a hugely reduced budget. CVF is still struggling to meet budget in spite of a colossal £169m of consultants funds. But with KBR being up for sale and the huge cost rises in steel and JSF and support costs, expected to be the same as the construction costs, will this be the one to go? It would suit Brown to cancel CVF as it would also take away Blair’s tools for ‘Out of Area Operations.’

Gordon Brown is known for his resistance to defence spending and the defence industry as a whole. Our readers can only remember his antithesis to the Hawk deal for BAE which could have lost the company its multi-billion pound Indian deal. Not only will a cut in defence spending be required to meet Brown’s targets which will have to be slashed by decreasing tax revenues and a seriously weakening economy, as the Times reports below, any tax increase will be on the premise that the money is spent in true old-Labour style on the NHS or Education

In recent weeks we have reported that companies such as Oshkosh are packing up and returning to their burgeoning home market in the US where spending is growing and contracts secured. BATTLESPACE has detected further disquiet at EADS where there are rumours of high-level departures. Boeing is known to be reviewing its operations in the UK and Australia where the company believes the risk and reward structure is too biased to the customer. Yesterday we were told that the TDPs for FRES would only be funded to the tune of £60m which will see contractors digging into their pockets for a contract which may slip. The true funding for TDP’s should be around £300m, 12% of the costs of the whole project.

In addition to growing unemployment and the economy weakening, the defence industry should be seen as a major plank to prevent this erosion, but as we saw at Marconi and in 1991, the Government, particularly the Treasury, be it Conservative or Labour has little interest in retaining a strategic industry if it’s costs are perceived to be a burden on the Treasury. With the erosion of High-tech jobs and the competition from China and India, defence remains a strategic area for development and jobs, but with a Government populated by lawyers they see little reason for sustaining such a capability when one QC can earn £5m from the Government dealing with the thirty-year old Bloody Sunday Enquiry which has yet to be published and whose consequences will have little effect on the current situation. The City, will once more be the winner in the eventual downsizing of the defence industry.

The reported friction between Dick Olver and Mike Turner at BAE may be a sign of things to come. Turner’s rugged stance against the MoD’s criticism of his company has been in-part vindicated and his move on United Defense certainly underlines his and Dick Evans’s pro-U.S. strategy.

With the European market showing no signs of growth, perhaps BAE will just pay lip service to the MoD and only bid for those contracts worth making a decent profit on. This will cause major job losses a

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