UK DEFENCE (9)- WITHERING DEFENCE INDUSTRIAL BASE
By Howard Wheeldon is the Senior Strategist at BGC Partners

13 Sep 10. Whilst confirmation last week that over 700 BAE Systems jobs spread across Warton, Samlesbury, Brough and Chadderton plants would be lost may be put down to equipment cuts announced by the previous Labour administration it should also be seen as a timely reminder of many more jobs that will be lost as a direct result of SDSR. The review process is expected to inflict severe cuts right across the UK military but equally true is that the SDSR process will severely impact on the UK skills base as the number of industrial and planning jobs within the defence industrial base is cut. BAE Systems cuts may predominantly be put down to the sharp reduction in through life support requirement on programmes such as Nimrod, VC-10, Harrier and Tornado. The SDSR process itself is expected to lead to yet another big round of equipment cuts right across all three armed force groups. And if that is so then it can be expected to have further major implications for the UK defence industrial as orders for new equipment are either cancelled or wound down in numbers. In value terms the defence industrial base will also suffer a big numbers game as the requirement for ships, aircraft and tanks is reduced and projects that may be in the planning or early build stage get cancelled. One such programme that has from the start of the SDSR process led the list of possible cuts is the £5bn programme to build two Queen Elizabeth class carriers for the Royal Navy.

Just as the two previous Royal Navy carrier programmes had done in the 1950’s and the mid 1970’s the new carrier programme has been the subject of an awkward debate over whether we actually need a carrier force. It is an argument that has been fiercely fought out between the protagonists of both views. Having been down the awkward road of carrier debate once before in my own career my own view is that the Royal Navy does have a case for at least one carrier replacement.

Over the past weekend the UK press and media has again raised the spectacle that despite contracts with a value of £1.2bn having already been awarded to contractors working on both carriers and the likelihood that a total £2bn may have already been spent on the project overall that the government may yet scrap both the carriers in build. Clearly such a decision would have a very big impact on BAE Systems, its partners companies in the venture such as Babcock International and on whose Rosyth base the vessels are currently being built plus the various contractors and suppliers involved. Potentially thousands of jobs in Scotland, the North West and South of England could well be lost let alone jobs of many hundreds of sub contractors. Moreover, if the carriers were to be cancelled the loss of skilled workforce would in my view mean that never again could we consider building ships of this nature in the UK.

My own view is that the Royal Navy will get the first carrier [Queen Elizabeth] but that the second carriers will be downgraded to a lesser role, stalled – meaning put back another two years to maybe 2020 completion, cancelled altogether or maybe built and sold to a third party customer such as India. Of course, the whole programme could be delayed meaning pushed back by another two years. But the though of a partially built Queen Elizabeth being left just as the former liner Queen Mary was left untouched for two years back in the early 1930’s does not strike me as a very sensible proposition. It is to me inconceivable that having gone this far that the government would now cancel both carriers – albeit that it may yet cancel one.

Cancellation of existing programmes or those that are already well down the planning stage is the cause of much angst and concern amongst all those of us that observe how Britain is going about a huge change in approach to defence. Our main concern and as I have hope