Unless otherwise indicated, all passages in quotation marks are taken from the House of Commons Defence Committee report: Beyond 2 per cent: A preliminary report on the Modernising Defence Programme. Seventh Report of Session 2017–19 Report, together with formal minutes relating to the report Ordered by the House of Commons to be printed 12 June 2018
Early this year the PM was presented with serious objections to what seemed to be the only two options available to solve the looming crisis in defence budgets. The basic problem was how to bridge the projected £20bn shortfall in the budget without a massive reduction in capability – some of which assumed cuts of up to 11,000 from the Army and 2,000 Marines, as well as taking the cuts in equipment holdings even further than those proposed in the 2010 SDSR.
Part of the complication was that the familiar (to many readers) process of assessing future defence commitments has been greatly altered since the days of a “simple” SDR published every five or ten years. By 2010 the scope of UK defence reviews had been broadened and split into a new National Security Strategy (NSS) and Strategic Defence and Security Review (SDSR), the first of which were published in October of that year. As part of a five-year review process, the second SDSR was produced in 2015.
However, the world had changed sufficiently in the 18 months after the 2015 review for many to question the validity of the “new” review format and, by mid-2017, it was recognized that “a significant programme of work would be required through the second half of 2017 to address the strategic and financial challenges that Defence was facing.”
The 2017 General Election added impetus to the calls for a change in the review process to allow a very much more integrated approach to the whole problem of how to defend the UK and its interests. Threats now ranged from a re-emergence of a “conventional” armoured attack from Russia, through to the most sophisticated cyber-attacks which might, or might not, be the precursor to a more traditional use of force.
Straight after the Election these debates led to a proposal that the 2015 SDSR be “refreshed” and: “This was implemented in the form of the National Security Capability Review (NSCR), which was formally announced on 20 July 2017—via a Cabinet Office press release—on the last day that the House of Commons was sitting prior to rising for the summer recess.”
Given that this new approach was a fairly radical departure from previous efforts, there was some uncertainty about who might lead it and what its scope would – or should – be. There was talk of “strands of work” led by cross departmental teams, and so on, none of which necessarily inspired much confidence that this was going to be a decisive and incisive process.
However, it was at least being led by the National Security Adviser who works at Cabinet level and who stated that the review would involve an:
“……examination of the policy and plans which support implementation of the national security strategy, and help to ensure that the UK’s investment in national security capabilities is as joined-up, effective and efficient as possible, to address current national security challenges.”
One major aspect of the new NSCR was that it should be “Fiscally Neutral”. This meant that it assumed that no new resources were going to be made available to cope with any identified threats, so that increased spending in one area would only be funded by cuts elsewhere. The NSA observed that the review had “been commissioned by the National Security Council as a fiscally neutral exercise and that “the purpose in doing it is to see if the money that is already allocated is allocated in the right way”.
The MOD were, naturally, centrally involved in developing aspects of the new NSCR, but were becoming increasingly concerned about the inability to talk about increased funding. In October 2107, the then Defence Secretary, Sir Michael Fallon, identified Defence’s two principal headline goals in the NSCR as being: “a review of capabilities to meet threats that had intensified at a faster rate than was anticipated in the 2015 SDSR, and, addressing the significant budgetary pressures that Defence is facing arising from inflation, cost growth and ambitious efficiency targets.”
Gavin Williams, the new Secretary of State for Defence appointed in November 2017, confirmed this approach and it was generally agreed that the defence component of the NSCR should be split away and handed back to the MOD “and expanded in scope to review a wider range of areas of defence policy over a longer time period.” This was formally announced in January 2018.
The autonomous MOD review would now be known as the Modernising Defence Programme – or MDP. Following the announcement of its establishment, Gavin Williamson told the House of Commons on the 25th January that:
“…………..I have agreed with the Prime Minister and the Chancellor to launch the modernising defence programme so that we can strengthen and modernise the armed forces to meet the threats that the NSCR identified. Modernising defence will allow us to deliver better military capability and value for money in a sustainable and affordable way, and it will allow us to ensure that defence capabilities complement other national security capabilities in the most effective way. I am determined to realise this goal through a modernised, more productive and more effective joint force that can deter threats more effectively and ensure that we can deliver what is required of defence today and succeed in any future conflicts. Turning this approach into reality will be my key goal for the modernising defence programme.
This programme will involve four strands of work. The first three will optimise how the MOD is organised and is operating, identify further efficiencies and ways to be more productive, including through an aggressive programme of business modernisation, and improve our performance on the commercial and industrial issues. The fourth strand will look at the capabilities that defence requires to contribute to our three national security objectives today and in the future, but also, most importantly, to understand the ever-changing threats that this country faces. I am determined to use the modernising defence programme to ensure that defence can make its full contribution to our national security on a sustainable basis.” https://hansard.parliament.uk/commons/2018-01-25/debates/002ED98B-7B42-424B-8213-7EC5650664BC/ModernisingDefenceProgramme
According to the Defence Committee’s “2%” report: “This represents a much more wide-ranging review of Defence than was being undertaken by the NSCR, seeking to explore how the management of defence business can be conducted more effectively, cost efficiently and collaboratively, rather than examining defence capability in isolation. Crucially, and in contrast to the NSCR, the MDP was not to be a ‘fiscally neutral’ exercise.”
MDP thus paved the way for defence officials to start talking about more money rather than re-assigning existing budgets. The declaration that the NHS would receive a substantial increase in funding encouraged many who were interested in defence to become more overt in their demands for more money. This was in spite of the fact that, by giving the NHS a boost, it actually made it more difficult for the government to be able to do the same for defence.
Many now agree that, at the time, a “financial hole was built in to the 2015 review” (Professor Andrew Dorman, Defence Committee, Oral evidence: Modernising Defence Programme, HC 818). General Sir Richard Barrons, a former Commander, Joint Forces Command, told the Defence Committee in November 2017: “……the context of the current review (the NSCR): we are having this because everybody knows that the defence programme in its current form was not funded.”
Indeed, the warning provided in the recent, June 2018, report makes for startling reading:
“The largest area of long-term uncertainty comes from the MoD’s Equipment Plan, which has a total budget of £179.6 billion over ten years. In 2016/17 the Department spent 43% of its budget on equipment procurement and support. The MoD’s 2017 financial statement on the Equipment Plan recognised that, as it then stood, the Plan “contains a high level of financial risk and an imbalance between cost and budget”. The National Audit Office’s 2017 report on the Plan was more direct, concluding that it was simply “not affordable”. The NAO found an affordability gap of at least £4.9 billion over the next decade, and estimated that in the worst-case scenario this gap could be as large as £20.8 billion. The report also found a number of significant financial risks within the Plan. The extent of purchases that are denominated in foreign currency makes Defence particularly vulnerable to foreign exchange fluctuations: assumptions made by the Department on foreign exchange may have understated these eventual costs. Systematic problems within the Department on how costs for equipment were estimated were noted, with projections often being based on either immature or overly optimistic cost models and forecasts. Lastly, as we have pointed out in our first report in this Parliamentary session, the affordability of the equipment Plan has from the start been dependent on a series of ambitious savings targets which experience shows are unlikely to be realised in full, or will cause considerable damage elsewhere in the defence programme.”
The whole sorry mess of a badly defined and thought out defence plan now seems to have got worse. For, in addition to having a defence programme deemed unaffordable in its original scope, many now argue that the nature of the threats to the UK have worsened in comparison with those identified in 2015. In particular, whereas the 2010 SDSR makes almost no mention of such matters, “state-based threats” are now seen as once again being a serious matter. That is not to say that these are confined to the conventional-end of the spectrum: as Gavin Williamson said in February 2018:
“We would highlight state-based threats and the speed at which they were escalating as the top priority, but, within a hair, that is followed by the terrorism threat, which comes straight after that. The thing you are seeing is a convergence of how state-based threats are using terrorist threats to bring instability to other countries. The days of where things were more black and white are sadly gone.” (Defence Committee, Oral evidence: Departmental Priorities, HC 814)
As stated by Vice Admiral (Retd) Sir Jeremy Blackham, a former Deputy Chief of Defence Staff (Defence Capability):
“The most striking feature of recent (if not most in the modern era) defence reviews, has been the constant reiteration by government that the world is an increasingly dangerous place and getting more so. This is palpably and demonstrably true, yet these protestations have been continually accompanied by reductions in our defence capability on a more or less arbitrary basis with little convincing evidence that this is either safe or wise.” http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/defence-committee/modernising-defence-programme/written/81260.html
So where does this all leave us today? The answer must be: “in a bit of a pickle”. TMT has already started to publish articles about specific aspects of the defence spending crisis so this is not the place to get into details. However, the House of Commons Defence Committee report: Beyond 2 per cent: A preliminary report on the Modernising Defence Programme, makes it alarmingly clear that there is no single sticking-plaster out there that can be applied to the problem. Specifically, the Report states, in bold:
“Previous defence reviews have demonstrated that failure to fund commitments properly eventually leads to the re-opening of supposedly settled policy in order to balance the books. This frustrates long-term strategic implementation and reinforces the perception of inherent and intractable financial chaos in Defence.
The force structure that emerges from the MDP must be supported by a robust and sustainable financial settlement, which is not reliant on loose projections and unrealistic so-called efficiency targets to make the numbers add up. While ‘efficiency’ should always be the aim of any programme of reform, and a constant objective of all Government departments, the practice of using unachievable programmes of ‘efficiency’ savings to make ends meet in defence reviews must come to an end. Experience has shown that relying on such targets sows the seed of instability in a long-term programme. The readiness to label a cut as an ‘efficiency’, without any proper analysis of its effect, has devalued the word as a useful term.”
Perhaps we have entered a new era of integrity when it comes to Defence Reviews. However, this new-found realism has also started to shine some very bright lights into the dark recesses of defence equipment spending. Although many in the forces quietly knew about these problems, it is not going to make it any easier to deal with the fact that we simply do not have the resources to put everything right.
If the MDP goes some way to achieving this, then it has to be a good thing. However, its main legacy might instead be an announcement to the World that the UK has, perforce, to withdraw from significant sectors of defence activity. It remains to be seen whether MDP, within the context of a future NSCR, has the remit to make those choices, or whether another iteration of Defence Review will be required.