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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.

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