Our RUSI article is just coming out. But an article of July 2001: The arithmetic of defence policy, which I wrote with the previous Chairman of RUSI, Sir Michael Alexander is also relevant. Today's budgetary problems are predicted there – and are unavoidable if budget does no better than level pegging.
Over the past quarter of a century, real annual spending has declined by just 8%, and for much of the intervening time was up to 30% higher than the 1975 level. Yet a comparison of any of the indicators of military capability shows a marked drop in available capacity. Between 1975 and 2000, manpower has declined from 346,000 to 212,450 (-39%), regiments and battalions from 114 to 76 (-33%), frigates and destroyers from 50 to 31 (-38%), RAF combat squadrons from 38 to 22 (-42%)[1]. Nor is it easy to argue that the smaller numbers of men and combat units have been compensated for by technological improvements. Despite the vast expenditure of the 80’s, the UK could only provide some 4% of the overall air effort for the Kosovo campaign[2].
Defence spending can be broadly divided into three main parts: personnel costs, equipment costs and running costs. Personnel costs, which currently make up just over a third (37.5%)[3] of the UK budget, closely follow civilian wage costs. Wage costs usually rise at or above inflation.[4]. The military, particularly the army, is a labour intensive industry and we must therefore expect the personnel slice of the budget to rise in real terms year on year.
The cost of military equipment is also large. Currently 44.2%[5] of UK defence spending is related to equipment. Price changes of defence equipment are more complicated to analyse than the rise in manpower costs. The life expectancy of a particular item is often a matter of choice, and may be determined by budgetary pressures. Some equipments may cost very much more than their predecessors, but fewer of them may be required to do the task. Effects based systems are not as new a concept as sometimes suggested.
Defence programmers have had to balance their budgets by reducing the fleet size with each new generation of equipment. This causes an uncomfortable rise in the relative support costs of fleets as smaller frontlines still require the full range of maintenance, logistic and training infrastructure to sustain them. Planners use a similar technique for weapon stockpiles. Weapon costs show a high cost rise with each new generation. There is a temptation to keep the old stock and bring in the new weapon more slowly. In the case of both weapons and platforms, the reducing numbers of units procured further forces the unit price higher still as research and development costs have to be recovered over smaller buys.
The remaining 18.3% of defence expenditure includes the costs of maintaining the support for the armed forces. Most running costs will be fairly closely aligned to normal inflation in the economy. Indeed there are often opportunities to undertake some of these activities in ways that take them out of some of the extra costs incurred by military operations. Contractorised, civilianised and out-sourced support should be sustainable with level funding in real terms. In a time of declining forces, it is possible to realise some of the value of the defence estate by selling off land. Short term spending regulation is also possible by reducing the activity levels of forces, and this has historically often been used to compensate for rising costs elsewhere in the defence programme. If used too extensively such measures affect both combat capability and personnel retention. These lead to steeply rising costs in later years.
In looking forward over the next 15 to 20 years from 2001, Michael Alexander and I said that this arithmetic takes us into uncharted territory. If all goes well with the economy, the UK will have sustained a growth rate of around 3% in GDP. If we manage to keep defence spending level in real terms, its share of GDP will have declined to 1.3% by 2020. Manpower costs are likely to have risen by at least 20% (and perhaps much more given demographic trends) in real terms, unit equipment costs will have more than doubled. The frontline will need to be no more than half the size that it is today. New generation equipment may be more capable, but it will be very scarce. In any event, many of the new tasks will call for manpower above all else. The police have learned the lesson that numbers on the streets matter: many of the new military challenges will require a comparable response.
We pointed out then that Australia was showing the way ahead with significant uplift in spending to keep a constant share of GDP for defence. Since that then, and post 9/11, both Australia and the US have ramped up defence spending considerably. In the UK the response has been better than for most of the 90s, but is still level pegging in real terms since 1997, and the latest Chancellor's statement does not give hope for much in excess of this. Yet the tasks have increased yet again. Michael and I did not forecast 9/11, Afghanistan or Iraq as commitments. We argued that if government was unprepared to pay the price, and if rationalisation of the UK military was at the stage of diminishing returns, we needed to look at rationalisation with our European allies. As we all know, this has not been a raging success so far, although our arguments remain valid.
So what do we do? Reduce commitments? Unlikely. Increase spending significantly? Desirable but improbable. Reduce Capabilities? Inevitable. Which capabilities?
The 2003 Defence White Paper indicates that future defence priorities will be shaped primarily by the need to work with the US at the high-intensity end of the operational spectrum. This will mean a considerable investment in the necessary technology to produce what is known as ‘network enabled capability’. The extraordinary investment of the US military in research and development means that this path will be difficult and expensive for the United Kingdom to follow. Going down this route means that other capabilities in the conflict prevention, nation-building, counter-terrorism and humanitarian fields are likely to take second place.
The UK’s limited high-intensity capability can be no more than a small reinforcement to the massive resources of the USA. However skilled, however professional in all that it does, Britain cannot match US offensive power in either numbers or capability. We believe that the UK should be prepared to pay the price to operate across the military spectrum. However, successive governments have made it clear that they are not prepared to pay the price that this entails. . The political choice is therefore increasingly between high cost, high technology warfighting, as part of US capability, or sustainable investment in our unique capability to do good in the world.
The process of developing the mix of military capabilities remains one of assessing priorities and making hard choices. As a nation, we appear to have decided that we do not wish to fund our armed forces to enable them to carry out all their possible tasks, from high-intensity conflict through nation-building, conflict prevention and counter-terrorism, down to replacing striking fire-fighters. Yet, paradoxically, the government demands that they are prepared to carry all these roles out at any time and in any place.
Security is the first responsibility of any government. If the funding for defence is set at a level which makes it impossible to cover all risks, then a difficult political judgement is required over how best to allocate limited funds. Merely slicing capabilities ever thinner is no longer an option. The UK is now at a stage where some major procurement projects need to be re-examined if today’s essential capabilities are to be sustained. The current defence budget is in acute crisis partly because a string of flagship projects are overshooting their costs by around £3bn.
Some 232 Eurofighter have been ordered against a Cold War requirement. The first batch to be delivered will be in the air defence fighter mode. For current security needs, everyone is agreed that the air to ground version is more important. But that is still in development and delivery is likely to overlap with the Joint Strike Fighter (rename Joint Combat Aircraft), expected around 2012. The very expensive forward aircraft programme is no longer rational.
The other major capital development is the plan to procure two large aircraft carriers, for delivery in 2012 and 2015. The costs of this project are already expected to rise very significantly; not least as a complex three-way management arrangement causes transfer of blame between the MoD, Thales and BAeS. Capacity and capability are already being traded in an attempt to keep the project affordable. Yet no one appears to be ready to ask the fundamental question of whether such a capability is the most important one for Britain. These carriers will not be able to operate in a hostile environment unless they are part of a US force. The Americans are not short of aircraft carriers. Perhaps it would be wiser (and considerably cheaper) to build another HMS Ocean, that could transport helicopter-borne troops to trouble spots around the world.
It is not our intention to construct an alternative defence programme. We believe that the money should be there to cover all the tasks. What we do say is that if the money is not provided, we had better make sure that we spend what we have with even more care on the things which are most important to our national security – and in today's world that may be more about people than equipment. I shall pass the baton to David to explain why.
[1] The figures for decline in force levels are derived from annual defence white paper statistics, and performance reports since they have become available. The raw figures given do not necessarily indicate the change in combat capability. Some Cold War capabilities may no longer be necessary; or technological improvements may allow smaller forces to do more. However, the absence of precision weapon capability, usable communications and problems with personal weapons during the Kosovo operation suggest that improvements to UK force capabilities still have some way to go.
[2] Lord Robertson of Port Ellen, Kosovo: An Account of the Crisis, UK MOD October 1999 p.30 shows that the UK carried out 1618 air sorties of a total NATO effort of 38,004 (4.3%). On the more narrow measure of munitions dropped, the UK used 1011 offensive weapons out of a NATO total of 23614 (4.0%). As only 240 of these weapons were precision, the UK contribution was even more marginal than the raw data suggests.
[3] MOD Performance Report 1999/2000 Cm 5000 December 2000 page 43.
[4] For example, an experienced Sergeant in 1975 was paid £3,800 p.a. If the pay for this rank had increased in line with inflation, he would earn some £19,000 p.a today. In fact, the figure is £23,000 some 20% higher
[5] MOD Performance Report 1999/2000 Cm 5000 December 2000 page 43.