When asked whether I would contribute to the proceedings today, I reminded the organisers that my expertise is not in the field of procurement. I spend an air force career trying to make sure that I never ended up in a procurement job, and I also ignored the siren calls of industry after I retired some 11 years ago this week. Instead, I have focused on the sticky issue of how we plan and fund appropriate capabilities, which you in the procurement field then have to provide. Of course, it is not possible to separate the two areas so neatly. The size and shape of our armed forces have to be formulated around procurement forecasts for cost, timing and performance. All areas which are less than 100% reliable. Trying to improve the reliability of the procurement process is not a new idea, and the Defence Industrial Strategy and the Defence Technology Strategy are the latest in a long line of such ventures. I do not say that in a critical way. I think Paul Drayson has achieved an extraordinary amount in a very short time, and it is unusual to have a Minister who understands the technology and the business approach. However Ministers come and go, so it would be a brave analyst who thought the changes that he is implementing will necessarily stick.
But as I said, it is not the procurement aspect which I intend to focus on. When putting together a defence policy, it is customary to lay out the tasks that we need the armed forces to be prepared to do. It is usually said that security of the nation is a government's first responsibility, and sure enough successive White Papers have Defence of the UK as a task. This is the non-negotiable bit of security for any government. However, there is no clear state based threat to the UK today. Indeed given our geography, we are probably safer from traditional military attack than at any time in the last 1000 years. Current defence policy recognises this and provides for military tasks to policy our airspace and other sovereignty maintenance capability. Recognising that the new threat to UK citizens comes from non-state actors, the task of security at home is left with the Home office in the lead. The other tasks for armed forces have been characterised as "wars of choice". Whether it is intervention in Kosovo, Iraq or Afghanistan, the decision to go in and the scale of the commitment is one for the government of the day. The same is true in calls for military forces for international peacekeeping, humanitarian relief or even civil contingencies. While this was not a great problem during the cold war, where the main security threat generated sufficient capability to meet the other tasks, it is now problematic.
We make broad assumptions about the level of tasking that we might expect in steady state and in an emergency. These are formalised in the defence planning assumptions, which allow the size and shape of the force structure to be filled in. All so good so far. The programme can be costed looking at the current running costs, and the future equipment programme. The Strategic Defence Review of 1998 was a good marker for trying to put together these slippery factors of cost, capability and tasks. But once the programme and policy are agreed, the parameters change and often quite rapidly. What we have seen since the SDR is an increase in the tasks – the wars of choice have been coming up more regularly, at a greater level of involvement and sustained for longer than the defence planning assumptions assumed. The types of operation has also called for a different balance of capabilities. We see the emphasis on sustained ground force operations in theatres where travel in difficult and hazardous. So new vehicles, helicopters, air to ground support, air transport, reconnaissance, and troop numbers become short term priorities, wherever they may or not be in the long term programme.
If operations are putting new demands on the funds, the money itself is suffering the defence inflation effect. The labour government since 1997 has on average pretty well maintained defence funding in real terms. However, the effect of this is not benign. Personnel costs rise above the domestic inflation level. Competing with civilian comparators, the pay bill runs ahead of inflation, and bites into the programme elsewhere. Reducing numbers is an unhelpful option given the effect it is has on those who remain, particularly in areas of much needed specialisations. We see the growth of financial retention incentives to keep people with particular skills adding yet more to the pay bill.
Nor does the long term equipment programme stay within normal domestic inflation. It is here that wiser procurement approaches seek to keep the cost growth down. But it would be a brave forecaster that thought it is going to be possible to replicate the commercial computer industry which achieves greater performance at lower cost to the consumer each year. The DIS and new approaches may do better. The discussions today on Partnering give one way of trying to be more realistic about procurement aspirations – but I have heard as many sceptics on whether the trust necessary between MOD and Industry is achievable as I have hard those who believe it will succeed. Whatever its success, the problems of small orders, technological risk and imperfect competition coupled with political interference will mean that the longer term programme will always be unaffordable, and reductions or cuts will be taken late in the day.
Looking at this problem in 2001, Sir Michael Alexander and I wrote an article for International Affairs called the Arithmetic of Defence Policy in which we explored the inevitability of capability decline over time given funding remaining level in real terms. For the UK, the effect has of course been worse than this if we look back over the last 25 years. From the heady peak of 5.5% of GDP we have had a steep decline to now less than half of that. As the economy grows, the proportion of GDP devoted to defence is set to fall below 2% in the next decade unless there is a substantial uplift in funds. We argued then that the greater efficiency ( the defence way of improving productivity) through rationalisation was reaching a point of diminishing returns given all that had been done previously.
There are three possible approaches which I would put on the table for discussion. The first is to continue as we are; the second is to accept that real growth is necessary to sustain capability; and the third is to look to reducing the task by sharing the burden. If you have other answers then I shall be delighted.
If we continue as we are currently doing, then the tensions between the long term equipment programme and maintaining current operational deployments will increase. It is clear that in such battles, the problem of today will win over the hope of tomorrow. The political reality is that if the headline is about shortage of helicopters for Iraq and Afghanistan then this is higher priority than a somewhat nebulous Future Rapid Effects System which will not be delivered for many years to come. Clever funding wheezes will be attractive, and I think we can see that in the growth of PFI approaches. While they may solve the funding problem of today, it will certainly make life more difficult in the future. The salami slicing approach current force structures, laying up ships, cutting personnel numbers, deferring expensive projects, reducing final platform numbers, and dropping parts of specifications will be the order of the day. All these of course exacerbate the problems of meeting the tasks.
The second, and favourite option among the defence community, is more money. Here, we need to consider what more money could do, and when it would be needed. There is a problem for the short term needs. More money cannot provide more troops overnight. They have to be recruited (not easy to increase the current level), trained (which takes experienced people out of the frontline); gain experience. Correcting particular shortfalls can be a long process. The NAO showed that the current shortfall in RN nuclear watchkeepers can be shown to stem from failure to recruit in the early 90s. Nor is a quick solution to equipment shortages as we are seeing with the enhancement to the Support Helicopters that will take 2 years to bring in – and that by repairing grounded Chinooks and jumping the queue for Merlins with the agreement of the Danish. Even if you have the extra equipment, you need the specialists in sufficient numbers to operate and maintain it. You can spend early money on improving the benefits to people, but things like better accommodation still take a long time. In the end, like the NHS, it tends to be more pay as the answer, which of course feeds your future problem of funding armed forces personnel.
More money can help the longer term equipment programme. However, it tends to be used to add more projects rather than spending to improve the projects already in the programme. Research and technology is the one area which benefit from extra resources, but there is little sign despite all the good words that the system can accommodate this need. If political circumstances arrive where more money becomes a possibility, then it would better to argue for real growth in the defence budget rather than a slab of money maintained level into the future. Everyone in MOD is waiting with great hope for the outcome of the CSR in the autumn, which sets spending for the next 3 years. A good settlement would be an agreement to keep defence spending at say 2.4% of GDP. That is a relatively small increase at first, but an undertaking to sustain growth into the future. This is not an impossible formula: the government is committed to funding international aid at .7% of GDP from 2010 onwards. However, the political reality is that it will not happen.
This brings me to the third option in which we accept that we cannot sustain the forces to meet every contingency, and that we must scale down both the number of tasks and some of our ability to operate independently. We belong to two overlapping organisations that field military forces: NATO and the EU. The last time we went into a significant operation on our own was the Falklands some 25 years ago. The current policy assumes we will only do major warfighting alongside the US. Despite all this, we hang on to a degree of independence that has become unaffordable. When NATO sensibly produced a joint owned joint operated AWACS force, we (and the French as well) decided we must have our own systems. Indeed having tried to do it nationally, we spend nearly a billion (in the days when that was real money) on the Nimrod national model before spending as much again on buying from the US. There are so many enabling capabilities which would be more economical to operate on this basis either for the EU or for NATO. We are seeing other nations going down this route, but we are unwilling to do so. This is different from joint procurement. It is looking for shared capabilities. There are other ways to promote a more equitable sharing arrangement. Funding for operations needs to be on shared basis rather than costs where thy fall.
Yet we have made little progress in this direction, and I think the realist would say that without some radical rethinking we are likely to continue down the road of managing decline. For those of you trying to forecast the future market, that is not an encouraging prospect. Whatever the DIS may say, however good the partnering arrangements between MOD and industry, the likelihood is more cuts, more deferments and more cancellations. That will lead to the UK doing less in the worlds as the challenges seem set to increase.
Tim Garden
King's College London