By Neil O'Brien
According to the National Audit Office, the Ministry of Defence is on course for a £36 billion overspend.
Their report, out yesterday, noted that:
"The Department estimate that the Defence budget remains over committed by £6 billion over the next ten years; this assumes an annual increase of 2.7 per cent in their budget after the end of the current Comprehensive Spending Review settlement in 2010-11.
However:
"If the Defence budget remains flat in cash terms after this time, then the extent of the over commitment widens to £36 billion. In either case the budget remains consistently unaffordable over the next ten years"
Their chart shows how the gap between the MOD’s spending plans (in green) and its budget (in blue) will gradually widen to about £7 billion a year by 2018.
But defence spending isn’t just going to be frozen. According to the Institute for Fiscal Studies, the Government’s plans in the Pre-Budget Report imply that real terms spending in “non-protected” departments like defence will be cut between 16-19% by 2013/14.
Depending on what you assume about inflation, that could mean a fall in cash terms of say, 10-13%. The blue line above would not be flat, but head sharply downwards to near £30bn by 2013.
So that £7 billion a year shortfall would arrive in the next parliament, in 2013.
Even if there were no black hole, a 16% cut means roughly one in every six pounds in the defence budget would have to go.
This is a huge cut, and many people think the defence budget is already too low. We already have the lowest defence spending since the 1930s as a share of national income: about two and a half percent, compared to four and a half percent in 1988. Defence has been muscled aside by the growth of spending in other areas, particularly health (see below). And astonishingly, we have done all this while fighting two wars.
I hope that whoever wins the next election can ease the pressure on the defence budget by finding more savings elsewhere.
Nonetheless, it now seems certain there are going to be some big cuts in defence, and the question is how to deal with them.
To kick things off, there seem to be three areas to look at:
- Reducing back-end costs: There are about 86,000 people employed at the MOD. They are certainly not all “pen pushers” - but there does seem to be a feeling that the UK has quite a top heavy defence establishment. For example it is said that the UK has a 1:2 ratio of civil servants to frontline forces, compared to a 1:5 ratio in France.
- Reducing waste from the MOD procurement process: About 40% of spending goes on equipment and the support of equipment. Both the Gray Report and yesterday’s NAO report have slated the MOD for its mismanagement. In particular, both reports criticise the MOD for running up unnecessary costs by deliberately delaying projects. For example, the NAO notes that the decision to delay work on the carriers will save £450m over the next four years - but increase costs by £1.12bn in subsequent years. That’s £670 million of pure waste. The Gray Report found that the average MOD project is 5 years late and 40% over budget, and that the MOD spends between £1-2 billion a year just on the costs of delay.
- Cancelling major projects: Big projects like the tanker aircraft, the A400M, the aircraft carriers and the F-35 will presumably all be looked at in the Strategic Defence Review. There are all kinds of options to delay Trident renewal, or deliver the nuclear deterrent in a different, cheaper way. There are many smaller projects which could be canned. But the UK is bound in many cases by international agreements or contracts already signed.
So, if there must be defence cuts - and it seems there will be - who or what should be cut?
And what should be the underlying philosophy of the next Strategic Defence Review? Should we focus on what we are best at - or what’s most useful for NATO? Should we be prepared to lose certain capabilities - or try to keep a bit of everything, just in case?
I’d be interested to know what you think.