UK Defence: Addressing A Funding Challenge Bigger Than Twice the Size of Wales
(Source: Price Waterhouse Cooper blog; posted August 21, 2017)
By Roland Sonnenberg
What is the size of the funding challenge facing UK defence over the next ten years? Well, one quick answer could be that it is at least twice the size of Wales.

While the Ministry of Defence (MOD)'s own estimates put the magnitude of the funding challenge at £20bn, PwC and other industry observers believe the reality is more likely closer to £30bn over the next ten years, which is equal to twice the planned government expenditure for Wales in 2016/17.

While a funding gap of this size in the private sector could well be considered a black hole, the same isn’t necessarily the case for the MOD, which has the option of delaying or cancelling projects and programmes, or reducing current capabilities or future scope to live within its means.

Nonetheless, UK defence is entering a difficult period; perhaps one of the most challenging periods in a generation, at a time when ambition within our armed forces shows no sign of abating. Indeed, investment in new platforms continues apace: aircraft carriers, Type 26 and Type 31 Frigates, Dreadnought and Astute class submarines, P8 patrol, A400M and F-35 aircraft and of course the Army’s new armoured fighting vehicles. Then factor in the unmanned and drone technology that is the plat du jour of future naval, air and even army thinking.

There has always been tension between the cost of defending the UK and its interests versus the budget available. Major changes to our armed forces and their defence assets over the past 50 years have largely been due to this funding conundrum.

However, this tension is now acute and must be addressed.

There is scope to balance priorities if real awareness and appetite exists. Programmes can be retained, capability restored and scope maintained if we recognise problems early enough and are minded to resolve them. It is no good if a funding problem is only recognised halfway through, and then the programme has to be cut entirely. Not only is capability sacrificed, but unnecessary cost has been expended and the value entirely lost. The images of Nimrods being cut-up after the Strategic Defence and Security Review (SDSR) in 2010 is not forgotten easily.

So, what can be done?

The first step is recognising the overall scale of the problem, to understand where the funding hotspots are and what preventative measures can be taken. Understanding leads to honest debate and the identification of the tangible options that will afford defence leaders the opportunity to focus on the challenge and respond strategically.

Start with the basics
It’s important not to ignore the basics; re-examining how much equipment should cost and taking a robust forensic look into what programmes are costing could itself make significant inroads into identifying savings. Such interventions are easily delivered and could prevent capability being arbitrarily cut.

Having a business environment that can tightly control that whilst driving efficiencies and savings, with minimal impact on capability and scope, is a core requirement.

Working with industry
Working with industry is crucial to inform understanding of how greater efficiencies can be driven into programmes; or where support from government in the export market could make a significant impact on the costs borne by the UK. The size of UK defence spending alone is not sufficient to grow and develop our industrial base so a strong export market, especially in a post-Brexit environment, is important.

Personnel costs
With a third of defence expenditure going into service and civilian personnel costs, this is also an area for consideration. The MOD was tasked after the SDSR 2015 to reduce its civilian personnel costs by 30%, which could broadly be translated into reducing 30% of its civilian personnel. Yet civilians are, on the whole, cheaper to employ than service personnel and there are many non-combat roles currently occupied by services personnel.

The scope for reducing service personnel in back-office functions and for harmonising civilian functions across the armed forces remains a significant area of savings potential and the 30% challenge makes little sense in this context.

The opportunity to look at numbers of service personnel may be a highly emotive and political point in itself but is worth considering. Our armed forces are broadly described by the numbers of personnel within them, but the complexities of successful military interventions are more than just that of personnel numbers. The key question here is what does future combat actually look like and can we deliver this properly?

Talent management
Ensuring the talent pipeline is in place should also be a key focus. The leadership gene pool is currently cast many years in advance, which doesn’t allow skills to be injected into leadership roles when they are most needed. If we have considered what future combat looks like we should also consider what leadership that will require. Implementing modernised career structures that support lateral recruitment of key talent into service personnel roles would deliver dividends.

Technology and AI
Whilst our new aircraft carrier is expected to be in service for the next 50 years, one has to ask whether human and machine will be as interlinked across that timescale as they are today? A thousand jets or submarines approaching a carrier would be an unlikely scenario today. A thousand hand sized drones or remotely operated submersibles is less of a leap of imagination and the cost is almost negligible by comparison. Indeed, the sight of a drone landing on the Queen Elizabeth aircraft carrier at the beginning of August demonstrates the way threats are evolving.

By 2040 diesel and petrol vehicles will be banned by the UK and France and growing automation seems to go hand in hand with the adoption of and investment in electric vehicles. The future of merchant shipping seems to be in autonomous ships and big industry names in the market, such as Rolls Royce, are already advanced in their development of these.

The advancement in autonomous vehicles, of drones and in computing of AI, machine learning and robotics will surely combine to produce a defence capability that puts fewer people in harm's way and presents a very different offensive and defensive posture, at a much lower overall cost.

Getting this right and positioning the UK at the forefront of the technological advances has so many benefits for the UK as a whole. Equipment programmes become smaller and more agile; the cost of military personnel reduces significantly and growth of our high tech industrial capabilities becomes world leading, driving export markets. In turn, high tech jobs, investment in UK industries and tax revenues increase.

This funding challenge could well be the best opportunity in a generation to effect change and deliver better for less for the UK. Having the debate now and being prepared to ensure there is a better understanding of the costs and value is the essential next step.

(EDITOR’S NOTE: The biggest obstacle to fixing the MoD’s budget shortfall, as indeed to fixing most of the department’s problems, is ministers’ asinine refusal to confront reality.
The incumbent Secretary of State, Michael Fallon, may well be the greatest offender, but he is by no means the only one.
When ministers cannot announce a single contract, or make a statement on military equipment, without prefacing it with the stock phrase “Backed by our rising defence budget and £178 billion equipment plan,” it is clear they are attempting to pull the wool over the public’s eye.
Unless ministers wake up, face reality and revise their policies accordingly, they will end up bankrupting the Ministry of Defence financially as much as they have already bankrupted it morally.)


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