Fixing Defence Means Fixing the Deficit

Unfunded spending increases simply make the country weaker.

Former Prime Minister and current Foreign Secretary Lord Cameron made his first major speech last week. In it he exhorted European nations to increase defence spending to at least 2% of GDP, while lauding the current PM’s target for the UK of 2.5% of GDP. Fine words and no doubt stirringly delivered, but fundamentally flawed as a policy.

For a start the government is defining the input, not the output. Neither the Russians, the Chinese nor other NATO countries much care what percentage of GDP the UK spends on defence. They do care deeply about what military capability the UK delivers, be it in numbers of combat ready jets, armoured divisions or warships. The also care about morale – whether the Brits will fight – and training - are they any good and do they interface easily with the rest of NATO? Certainly the US doesn’t think so – it no longer rates the British army as tier one. Some retired UK generals think we struggle to be tier two.

Moreover GDP is an economic measure, not a hard accounting number. If GDP falls in a recession any GDP based budget allocation will diminish unless the government either cuts something else or increases borrowing. Successive governments haven’t cut anything (other than defence) since Cameron’s austerity following the financial crash. As a direct consequence Government borrowing is now approaching 98% of GDP, the highest it’s been since the Korean War.

War is all about money. Despite being a significantly smaller country, Britain defeated France in the Napoleonic wars because we had a much more sophisticated banking system. We were able to raise (borrow) enough money to outspend the French, which in those days included paying subsidies to the likes of Span and Russia to keep them fighting. Today, following the acceptance quantitative easing (aka the magic money tree delusion), our national banking system seems more sophistry than sophistication and we’re getting close to the limit of sustainable borrowing. (We left sensible borrowing behind decades ago.)

Today some 5% of government spending is paying the interest on the £3 trillion debt pile, which itself is growing at some £100 billion a year. The interest bill will too. At current gilt yields of 4% the extra interest on the extra debt of one year’s deficit would be another £4 billion a year. If the government is serious about increasing military spending for a protracted period it needs to ensure that it can afford it.

The bad news is that Russia can; their national debt is a mere 17.5% of GDP So can China, although their debt is 75% of GDP and, being a communist dictatorship, their numbers are hooky and the concept of private property is weak. But they’re in one hack of a better place economically than the UK. We are economically weaker than the states we have deemed threats; that’s a poor launching point for an arms race.

If the extra money can be found (which Sir Keir Starmer, our probably next Prime Minister, doesn’t think possible), what extra dosh will the Generals, Admirals and Air Marshalls receive. The proposed increases to 2.5% of GDP will yield some extra £4.7 billion a year.

The first problem to be sorted is recruitment and retention. Currently for every 11 people the Armed forces recruit 16 trained servicemen leave. As well as a numbers problem this means that quality is falling; it’s not sustainable. There are many reasons, but poor pay and conditions are close to the top of the list and simplest to fix. The current military wage bill is some £11.4 billion so a 15% pay rise would cost £1.7 billion, leaving £3 billion a year for more equipment and more training. It might take more, but a ship without a crew is merely a rusting hulk.

The Royal Navy has needed more frigates since Nelson was a lad and the situation is desperate now. It has new ones on order and at £300M to £500M or so each, they easily have an extra frigate a year. To get them in the water any time soon the MOD will have to expand the UK warship building capabilities that it axed the Cold War. It might need to spend  another £500M to kick things off. Building ships takes years, so most of the additional warship cash won’t be needed for some time – other projects can come to the fore.

The Royal Air Force hasn’t yet ordered more than 48 F-35 fighters -  it intends to purchase 138 of them and it needs to put cash down to secure a place in the queue. Which version it should buy and whether the F35 is the best short term option for the low availability of jet fighters is an open question. The Typhoon production line is still open and the RAF is currently using 35 tranche one Typhoons for spare parts to keep the other 100 Typhoons  flying. F35’s cost about £100 million, brand new Typhoons a little less. While the Air Marshalls are arguing that one they should get on and buy the full complement of five Wedgetails airborne early warning aircraft that are crucial to modern air combat. £1 billion or so a year would cover the costs.

The Army’s problems are more serious, desperate in fact. Despite having the manpower of the Cold War British Army of the Rhine it can deliver perhaps 20% of the combat power, with little resilience. Right now it can’t even do that. Having sent it’s run down AS-90s to Ukraine, it has just 14 155mm artillery pieces, barely enough to support one battlegroup on a quiet day. The British Army’s combat power is just 3% of what it could and should be – or what we pay for.

Unbelievably the Army has 18 foot borne infantry battalions – some 15% of all army soldiers – who go to war in the same manner as their forbears at the battle of the Somme. As every war since then has shown, unprotected infantrymen die like flies – mostly to artillery. We may not have many artillery pieces; the Russians have lots and know how to use them - ask any Ukrainian.  The British Army has just three tank regiments – enough for perhaps one credible armoured brigade. If the UK wants to field an army more impressive that a single armoured brigade we’ll have to buy our tanks elsewhere because we don’t make them any more.

Note that these military shortcomings cannot be blamed on the government or even the civil servants of the MOD. These are the consequences of the decisions of supposedly expert generals. The Army’s mess is the result of a series of poor decisions over at least one decade. That’s longer than any one general stays in any one job. It’s not the work of a rogue general, it’s the evidence that the entire promotion and selection system of the Army is far from fit for purpose. Fixing that will take a Cardwell (who reorganised the Army after the debacle of the Crimean War) or a Haldane (who reorganised the Army after the debacle of the Boer War); there are few, if any, politicians of that stature in today’s House of Commons.

Fixing the armed forces will not be cheap, popular or quick. In an election year no-one is likely to embark upon any serious programme of reform. Service personnel will continue to vote with their feet,  skill fade will increase and the rebuilding task will get harder and more expensive. Worse, the British Armed Force’s credibility will slide more quickly, as will their deterrent effect and the UKs influence. The Realm will be worse defended.

The most important thing though is that the economy starts genuine growth. While there may be  a Keynesian argument that paying people to make arms and paying more people to practice using them is better than paying unemployment benefits, today’s economic challenge is not unemployment. It’s the economically inactive, the long-term sick, the price of energy and, above all, the massive national debt and out of control government spending.

No main party has a credible plan to balance the budget, so debt and interest payments will continue to rise. The UK increasingly exists at the whim of the bond markets; that’s another threat to the realm that our armed forces can’t protect us from.

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