Wednesday, 26 June 2013

Good news can conceal a multitude of elephants - Thoughts on the 2013 Spending Review Announcement


Well the weeks of speculation are over, and the results of the Spending Review (SR) were finally announced in Parliament today by the Chancellor George Osborne. As expected all departments bar those previously confirmed as having secure funding received cuts. The real question on most people’s minds though were ‘how bad is it going to be’?

In simple terms the MOD appears to have done remarkably well out of this settlement compared to previous public expectations of doom and gloom. It is no small feat to emerge from a bruising spending round with a relatively small cut to the overall budget, and with a commitment to keeping capital expenditure on a flat (i.e. real terms small decline) basis. That this has  happened is perhaps testimony to the remarkable efforts by the MOD to bring its budgets under control in recent years – the realism measures pushed through, the efforts to close the black hole and the persuasive case made that major cuts to the budget would force structural cuts seem to have combined to put forward a case where the MOD is about 1.9% worse off overall – in realistic terms it couldn’t have got much better than this. What does it mean in real terms though?

The announcement is clear that the savings expected of the MOD will not come from front line capabilities, which instead will be protected. Rather savings seem to be identified as coming from renegotiated contracts, changes to equipment procurement practise (e.g. different contract negotiations) and cuts to the MOD Civil Service. There was also a hint in the actual supporting paper that there is a possibility that any underspend this year may be carried forward to future years, which could go a long way to resolving the challenge.

Some of the measures may prove difficult to implement quickly – while it is appealing to push for changes to contracts, and to try to improve PFIs or other measures, this can often take a long time to push through. This is not to say it is impossible, but it is clearly going to be a real challenge to deliver on this front. The question is what happens if the projected savings aren’t found and where will alternate savings come from?

The next challenge is going to be balancing the equipment programme, which is built on some fairly optimistic planning assumptions. A cursory glance at NAO reporting shows that there is a qualified view that it is fundable, but this is dependent on growth and a very small rise in inflation. Given there are cost increases likely to be out there (one only has to look at the NAO report on CVF to see the strong hint that a large price rise may be imminent), then the worry is that while the budget balances today, will this continue for the next three years? A real terms shrinking budget, matched with growing equipment costs can have the potential for real headaches – there isn’t much flex in the contingency fund, and the perhaps nightmare scenario is that having solved the infamous ‘black hole’ there is not as much money left as hoped, and that it re-emerges in due course. A combination of cost growth, inflation and an inability to make structural changes ahead of the next SDR could be a very challenging time for Defence.

Civilian Cuts
The review announced that the MOD Civil Service will see its number shrink, and allowances will be slashed, and pay restraint continued. It seems that with very limited space to manoeuvre (no equipment cuts, no structural changes, no manpower reductions) it was inevitable that the only place left to turn was the civil service.

Humphrey was probably not alone on Sunday in feeling dismayed that news about the fate of possibly thousands of hardworking and committed MOD Civil Servants was communicated via the medium of the Andrew Marr show, and not announced today. It is perhaps unfortunate that the MOD CS should be regarded with such disdain that announcing job losses can be seen as a ‘good Sunday headline’. It is unthinkable that military job losses should be announced in this way, and it is perhaps a sign that the MOD CS is seen as a politically expendable pawn in a manner that the armed forces are not.

While some job losses are inevitable, the worry is that there will be ever more pressure on CS headcount without a matching reduction in workload. While firing civil servants is always popular, what doesn’t seem to have been addressed is that the work will probably continue, placing more burdens on those who are left, both civilian and military.

The wider problem is that this continued gutting of the MOD Civil Service is going to have a real impact on morale and its continued ability to generate good quality staff who can support the needs of this country. Normally spending reviews either see bad news for both uniformed and civilian personnel, or some kind of ‘sweetener’. Today’s news has effectively created a split between the military and the civilian component of Defence, who are being treated in two very different ways.

Speaking to friends and acquaintances, the author picked up a sense of real anger at the manner in which the CS is being used as a political pawn in this way. No one doubts that when belts are tightened cuts need to be made. But there was immense frustration that the military seem to be being treated in a very different manner to their civilian counterparts.

Freezing salaries, reducing allowances and confirming the loss of pay progression will help solve a short term budget problem. It has the potential to cause a much longer term morale and retention problem too as well. It is hard to overstate how fragile morale is among friends of the author – they feel as if they are seen as the problem, and that their efforts are not remotely valued by their seniors. The MOD CS has not had a pay rise of any form for several years, and the much vaunted pay spine progression was scrapped some time ago too. This means that many staff have taken a real terms 15-20% pay cut in this time. The scrapping of the pay spine will help save money, but it will leave to a potential mismatch in salaries and cause real resentment – The DE&S is currently advertising for new C1 Grade project managers at a starting salary significantly above that paid to the majority of people based there in that grade. It has caused upset at those who have stayed through the tough times to see new entrants earning far more than their experienced colleagues, who in turn have no chance of progressing up to those equivalent salary levels for many years (assuming 1% pay rise per year for next 3 years, it could be up to a decade before they match what is being offered now to new entrants). No one joins the civil service to get rich, but they do stay and acquire niche skills and experience. By causing large swathes of a highly talented workforce to feel so isolated, there is a genuine danger that they will walk away and leave massive recruitment problems and loss of corporate knowledge. The authors worry is that this announcement may be the breaking point for many people who have irreplaceable skills.

The other problem is long term recruitment – a very large number of the MOD staff are now in their late forties and early fifties. They will retire within the next 10 years and yet efforts to freeze recruitment mean that the replacements needed to train now are not coming on stream. As these people go, then they go without relief – the problem is that it takes years to train the specialists out there, you can’t just appoint someone to many of these positions. Failure to recruit now will save money, but could mean a critical loss of skills and knowledge in 10-15 years’ time when the next generation of experts will not exist.
 
In the medium term the challenge will be to retain the goodwill of a workforce who many feel are being made scapegoats in the manner of bankers. It will be extremely difficult to sell the news today as being 'good' for the civilian component, and many friends of the author feel as if a two tier department is emerging in which they perhaps are seen as less valued and more expendable than the military.

The elephant in the room?
The problem faced by MOD though is while it is not permitted to look at things like service numbers or structures due to the desire of politicians to protect this, it remains saddled with a force structure that is becoming increasingly expensive. The fundamental challenge that policy makers will need to wrestle with over the next few years, and particularly in the 2015 and 2020 SDR is how do we afford the personnel who make up our armed forces?

Reducing civilian numbers will help make some small savings, but it is worth remembering that some 70% of the MOD CS earn under £25,000 per year, while some 80% of the Military earn over £26,000 per year. The military pay bill is enormous, particularly when the allowances are factored in as well, and one is quickly left looking at just how well paid our service personnel are. Now the author does not for one second begrudge anyone their pay – as a Serviceman he knows full well how difficult and dangerous the job can be, and there have been times when no matter how good the money, it didn’t feel anywhere near enough psychologically to cope with the challenges being faced!

But, as we move away from HERRICK we are going to a force structure where over 95% of the UK military will be based at home, and highly unlikely to be deployed on operations like HERRICK or TELIC. The news that they will receive continued pay rises this year, and the news that they will receive progression pay (unlike any other part of Government) recognises the special challenges of military life, but also comes at a cost.

Cutting the civil service and cutting allowances or estate can only save so much money – if at the time of the next SDR similar guidance is in place, then it is hard to see how the money can be found without wholesale cuts to the civil service.

The challenge now is how to pay and support a military which is becoming increasingly expensive to run, and equip with the highest grade equipment and house in reasonable facilities. The UK could afford a large military in the 1960s in part due to very low pay and very poor conditions compared to today. Cutting troop numbers means reductions in equipment orders, real estate, infrastructure and pay / allowances plus wider savings. Cutting civilian numbers merely saves on pay and a small amount of real estate if offices are closed.

As defence moves towards the next SDR it will need to think carefully about how a force of some 150,000 regular personnel can be kept and equipped properly within  the tight budget margins which exist today. Having staked a political line in the sand over troop levels and force structures, the challenge will be for the current Government on how best to keep this going – particularly if inflation hits and equipment costs rise spectacularly. For as long as troop numbers remain untouchable, the MOD will be forced to make increasingly difficult choices about how it finds savings - there is no easy answer to this difficult question.

Looking Forward
So today has seen a relatively good news day in the short term for Defence as a whole – it knows how much it can spend until the next SDR in two years time, and also that it is hopefully unlikely to have to enter this while conducting in year planning rounds to make the books vaguely balance. This means in turn the real chance of a proper policy led review.

The challenge though is that through political will, Defence is finding itself increasingly constrained in its ability to deliver the savings of it. The inability to cut equipment projects, or to review troop levels makes perfect political sense, but the worry is that it leaves such little scope for other cuts, that at some point something may have to give. There is no right answer to this conundrum, and much will depend on the political guidance offered at the time of the next SDR, which will set the tone for the whole experience to be repeated again in 2016 at the next spending review…

Wednesday, 19 June 2013

Litigation does not always protect the living. Thoughts on the Supreme Court 'snatch' ruling.


Humphrey was very disappointed at the news today about the ruling by the Supreme Court that widows of soldiers killed in Iraq are able to sue the Government for negligence. What follows here is a very personal viewpoint as to why he feels this decision is not the correct one. From the outset, it should be clear that Humphrey has the most enormous sympathy for the families of those killed or injured – the pain they are going through cannot be conceived, and the natural desire to try and right a self-perceived wrong is fully understandable. But, his firm belief is that this is not the right decision and could make life more challenging for Commanders in the field and actually cause more deaths.

 The challenge we have in today’s Western society is that there is a deeper reluctance to take unnecessary casualties. While this author believes that as a whole we remain a ‘warrior nation’ able to absorb a steady stream of casualties, as a whole there is a greater effort to try and reduce these to the lowest possible level. Western society as a whole is less willing to tolerate large numbers of casualties (say WW1 levels) and invests a great deal of money in military capability in order to convince their troops that they are the ‘best equipped & best protected in the world’. This comes at a substantial price though – one only has to look at the cost of high end military equipment these days (say the FRES programme or other new APCs) to realise just how expensive having the best protection can be.

This is where the challenge emerges – it is expensive to procure a first rate set of vehicles to provide the best possible protection – ultimately compromises need to be made, and trade-offs accepted in order to balance the need for reasonable protection versus affordability in the wider budget. There is no point having a world class APC if you cannot afford any of the other enablers to deploy it properly.

In the case of the UK the problem is made doubly difficult by having a military optimised for global operations. The vast majority of equipment procured has to be able to work in all manner of conditions from Western Europe, to the desert, to the jungle, and experience of the last 20 years has seen some kit tested in all conditions. It is inevitable that something procured as a ‘jack of all trades’ will not excel in all conditions. Instead UK procurement can be seen as something of a balancing act, trying to put into service a vehicle designed to meet a hugely diverse set of requirements, and set against a truly global operating area. This is not easy, and it is to the requirement managers credit that there is such genuinely good equipment in service at the moment. What this means then is that one could see UK military vehicles and equipment as a bridging act – able to hold its own for a reasonable length of time in any one theatre, but not optimised for performance in one specific area.

In the case of both Iraq and Afghanistan, (and to a lesser extent Northern Ireland too) the military had to take equipment not optimised for the regions and work with it in theatre. In time as it became clear that there were environmental challenges which needed overcoming, and as the tactical environment changed, these vehicles were often upgraded and withdrawn. The flexibility of the Urgent Operational Requirement (UOR) process meant that it has been possible to transform a generic military capability into a hugely bespoke force – the equipment used on HERRICK now bears practically no resemblance to the equipment deployed in 2006. Indeed beyond a few generic light vehicles, it is hard to think of any vehicle fleet in service there being unchanged in some way. The myth that the wrong equipment is deployed and soldiers are left to deal with it is completely wrong – the British Army today on HERRICK has spent 10 years reequipping itself with an entirely new set of vehicles and equipment, which rely on technology which often didn’t exist a couple of years ago.

The system is far more responsive than the public give it credit for, and we should rightly be proud that there is good equipment out there. The problem is though that all this takes time to achieve – no army on the planet can re-organise itself and reequip itself overnight.

Both HERRICK and TELIC have been marked by an environment where the opposition, its tactics, its equipment and its membership had the potential to change on a monthly, weekly and sometimes daily basis. One only has to look back to the campaign in Iraq to see the changing nature of the IED, which went from a relatively simple ‘bomb in a box’ to being a hugely dangerous and incredibly sophisticated weapon system in a very short period of time. Similarly, the area of operations and the manner in which they were conducted changed, from hostile to permissive, to hostile and then to something in-between. There was no consistent period of change as loved by theorists with flowcharts depicting the phases of conflict – instead it was a very confusing situation which could be barely predicted, let alone managed.

Within this then the challenge was how to manage on the ground with equipment which was at times the right kit for the job, while a few days later it could be entirely inappropriate. Snatch Landrovers were not always the right vehicle, but they were often useful in the cramped backstreets of Basra, and as a less escalatory vehicle – the author remembers his time in Basra and hearing how the locals equated Warrior IFVs to Tanks, and their presence on the street did not always help improve relations. The commander on the ground then has to balance his assets and know that relying on the safest method of transport is not always the correct method.

Meanwhile where upgrades were going through, they took time to implement – one only has to consider that it can take a period of months to procure, manufacture, integrate, deliver, train and deploy even a basic piece of UOR kit. Now look at the case of a complicated system like a vehicle, which may need dozens of modifications, or introducing an entirely new platform into service to replace older ones.

It is easy to say that the MOD should have foreseen these challenges and equipped troops correctly, but with technology changing and finite resources in the mainstream budget which didn’t allow for this sort of widespread procurement of theatre specific assets, it is hard to see what else could be done. One only has to consider that procuring equipment takes time, training on it to use it to best effect takes even longer. The MOD was pilloried for delaying sending sets of armoured vehicles to Afghanistan some time ago, even though they were in vehicle parks in the UK – the reality though that there was no one trained to use them in theatre, that the tactics, spares chains, mechanics and all the other complex pieces of equipment needed to support them were in the UK and not HERRICK was not noted. There was a perception that because we possessed modern vehicles, we should deploy them, even if we could not support or operate them.

The challenge for commanders is how best to balance the need to deploy their assets, while using the equipment that they have to hand. The challenges of this ruling are that commanders will now need to consider their duty of care and not be able to take as much risk. Would a commander now be willing to send a Snatch vehicle onto the streets if he had no other suitable vehicles available? If the answer is no, then the question becomes ‘what is the impact’? By having to consider the reduced presence, we wonder whether the streets will become less safe, and the operational area less permissive for friendly forces. Could this lead to firing points being established in local areas, where it is not appropriate or physically possible to send a larger vehicle, but which a snatch could get into? If the establishment is mortared as a result of this, and people are killed, then has the UK government failed in its duty?

It is very easy with the benefit of hindsight to regard something as being the wrong vehicle for the job, but that is a reality of working with equipment which is being outpaced by both the operational environment and technological developments of the opposition. In the modern world knowledge transfer is easy to achieve, and as tactics and procedures evolve, they can shift areas and theatres of operations far more quickly than new equipment can be procured. In this world the opposition is very much inside our own OODA loop, and is media savvy enough to realise that concerted efforts against a specific vehicle type, or a ‘spectacular’ could see a strategic effect.

Commanders will now find themselves having to consider this, and while it is easy to say ‘but its only one vehicle fleet’ the reality is that it can have a far wider impact. Vehicles and equipment is not deployed in isolation, and they are mutually self-supporting – by denying a commander the ability to fully use or employ one vehicle for which concerns may exist, this may leave a gap in capability which cannot be filled by other assets, and in turn causing more deaths as the opposition exploit this.

Ultimately military operations are about inflicting violence on those who need it, and balancing risk against reward to achieve success. No one wants to come home in a body bag, and everyone hopes that their equipment is up to the job. Sometimes one must reluctantly accept that there will be risk taken on equipment in the short term, knowing that mitigation is underway in the medium term. This doesn’t make it any easier for the families of those killed, but how does one balance this – you cannot suspend military operations until the right equipment emerges.

While it is imperative that as a nation we seek to provide the best possible equipment within the resource constraints of the time, we must also accept that procurement is a trade-off. We will never have enough money to put the right equipment, meeting all possible threats and being future proofed to the nth degree across all fields of the military. To pretend otherwise is ludicrous.

While suing may achieve a self-perceived form of justice for loved ones, it will not change the reality of modern operations, namely that we need to work in an environment where the threat changes, and simply putting newer, larger and more protected vehicles into service is not only not the answer, but also cannot be done in a very short timescale. We must all remember that military operations come with a degree of risk, and while mitigated, it cannot always be eliminated. Humphrey feels deeply for the families of those who have lost loved ones, but cannot help but feel that in pursuing this case, they may inadvertently set the conditions where more will die unnecessarily than may otherwise have been the case.

Sunday, 16 June 2013

To spend, to save, to cut, to deploy - the fiscal challenges facing Defence.

 
 
Humphrey has recently returned home following an extended period of travel. In his absence it is clear that a great deal is going on in the world of Defence judging by the plethora of articles in the media about the MOD. Most contentious of all has been the current spending round, and it is clear that there is one going on for the media is full of the usual round of stories about how cutting X from the budget will lead to various apocalyptic circumstances. A cursory glance on ARRSE or elsewhere shows that the debate is clearly in full flow, although no decisions have yet been taken.
 
 Humphrey has a very strong rule that it is utterly pointless to write about scenarios or views expressed in the media during the run up to spending rounds. The public and media are bystanders and unwilling participants in a vicious war conducted internally by spreadsheet, emails and whispered briefings. The fact is that every government department at present seems to have leaked some form of doomsday scenario out there, ahead of settling for a different deal. One must remember that each media intervention, each email seen by a journalist or each ‘friends of the Minister / Official / Officer’ briefing are deliberately designed to further an agenda.
 
Often this whispering campaign is designed to support arguments held which people are not privy too – to try and manipulate opinion (not necessarily of those who believe that they are the intended target audience) and to try to shape ones own short and long term future for both their department and future career path.
 
There is remarkably little point on commenting on a work in progress when all that the public is seeing is material leaked to further a specific goal. This sort of debate will go on often right to the wire, and involve a great deal of negotiation, debate and work. Writing a long article about how the UK ability to deploy underwater knife wielding ninjas is threatened due to budget cuts is right now pointless as no one outside of a tiny group knows what the likely budget will be. The only time it is worth writing on the budget is when it is publicly known and the parameter of the debate is better understood. In the meantime the author will read with wry amusement the stories in the press which claim that X or Y will be threatened – it is very hard to make such judgements until you know the size of the budget.
 
Once the budget is settled, then the next phase of the traditional planning round antics begins – having tried to bat off generic calls to reduce the budget, a new battle of leaks will begin with the services leaking their own agendas to try and jockey for position as new planning rounds begin to bite. Again, the papers will be full of stories talking about how the MOD may have to disband the Red Arrows, scrap HMS VICTORY or replace Household Division horses with Shetland Ponies. This usually signifies that the planning round is in full swing, although again, there is little point in taking any speculation seriously until an announcement is made. What will make this next phase most interesting is that it will be done against the backdrop of a Strategic Defence Review in around late 2015. This is where the real interest should be – not in arguments over whether the UK can still afford to do X or build Y, but the fact that for the first time in a long while an SDR is going to be put together after the spending plans have been formulated.
 
This is significant as much of the preparatory work for the next review will be beginning soon, and it can be done knowing the financial baseline. It’s much easier to consider the outputs of Defence when you know how much you have to spend. What is also very interesting is that several statements have been made recently which appear to be setting the parameters of this debate – firstly, there seems to be a clear view that the equipment budget will continue to rise in spending terms to cover the planned acquisitions. As Humphrey has noted elsewhere (HERE) there is relatively little room for cost growth in the current budget, and inflation will quickly wipe out the limited headroom which does exist. At the same time there was media coverage this week suggesting that the Prime Minister has publicly ruled out further manpower cuts to the armed forces as a result of the current spending round. Now while this statement could be open to a lot more debate (does this mean that the spending round will not cause cuts, but the SDSR may open door to manpower reductions as a result of changes to defence planning assumptions?), it also further reduces the ability to manoeuvre for achieving spending cuts.

Finally, this week the Prime Minister gave a speech which seemingly got little coverage, but which was designed to set out his vision of where the UK sits in the world, particularly with reference to economic growth (https://www.gov.uk/government/speeches/plan-for-britains-success-speech-by-the-prime-minister) Without in any way expressing a view on the political context of the speech, there were some interesting lines about how he saw the continued role of the UK diplomatic and military presence across the world. These included:
 
 Where once our diplomatic network was shrinking, we are now on the march; in a couple of years, we’ll have opened 20 new diplomatic posts around the world, from Liberia to Laos. We’re the only nation in Europe to be expanding our diplomacy in this way; indeed, we’re now only one of three European countries represented in every single country in ASEAN, and we have the largest diplomatic network in India of any nation on the planet… (We have) reinvigorated relations with our old partners in the Gulf, where we’re active commercially, diplomatically, and with renewed military co‑operation to the east of Suez”
 
This perhaps sets the scene for a view where the UK continues to be seen as playing a much wider diplomatic and military role in the global environment. Most interestingly of all to this author is the use by the Prime Minister of the phrase ‘East of Suez’. The concept of a British Prime Minister in the 21st Century talking of an East of Suez military commitment would have been unthinkable just a few years ago, so this is perhaps quite an important line.

What it does demonstrate though is that the spending review and the SDSR will seem to work on several key assumptions – limited equipment budget growth, no headcount reduction to the armed forces as a result of spending cuts and a continued global military presence, including deployments East of Suez. The challenge is how to take these general views and merge them into a spending package which is credible – while headcount reductions are politically difficult they do save a lot of money – the personnel component is the most expensive part of the budget, and cutting a few thousand troops will save hundreds of millions over 10 years in both real terms of reduced salaries, but also fewer equipment buys, fewer barracks and so on. If you wish to maintain the equipment budget, and also troop levels, then something else has to give – R&D, estates, allowances, civil service numbers etc. The question is firstly is there enough scope in Defence to provide this level of spending cuts without impacting on the front lines (one only has to look at the 1994 Front Line First review to realise that protecting the front line at the expense of the rear echelons can be immensely difficult), while at the same time what happens if the required savings targets cannot be met through this alone?
 
Already there is huge debate in the media claiming where cuts can be made (the classic example of the £1000 MOD chairs which didn’t actually cost anywhere near that much was in the Times), while the Telegraph has an article claiming that the ‘lavish perks’ can be cut (HERE) although in reality the perks are far fewer than people think (and are in fact not really perks, but essential components of defence diplomacy and the ability to do their job). This debate will doubtless continue for some time yet with all the tired old clich├ęs dug out in support of the arguments.
 
So, the real challenge is not perhaps the spending review, but the process of merging the spending review outcomes with the political wishes of what not to cut or do and delivering a future force capable of meeting these outputs. There is no right answer to this debate, and it will doubtless occupy a lot of peoples time over the next two years, but it will be a fascinating period. Combining the natural desire to see the UK retain a global ‘presence’ (power being not necessarily the right phrase), with smaller levels of funding and a population which is reportedly tiring of overseas sustained entanglements, and a global situation which looks increasingly volatile. Given that the SDSR of 2015 will set the direction of travel for defence out to the late 2020s, it has the potential to be a most interesting period indeed. At this point Humphrey would flag up that the excellent website Think Defence is running a new series on discussing the construct of the next SDSR, where there is likely to be vibrant debate on what the next review may have to consider and conclude (HERE)
 
Therefore, for this author at least, there is no need to worry about newspaper headlines proclaiming the end of the world for defence – this is a natural cycle and one that has always occurred this way. It is far better to stand back, avoid speculation and instead wait to see what emerges. If a week is a long time in politics, then nearly two years to wait for an SDSR can be a lifetime for Defence…

Sunday, 9 June 2013

A temporary pause for travel

Humphrey is currently away travelling on business, so opportunities to update are few and far between. Normal service is likely to be resumed in the next week or so!
In the interim there are plenty of outstanding sites and blogs out there well worth a look, and which contain some excellent articles on modern defence. In no particular order, three that the author finds invaluable as sources of information, inspiration and examples of really good writing are

www.thinkdefence.co.uk - the Think Defence website

http://cdfai3ds.wordpress.com/ - Canadian Defence blog which provides a lot of good insights into North American defence matters, particularly on the arctic and naval procurement challenges.

http://defencewithac.blogspot.co.uk/ - Chris B's site - a really good location for some thought provoking deeper articles on defence and security.

http://www.lowyinterpreter.org/ - An excellent site for thinkpieces on the security challenges in Australia and the wider Asia Pacific region.

With a little luck and hopefully not too much jetlag, the next article will focus on finishing off thoughts on naval construction and the challenges of shipbuilding in the modern era.