The Nightmare Before Christmas? Thoughts on the Defence Funding Shortfall.

Christmas may be drawing near, and the Armed Forces preparing for a well earned short pause, but already it is clear that next year significant challenges lie ahead for the military as it prepares to fight at home for funding in what is likely to be a painful Strategic Defence Review.

The news that cuts to the military seem almost certain to go ahead were signalled this week by an interview with Ben Wallace, who made clear that the armed forces need to cut their cloth to match reality. This was coupled with confirmation that there is a funding challenge at the heart of Defence, and that also the armed forces have each been asked to demonstrate progress on a core issue, to prove their credibility.

What is clear is that the British Armed Forces are probably approaching a point where with a £15bn hole in the equipment programme, an SDSR on the scale and ferocity of 2010 is going to be required to cut back force levels, programmes and aspirations to make the military affordable.

HMS PROTECTOR -Image by Ministry of Defence; © Crown copyright

The story of Defence needing more money is an old one, yet it is perhaps never satisfactorily explained how so many of the programme slip ups occur, or why the Department seems perennially strapped for cash. There are several different reasons for this, and its worth considering a few.

Firstly, it is important to understand that the Equipment Programme (where so much of the funding shortfall exists) is not run by giving each project a block of cash at the start and then ringfencing it and coming back a few years later. Instead programmes are budgeted and run, but each year require different sums of money for different reasons.

What this means is if you are running the several hundred major programmes it involves, you will see different demands at different times. The challenge for budgeteers is to work out how to carefully co-ordinate all of these demands to ensure that each year, each project gets the right amount of money to continue to carry on as planned.

When looking to make in year savings, an easy option is to look at the projects and carry out the ‘3 D’s exercise’ (defer, delay, descope) a project. This means slipping putting projects out to contract, it may mean a pause in delivery, or it may mean reducing the aspiration of the project.

For example, it could be that deferring putting a project to contract until the following year now may save £20m in year, while delaying the in year project could save a further £100m. Descoping the project may mean that whereas previously (for example) a ship may come fitted with Phalanx CIWS, the decision is taken not to fit them because it saves potentially £20m in the first year, but then accrues following on savings for several more years across a range of budgets due to the need to no longer fit and test them.

These packages when brought together can potentially save a lot of money, but do come at a cost. For example, it may be the case that deferring for a year solves the in year problem for the procurement teams, but it generates a problem in the next year due to price rises, or the need to run a new competition. Additionally running equipment on past its intended replacement date suddenly means new costs are incurred to keep a legacy capability in service longer than planned – for vehicle fleets or areas where you may need to extend support contracts and refits to cover, this can potentially be very expensive.

It is in many ways a faustian pact, designed to solve the short term problem but potentially inflict longer term pain. In a system where the only figure that matters is the in year total and meeting it, any cut will do to get there.

This attitude is perhaps further encouraged by the culture of short termism that permeates so much of the procurement world. The combination of vilifying civil servants so much for years that ensured huge swathes of the DE&S workforce walked at the earliest possible opportunity through redundancy programmes, coupled with a military career structure that feels like it actively penalises anyone who dares make procurement a career stream means the pool of experience to actually manage and deliver these projects is perhaps more limited than is helpful.

This is compounded by short term challenges such as the constant churn of staff in the armed forces, who on arrival feel the need to secure OJAR success by taking action which may not necessarily always be in the best interest of the project. Similarly the Civil Service is not encouraged to hold firm in one job – the scrapping of spine point progression pay to save money (e.g. each year you remain in the same grade, you earn more to reflect your experience) has been a disaster. While it may have saved money, it disincentivised people from staying in one job, instead forcing them to move regularly to get promotion in order to earn more money.

Consequently for years now there has been a challenging vacuum in the procurement world which needs to be properly addressed. The best outcome is accepting that good procurement experts cost money, a lot of money, and paying DE&S staff rates that make it feasible to move to, and live in, Bristol. This will work out cheaper in the long run than relying on contractors, many of whom are merely ex DE&S or military staff employed in an identical job for far more cost.

Similarly, military staff need far more time in the procurement world – creating a staff officer stream that permits promotion and not career fouling, and which lets people specialise as experts in procurement while still being able to be military too is critical here. Doing the odd two year tour at different parts of your career doesn’t make you a procurement expert, at best it makes you a talented amateur. When you’re in the business of buying nuclear submarines and fighter jets, you need experts and not amateurs.

Another reason for financial challenges has been the changing appetites of Ministers on what they think matters. The appointment of Ministers is a matter for the Prime Minister, but it is fair to say that each change of Minister causes immense disruption in a department that takes a long time to master. This disruption can lead to delay, delay can lead to cost increases and in turn the problems get worse.

This is coupled with the operational imperatives of the day and responding to them in the short term while still trying to meet the long term needs of the MOD. The reality of equipment purchases is that we are buying items now likely to be used by our grandchildren. The parents of the final crew of the QUEEN ELIZABETH probably have only just been born, so we need to take a long term perspective at what matters.

But, when operations are going on, and troops are dying due to short term tactical threats, it is absolutely correct to want to do something about this. The challenge is how do you find the funds to address emerging threats and how do you turn a super tanker around quickly?

In the case of the MOD, 10 years ago HERRICK was very active and sucking up a huge amount of departmental resources, while the Russians were seen as a mild irritant with a rusted military and British Forces Germany was seen as an anachronism. Today as we enter the 2020s HERRICK hasn’t gone away, its just been rebadged, but with close to 1000 troops (and growing) still in Afghanistan, this threat remains real.

The British Army is now pretty much completely withdrawn from Germany, but finds itself needing to establish quasi-permanent garrisons in Eastern Europe, while also being drawn into support roles in Africa and elsewhere. Meanwhile the Russians have emerged as a highly credible and dangerous threat on a variety of areas and will require robust deterrence messaging. Meanwhile the Middle East remains a hugely complex area with the Syrian civil war raging on and a fundamentally utterly broken model of multiple nation states trying to fight over terrain for different reasons and goals.

The two key deductions that emerge from this are firstly, how on earth do you run a procurement system with enough flexibility and agility to deliver equipment in time to be useful. Secondly, whoever thinks you can predict the future with any degree of accuracy is mistaken, but we have seen that the inherent flexibility of the forces matters because they have risen to meet the challenges in a timely manner.

Given all of this, its perhaps not surprising that projects get deferred in the short term to flood an project with personnel and resources to deliver in a hurry. Just look at the way that the military prioritised the UOR process for Afghanistan and Iraq back in the 2000s. But, equally this short term prioritisation comes at a price – the slower projects took less priority for staff, or were seen as an easier target for deferring, delaying or descoping to save funds because what mattered was the near battle not the long term campaign.

SDSR2010 managed to deliver a reset on the Equipment Programme to a point, and helped temporarily at least put the armed forces onto a stable platform. But, the reality is that the sums didn’t add up and that for most of the last decade the MOD has been lurching from one fiscal challenge to the next without ever really getting things totally under control.

If you look at the litany of short-term studies held to try and get things under control, its clear that Defence has been struggling to bring things together in a coherent way. This, when coupled with an inability to chop major programmes outside of an SDSR means that for years the Department has essentially been running itself on a credit card, hoping that a benevolent Treasury will bail the bill out rather than force them to return goods.

The natural answer for most commentators would seem to be ‘Defence needs more money’. Maybe it does, but maybe it perhaps needs to take a genuinely long hard look at itself and prove that its worthy of being given more money. To that end, the Secretary of States challenge is utterly praiseworthy – fix your own problems then come back and ask for money. Each of his three challenges are very cleverly designed because they require really innovative thinking and a desire to see how things can be done differently.

For the Navy getting more ships to sea can be done, but requires investment in spare parts, maintenance and probably focusing more on finishing refits on existing ships and trying to keep the force going. This in turn means less ships deployed while these refits happen, and potentially a conversation about whether the time has come to pay off quite a few of the now very elderly Type 23s, cutting our losses and instead putting resources and manpower into properly refitting and supporting those that can still run on.

It also requires a difficult conversation about manpower – surging ships to sea is all well and good, but if it means gaps all over the place and a bunch of deeply pissed off sailors who have had essential harmony shore time cancelled, then the medium term risk is how to keep them in the system and not quitting.

For the RN this means taking some difficult decisions on ship numbers, deployment patterns and looking at how to do things differently, and making hard calls about where to prioritise the funds they do have and what to invest in.

For the Army the challenge of fixing recruitment is key. It is reasonable to say that the initial years of the privatised recruiting system haven’t worked as intended – whether this is down to the contractor, or if the Army failed to accurately define what it wanted and then get it delivered properly is perhaps open to debate. What does matter though is getting people into the system now, and then (and arguably more importantly) keeping them for the long term. There is no point constantly recruiting 10,000 privates a year if in 3 years time only 2000 are left. Gripping retention, particularly at the early career stage will be key.

Coupled to this is a need for the Armed Forces as a whole to have a grown up conversation about medical standards and stop letting process get in the way of people joining. One of the single biggest complaints about how the military screw up recruitment comes from an overly complex medical system that seems determined to reject out, rather than recruit in people.

Trying to fix this and get more people in, even on risk is key. The challenge is the intensely risk averse nature of the training regime and the fear that bringing someone in could lead to legal challenges if something goes wrong. But if something isn’t done to take risk and give people a chance, the pool of potential recruits diminishes year on year.

At some point medical standards will need to change if the Armed Forces are to be able to continue to meet their numbers. Perhaps the best thing to do is move to a system of accepting everybody, regardless of physical or mental conditions and working with them to see what roles they could do – while someone in a wheelchair may struggle at sea on a ship or the cockpit of a jet, they may be perfectly able to work in the office environment and deliver cutting edge cyber effect.

Has the time come to stop hiding behind the ‘yes but if we bring a disabled person in, what happens if they need to go to war’ and instead accept that there are plenty of people who don’t deploy on ops, and there are plenty more who hide behind med cat statuses that prevent them from deploying.

One only has to look at the inspirational legacy of the much-missed Major Mandy Islam to see her drive and determination to keep seriously ill personnel in the military. Why not extend this and give everyone a chance to serve?

The RAF too needs to look at its training pipeline and see how to get more fast jet pilots into the system. At the moment it seems to be taking so long to get people to the front line that the future Chiefs of the Air Staff are likely to only have time for one front line tour flying before embarking on their staff career.

The challenge here is the decision to privatise flying, and then tinker with the numbers is something that takes years to turn around. 10 years after the SDSR culled pilots, it takes time to recruit and bring people through the pipeline and then run the courses in the right numbers. How this is fixed is going to be challenging, but may rely on a higher acceptance of risk of bringing people onto front line squadrons earlier, or it may require greater use of simulation training – are the media and others comfortable that this means reduced time in a cockpit?

Addressing this shortage, plus the wider challenge of getting sufficient engineers in will be essential. This probably means a headcount uplift for the RAF, which will take 5-10 years to begin meaningfully percolating into the system, and ensuring that it doesn’t become irrevocably broken in the interim is the challenge here.

As we move into the SDSR its likely that there will be all manner of nonsense debates on social media about how to spend extra money and fix all of Defences problems. We’ll see shopping lists of fantasy fleets and ideas that just waving a wand will fix this if we can just have three more squadrons of JSF and a new fleet of tanks.

The reality is the SDSR is going to almost certainly be about cutting costs and slashing programmes. The SofS has made that very clear with his ‘cloth cutting’ comments. The debate needs to refocus on what do we get rid of now, and why?

Ideally the SDSR needs to be genuinely brave and decide what the UK wants to stop doing in meaningful numbers to save a lot of money. One example might be the deployable division – does the UK need the troops to make up a deployable division or would merely maintaining the HQ element matter. Similarly, does the UK need to deploy two CVF at once or could it get by just with one active and one reserve carrier?

Does the move away from the EU present an opportunity to step back from burden sharing European defence, or does it provide a chance to invest in it and present a credible offer of support to bolster our political situation. Is the price of doing this something which warrants withdrawal from the Far East as a means of saving funding, or is the ability to deploy expeditionary forces a long way more important than keeping forces assigned to NATO in Eastern Europe?

The challenge is that there is no easy answer to these questions, and the likely political brouhaha that would follow the inevitable leaks would make it close to impossible to do. The worry has to be that the SDSR fails to be brave and instead goes for a ‘steady as she goes’  model of salami slicing that doesn’t address the underlying challenges and only kicks the problem further down the road.

To make the case for more money Defence must become utterly utterly merciless in its battle for cost savings. This means closing every possible site, regardless of whether its in a marginal constituency, or in the constituency of an MP who may support a future leadership bid by the MOD Minister. It means taking a very long hard look at what Defence does and divesting huge chunks of it where possible.

For example has the time come to radically downsize the command chains and internal posts. Does the Army really need its current force structure of brigades and regional forces? Does the RAF actually need the RAF Regiment, and does the Royal Navy really need two LPD for a Future Commando Force that will never do that sort of amphibious landing again?

Is it better to cut force numbers and structures, but invest heavily in modern logistics and IT, and improve stockpiles and resilience. What matters more – shallow numerical mass or heavier but narrower capability?

The current structure is process driven and hidebound by a frozen middle of unambitious and at times decidedly average officers who it is said by those who encounter and do battle with them, fear change and fear changes to their world. There are exciting visions being promulgated at the very senior levels of the Services, just look for instance at what the First Sea Lord, Second Sea Lord and Fleet Commander (the so-called Trinity) have set out to do – their future vision of the Royal Navy is incredibly exciting.

But if it fails, it will fail because too many vested interests who have no professional interest in boat rocking, and who speak the language of change without ever once changing will stop it through inertia, inacation and a sense that if they hold off a bit longer then the next senior team may have a more palatable view.

The time has come for real change to the armed forces. Ideally the time has come to chop away huge chunks of the command structure and ideally open the frozen middle (SO1-1*) up to external recruitment – precisely because to do so will flush the blockers out and instead bring in a talent pool that is not beholden to a fondly imagined fictional past and traditions that are bad habits in disguise.

This is the challenge Defence faces – its not about whether the Chancellor gives a few hundred million here or there, its about whether culturally as an organisation it is willing and able to be brutal and prepared to show it is worthy of being given more of the taxpayers money. It needs to show that it can change and that its getting every possible penny of value out of what it does.

At the moment a cynic would argue that perhaps it isn’t doing this and perhaps proponents and pundits are talking a damn good talk, then trying to deflect attention away from the difficult questions that do need to be asked, and the difficult decisions that do need to be taken and instead pointing to pictures of warry looking soldiers or ships at sea and hoping that people forget what it was the issue is.

Defence is a fantastic organisation, it works globally and does so much good for the UK as a whole. The amazing men and women of the armed forces, and the superb civilians who support them do a great job of keeping this nation safe. At the sharp end there is much we should draw comfort and morale from.

But equally we do need to hold Defence accountable and ensure that it really is giving the UK value for money and that what it does matters. The closed shop nature of its recruitment, coupled with what can at times be an attitude to outsiders that says ‘we know better than you, who are you to judge us’ can be dangerous. If Defence cannot explain to outsiders in simple terms how it is doing everything possible to reduce the estate, to save money and to maximise effectiveness in order to inflict violence on the enemy, then it will be right to fear the forthcoming review.

There is perhaps a sense in the public debating space that ‘if only Defence had another X Bn all the problems would go away’. The challenge though is that this money wouldn’t go very far and the likely bill to solve all the challenges would reduce funding from a variety of other, far more politically relevant issues, like the NHS, schools, hospitals, roads, transport, police numbers, justice etc.

Whether Defence likes it or not, surely the time has come to utterly challenge and stop repeating the same self destructive patterns of the past. This can best be characterised as being a can do willingness to get involved in a new operation to meet Govt interest, which then escalates into a new operation.

While these operations continue this is coupled with a constant cycle of wheel reinvention as organisations seem to open, flourish, merge, close, reopen and so on, or planned closures are cancelled and sites run on. At the same time a constant annual cycle of decisions that seem to enhance or delete funding makes keeping a consistent approach to delivery of projects difficult, while the organisation remains stuck with a training estate that is far too big and wasteful of resources.

What is  needed is a genuinely fresh approach that will once and for all slay the sacred cows and start to put Defence onto a long term coherent footing. This won’t be easy because the likely outcomes will be really painful, both for the Services and their supporters.

The challenge will come as the Review progresses when people begin to leak, and vested interests begin to worry. As the bad headlines appear, what matters is holding firm and delivering real change for the better. The cycle of boom and bust has to stop, and the cycle of every 10-15 years having to deliver difficult cuts to the equipment programme to make the books balance needs to cease.

The 2020 SDSR is a generational opportunity to fix this, and it must be grasped. What matters is engagement and making the case for Defence, but also accepting that what has been done before has not necessarily worked as planned – if it had, then the MOD wouldn’t be £15bn in the red.  This is a super opportunity to break the cycle and start afresh – it has to be taken.

With that though, Humphrey will now pause for Christmas with blogging likely to resume in late Dec / early Jan. Thank you for all your contributions over the year, and thank you too to all those who have offered feedback, advice and support. Despite what some think, this blog is an amateur act, done in my spare time at home and written using only open source material at its core. It is something I’m very proud of, but it remains at heart a hobby of mine and not a career.

Thank you to all who I’ve met and enjoyed coffees and drinks with, particularly through the wider defence twitter team. Your company and friendship is deeply valued and appreciated. Comments and feedback are always welcomed via pinstripedline@gmail.com

This Christmas some 10,000 British military personnel and civil servants will be deployed away from home on operations. Speaking from personal experience, being deployed at Christmas is hard, but it is worth it to know you are making a difference.

Please keep these magnificent men and women in your thoughts and prayers, and never take for granted the fact that they so willingly do the extraordinary so often so that our lives may remain ordinary.

Merry Christmas & Happy New Year.