Does the MOD need a Budget increase? Possibly, maybe, but it depends...

 

Reports on Sky News indicate that the MOD may not see an anticipated rise in the Defence budget. If true, this would make the UK the only major NATO nation not to increase defence spending since the start of the illegal Russian invasion of Ukraine, and due to strong inflationary pressures lead to a very substantial cut in the Defence budget. How realistic is this outcome and does the UK even need a rise in defence spending?

During defence reviews there is always a litany of leaks and ground shaping underway from different quarters. It is not hard to spot the ‘subtle as an AS90 shell exploding next to me’ briefing by various parts of the Army that they think they badly need more money (quietly ignoring the last 10 years and approx £14bn they’ve so far managed to mess up spending on Ajax and other projects). We’ve not yet really seen the RN and RAF break cover in the same way – the first sign of this will be the “Royal Navy to sell HMS PRINCE OF WALES” or “RAF to scrap Red Arrows” as a sign that the options are being dusted off from their usual hiding place in the safe… What is clear this year is that there is a compelling argument for additional funding, but one that still feels instinctively emotive not analytically based so far. In other words, its clear that people feel the need for more money to go to Defence, but they cannot point to what they need the money for.

Image by Ministry of Defence; © Crown copyright 2023.

The Treasury by contrast is looking at trying to manage over a trillion pounds of spending each year for the Government and is running short on the ability to find a few billion quid shoved down the back of sofas and departmental budgets. They face a challenging combination of trying to maintain spending restraint, being unable to politically raise revenue through new taxes and interest rates make borrowing a longer term financial challenge. The result is that they have little to offer the MOD unless there is either a wider spending review across government, which reduces other spending to pay for Defence (politically unlikely) or the Prime Minister directs that more money be found (again unlikely). The result is that from the view of the Treasury, the MOD needs to sort its shit out – again.

This unsympathetic view is echoed across other Whitehall departments who will look at the already generous and protected settlement that the MOD enjoys and wish that they enjoyed similar protections. This may be an unpopular opinion to some, but the MOD does enjoy a remarkably good funding settlement in Whitehall terms and has a reasonable amount of latitude on how it spends its funds. Given this, why then does the MOD feel it needs more cash to deliver what is expected of it?

Ukraine is the no brain answer – in the short term there are large gaps appearing in MOD stockpiles, munitions levels and vehicle fleets as more and more equipment is being sent to Ukraine. This needs to be replenished just to get the military back to where it was last January even before the war began. Doing this will come at a considerable cost as it has been used up at a rate far exceeding planned use – this means a need for short term cash to go and fund attrition replacements that wasn’t programmed into budgets.

The emerging lessons of Ukraine show that there are rapidly changing political priorities in defence terms, moving the UK to focus far more on NATO than it had perhaps planned to, and in turn raising the requirement to fund particularly land based capabilities not previously planned. The move to increase land forces across NATO and expand the conventional deterrence role to protect Baltic states and other allies will mean a much higher need for investment in modern land capabilities. The UK needs to rapidly reassess and shift focus from being a ‘pocket superpower with a global focus’ to focusing far more on going back towards its Cold War role of providing strong forces to NATO as a leading Alliance member.

This in turn is underpinned by the lessons emerging from Ukraine which show the range of evolving tactics and procedures may change future equipment requirements in a hurry, or where it is clear that UK equipment is demonstrably outmatched. There is an urgent need to find funding to ensure that the UK can maintain military forces capable of playing a leading part in any NATO operation and not be left behind or as ‘bit players’. It is highly unlikely that any Prime Minister would want to see UK influence or contribution to NATO relegated.

Image by Ministry of Defence; © Crown copyright 2023.

While this is going on there is also a lot of pressure in the MOD trying to balance off cost growth in programmes, changing requirements and competing priorities meaning not every programme is fully funded. The constant challenge of balancing off investment versus ‘taking it on risk’ means that there are gaps and shortfalls across the armed forces where trade offs were made to bring something into service without its full capability in order to prevent it being cancelled. As the lessons from Ukraine rack up, the need to address these and find funding for short term changes and secure the stability of longer term programmes grows.

The view of the Treasury though is likely to be that any solution needs to be long term and sustainable, not short term and operation specific. Much like UORs were fantastic for one thing, they will not be sympathetic to a plea for funding only for it to be spent on equipment discarded a few years later as an interim solution when the MOD could have refocused funding to prioritise bringing a sustainable solution into service early. The Treasury will certainly take a view that the MOD could easily reprofile its funding to sort what it thinks it needs now within existing budgets rather than seek more money for an ill defined ‘thing’. The challenge for the MOD is to be able to make the case for what it needs coherently and show how its taken every reasonable step to prioritise this internally and where shortfalls still exist and why it needs extra money to fix this problem.

This challenge needs to be met at the same time as the defence budget is declining in real terms due to significant inflationary pressures and the collapse in the value of the pound globally. There is now very substantial pressure on the existing budget which can no longer do all the things it was going to do without either significant cuts or extra money for real terms ‘flat growth’. The problem facing the MOD is to deliver a defence review that has to be ambitious about refocusing on NATO and reequipping the military (particularly the Army) to do this, while having to cut across the board to make existing financial plans affordable. The outcome is not going to be pretty without additional funding to do this.

The wider pressures are not just about equipment but also about investment across the board. The defence estate is clearly in an appalling state – the truly horrendous images emerging of accommodation at HMS COLLINGWOOD and various RAF bases point to an estate that is, frankly, close to the point of collapse due to lack of meaningful long term investment. The state of forces housing is also little short of a scandal and this in turn is a retention negative measure. When combined with the sense of salaries no longer keeping pace with inflation (despite Mil getting one of the biggest payrises in the public sector) and many personnel having very marketable qualifications in civvy street, its clear that retention is going to be very difficult. Unless more money both short and long term is invested in a meaningful way in this space (not just recycled announcements of money from prior budgets), then there will be a growing exodus of people as morale collapses.

Finding the money to fund a payrise is not easy though – the public figures the author has seen suggest a 1% payrise for the MOD adds around hundreds of millions to the paybill each year, which needs to be sustained on an enduring basis. Every pound spent on pay or infrastructure budgets is a pound less to spend on equipment and munitions too. Again, more money would help ease pressures here.

Image by Ministry of Defence; © Crown copyright 2023.

The final point is a wider geopolitical one of leadership – many nations across Europe, including the three leading land powers – France, Germany and Poland have all announced massive increases to their budget and procurement plans totalling hundreds of billions extra over time. Even if not long term sustainable this points to a statement of intent and vision that sends a message of credible deterrence to Moscow and reassurance to the US that Europe is prepared to fund its way.

Even though it could be argued that these nations do not spend as much as the UK already does, if the UK does not respond likewise then its position of moral authority is weakened. Its hard to lobby for 2% GDP commitments when you won’t spend more and in real terms are cutting your budget due to inflation. The long term strategic credibility of the UK in NATO is on the line here as other nations show they are serious about spending. At the same time if the UK has to make cuts to its defence budget, this runs risk of burning bridges with other allies – there are only so many times that the UK can turn to the US for help with bridging a gap. A cynic would note that while the US is polite in public and there is a genuinely close relationship, Australia seems to feature more and more as the ally of choice in the operational theatre of necessity. Unless the UK keeps investing credibly in a range of areas in defence that matter to Washington, the danger is that it will be left behind as a partner of choice.

Given this, there probably is a case for a small increase to the Defence budget. This needs to be enough to ease and remove the inflationary pressure that threatens to impose unnecessary defence cuts, and sends a clear message to Russia that the UK is prepared to invest to deter and defend NATO. It needs to be a carefully calibrated request though that shows how the MOD will spend it wisely and shows how difficult decisions have been taken to try, where possible, to live within existing means. There is no blank cheque, there is no likelihood of tens of billions extra, but the case for additional funding to help ensure the MOD can ‘stand still and carry on’ seems overwhelming.