When Whitehall Goes to War - the 1998 SDR

 

A new Labour government has been elected, and a defence review commissioned. There are tensions between the Chancellor and Secretary of State for Defence over spending plans, the MOD seeking more money, the Treasury seeking to cut the budget. The Prime Minister is keen to use defence as an asset to enhance the UK’s international standing, while the Treasury is reluctant to spend a penny more on the MOD. All of this sounds strangely familiar, yet in fact refers to the period between 1997 and 2002 and the early years of the Blair government.

Files released in the National Archives have revealed the depth of difficulties faced between the ‘holy trinity’ of No10, HMT and the MOD in trying to agree spending priorities and the difficulties faced by the Prime Minister in trying to persuade the Treasury to increase the Defence Budget. At its heart is an extraordinary two page memo to the Prime Minister that encapsulates in a few words the tensions inherent at the heart of the UK debate on defence and national security.

UK MOD © Crown copyright 2025

This is the first of a two part article which focuses on aspects of the 1998 Strategic Defence Review and the 2002 ‘New Chapter’ which played a huge role in fundamentally reshaping the armed forces and preparing them for life beyond the Cold War.  In the first part of this blog we will focus on the political debates in Whitehall around the broad resourcing for the SDR. In part 2 we will focus in more depth on the scale of resources required, and the impact of the 9/11 attacks, which had a far deeper impact on MOD planning than is perhaps realised.

The context for this journey lies almost 30 years in the past, with the New Labour Government elected in 1997 committed to a policy of carrying out a Strategic Defence Review (SDR). It is hard now to remember how different the world felt back in the 1990s, and the collapse of the Soviet Union in 1991. Just 7 years separate the “Options for Change” review which cut the armed forces by around a third, and the SDR. Following further cuts in the mid 1990s (‘Front Line First), the UK had rapidly pared back its ability to respond to the highest level of threat posed by the Soviet Union. Instead of possessing a military intended to mobilise at short notice to fight a large scale conventional ground war in Europe, quickly escalating to nuclear conflict within days, the MOD now wanted a military capable of global conventional operations.

In 1997 the new Government arrived committed to a major policy review of the armed forces, trying to conduct root and branch analysis of what they existed for, and how they should be configured for the years to come. A note from George Robertson (then Secretary of State for Defence) to Prime Minister Tony Blair sets out the real change that this process was likely to drive:

“One of the paradoxical features of the Cold War was that, apart from the Northern Ireland commitment, most of our armed forces were not actually engaged in operations… In contrast during this decade we have deployed, or been prepared to deploy, forces on a wide range of operations at various levels… We need forces we can use, rather than simply forces in being”.

By 1997 the UK armed forces were committed on a very significant range of operations, hitting a tempo far higher than had been seen for many years in the Cold War, where they were fundamentally defensively orientated. George Robertson went on to note that:

“At the moment we have major operational commitments in Northern Ireland and Bosnia plus the Armilla Patrol in the Gulf, two No-Fly Zones over Iraq, the UN Peacekeeping Mission in Cyprus, a frigate deployed to Montserrat, and another just stood down from a potential evacuation in Congo. The first three are long running and we have to be prepared to contemplate how much we might wish to be able to contribute if other unexpected additional pressures were to arise.

Therefore the number and size of operations we are prepared to contemplate at any one time for such contingencies will be  important in shaping our future capabilities and support requirements. As a basis for further work, we envisage an ability to conduct simultaneously two large peace support operations… we might at the same time tackle smaller contingencies if all three Services were not heavily engaged in Peace Support operations. (We are also examining the implications of alternative assumptions as proposed by the Chancellor)…

We can also assume the future operations will be expeditionary in nature -i.e. we will need to move our forces to a crisis. We will not have the permanent infrastructure which we could rely on in the context of the old Warsaw Pact threat in Europe. Even in the case of our NATO obligations, the most likely contingencies in the future could be in relation to a crisis involving a new member state where there will be few permanent NATO facilities and not stationed Allied forces”.

The outcome of this analysis was to set out to the Prime Minister what type of forces would be required in the future, and the likely areas where investment would be required. The letter goes on to use language that would feel almost identical in 2025, stating:

“In future our forces will need to be able to respond to a more diverse set of contingencies. We will need more flexible, more deployable and more sustainable forces with high combat capability. We have inherited serious weaknesses in areas including:

-          Strategic Lift: We can only move relatively light forces by air, and movement by sea relies almost wholly on commercial shipping.

-          Our medical services could not properly support even an army brigade overseas without recourses to Reservists.

-          There is under manning in all three Services.

-          Our logistics and support services are already very stretched in sustaining existing operations, and seriously constrain our ability to mount others.

This identification of a ‘shopping list’ also highlighted the need too to make savings in defence spending. The review team were left in no doubt that they had to find and make savings to identify efficiencies in the review, and for longer term budget agreement with the Treasury. It was this demand for savings that led to some of the most challenging moments in the review as both Chancellor Gordon Brown and George Robertson clashed over how much could, or should, be saved.

The SDR - 1990s fonts!

In late October 1997, following a Ministerial meeting on the review, the Treasury issued meeting minutes suggesting that George Robertson had agreed to commit to finding annual savings of 2.5% each year from the defence budget. This came as a surprise to the Secretary of State, who sent an extremely strong response  to the Chancellor, copied to the Prime Minister:

Having returned to the office today from a visit to Bosnia and Italy, I was surprised to see that the minutes of our discussion in the PX committee last week state that the Committee had asked me for “a programme to deliver savings equivalent to 2.5% per annum of the Defence Budget, from new efficiency gains over the next 5 years: they had not taken a view on where those savings should be used” I accepted no such remit”.

This was an incredibly blunt rebuttal of the meeting minutes, and went on to accuse the Chancellor of carrying out activity that could be very politically damaging. The note went on to state that the MOD would produce a series of force packages, and try to deliver efficiency savings where possible though.

Clearly stung by the bluntness of this attack, the Chancellor Gordon Brown sent a reply to Robertson, copied to the Prime Minister setting out his personal position on what the Treasury expected from the MOD. It made clear that:

“In the interests of pushing our efficiency agenda forward, the Committee asked you to develop a clear programme to deliver efficiency savings equivalent to an additional 2.5% per annum of the Defence budget from efficiency gains for the next five years…

Let me stress this is a target for efficiency gains s not cuts. The Committee felt that such a target was entirely compatible with our commitment to a foreign policy led review. The Committee is not making any judgement about where the money generated by these efficiency savings will be used…The Committee was most grateful for your enthusiastic commitment to delivering efficiency gains and looks forward to your further reports ”

This is in many ways a quite extraordinary memo. It makes clear that for all the discussion of SDR being a foreign policy led Defence Review, the Treasury was clear that it expected significant savings to the Defence budget as part of the process, and that these savings would not necessarily be rolled back into Defence. The line about “not making any judgement” is a classic Whitehall euphemism for “you have no chance of keeping any savings made”

This approach did not sit well with George Robertson who delivered a blistering riposte to Gordon Brown, again copying it to the Prime Minister,  setting out in no uncertain terms why he rejected the contents of this letter. The full letter is perhaps a masterpiece in the MOD ‘screw you’ polite letter that so many in that department excel at sending. It begins by reiterating his commitment to efficiencies, (I am grateful for your recognition to my commitment to achieving greater efficiency) before cutting stating:

“I agree that it is important that the search for efficiency covers all aspects of the defence programme. That is my intention. This is not, of course, previously un-tilled ground. A massive exercise (“Front Line First”) was conducted in 1994 on the support and management of the armed forces, with the full involvement of officials from the Treasury and the Efficiency Unit. Some of its conclusions are still being implemented. In some cases, for example Medical Services and the Joint Services Command and Staff College, assumptions about savings and investment costs were optimistic”.

This feels a strongly worded rebuttal of prior attempts by the Treasury to force savings through that in reality had very little financial impact, or even made things worse. It also reiterated that efficiency savings are very much a staple of the MOD’s efforts, and that it takes time to implement them. It is almost certain that even today, in the 2025 defence review, similar conversations are occurring within Government on very similar lines between the MOD and HMT.  

Robertson went on to state that:

“I could not defend a pre-set target for efficiency gains expressed as an arbitrary figure against the Defence budget. We are committed as a government to a foreign policy led review of Defence.  We have resisted all attempts to suggest that we have arbitrary savings targets in mind, however described. We cannot risk the political damage to the review which would be caused if a figure of 2.5% as described in your letter were to become public knowledge. Nor could we defend such an approach with the Services themselves given the commitments we have given on how the review is to be conducted. I must therefore continue to decline to meet any such target”.

As the Ministers rowed, No10 held its counsel, carefully considering both sides of the argument in an attempt to decide what to do. The challenge facing the PM, and his closest advisors, was to work out who to support between the MOD, which would always argue against more cuts and for more money, and a Treasury keen to ensure value for money, but whose opponents would argue knew the cost of everything and the value of nothing.

UK MOD © Crown copyright 2025

The Prime Ministers advisor Roger Liddle was responsible for tracking the debates and clearly had the ear of the PM, and a cynicism towards the style of writing prevalent in the MOD: “George has minuted you with a progress report. You should not be too discouraged by the MOD verbiage”. A comment that would resonate with many Ministers in Whitehall new to the world of MOD writing.  The review seemed to be progressing well, and Liddle was keen to stress to the Prime Minister that it would meet his goals:

“The review is on course to secure the modernisation aims which you set: no reduction in capabilities, but a reshaping of our armed forces to meet the new challenges and threats of the post Cold War world. This could involve quite big changes in the present structure of the armed forces eg

·         Radically revising the present “Home Defence” role of the Army which now serves little military purpose.

·         Re-examining expensive readiness requirements which date from a world where we had to be prepared to defend ourselves against sudden Soviet attack

·         Improving the mobility of our forces and the ability to sustain long term operations like Bosnia”

This insight is particularly valuable as it serves as a reminder that for all that the armed forces can make, or break, a Prime Ministers career, most PM’s have neither the time nor space to get close to the issues affecting them. The entirety of the SDR really comes down to two key goals set by the PM around not reducing capabilities but modernising, and the rest of the Whitehall machinery set into action to deliver this. This is helpful to consider when looking at how defence reviews are done – for all the intense interest they generate externally, in reality most Ministers haven’t the time to get close to the issues, and rely heavily on broad direction and the nudging by trusted advisors to create the right outcome. The memo also noted that even though the review was policy led, the Treasury was determined to see efficiencies realised:

“The Treasury, of course, wants cuts. Gordon is pushing the MOD on two big issues.

·         The maximum size of forces we need to cope with the remote, but still the less existent possibility of Russian resurgence under a militaristic regime.

·         What scale of operation we should be capable of mounting elsewhere in the world assuming we are in for the long term in Bosnia.

We will not know the answers to these questions until the end of the year, but I suspect you will end up backing MOD judgement in these matters.

In the meantime John Reid is gearing up to press the MOD for further efficiencies… we should not expect miracles. There are already big (and sometimes unidentified) efficiencies built into planning assumptions for future years. But I can see the outline of a possible Treasury-MOD deal on efficiency; giving the MOD a guaranteed budget for some years ahead, with the MOD committing itself to achieving gradual efficiency improvements with the benefit of greater planning certainty. The political question will be how much of this efficiency investment is ploughed back into Defence – and how much ‘taken’ by the Treasury for spending on health and education. A 1% saving on the Defence budget produces £220m, over a billion if the MOD can achieve 1% a year for five years.”

This memo gets to the root of the wider challenges facing all Prime Ministers on defence and national security spending. The armed forces will always want as much money as possible to spend. But it is not always spent wisely, and it is always possible to find ways to get more value for money from the budget. This presents opportunities to fund the political priorities that matter to most voters, such as better funding for schools and hospitals. Being able to find a ‘spare’ billion over 5 years would have made a significant budget difference – had the MOD met the Treasurys goal of 2.5%, that would have been £500m, or £2.5bn (some 10% of the defence budget) saved for spending on things that really mattered to voters.

The memo was powerful and set the scene well for the arguments that were to follow. But it is not clear if the Prime Minister actually read it, or if it was kept from him. A handwritten note on 10 Downing Street paper is enclosed with the memo, sent to the author from the PM’s Private Office, which reads “Roger, we are trying to keep the paper for the PM down to a minimum. I have not bothered him with “George” long paper because it doesn’t really say anything new. The PM is aware of the general picture. Does he really need to see this”?

This memo is a vital reminder of two things. Firstly the power of the Private Office to determine what is, or is not, seen by the Prime Minister. In a ridiculously busy office, filled with submissions of equal importance, the Civil Service team alone decide what the PM sees – a role that requires exceptional judgement, scrutiny and the ability to stand up to pressure, as well as monitor events, to keep track of what is going on that may need to be briefed to the PM. It is a thankless task and one that shapes its incumbents to be future decision makers, as they better understand how seniors think, and what is needed to get something ‘in the box’.

The second point is that it shows how little visibility senior figures get of big issues – no matter how important it is to one person, it may not get on the radar of another. For all the direction issued by the PM, he was kept apart from most of the detail to prevent him being subsumed by it. It is worth considering this when thinking about the work ministers do – all too often they are only seeing a small fraction of the issues, and having to make decisions on scarce or scanty information.

The SDR was published in the summer of 1998 to significant public acclaim. Today it is regarded by many commentators as one of the most well balanced and effective of all the many defence reviews carried out since WW2. Its focus on a genuine rebalancing of the armed forces, as well as a clear headed look at the priorities that the UK should focus on in the post Cold War world, as well as a broadly policy, not financially driven approach produced positive results. But at the same time it perhaps marks the start of the decline in the UK’s ability to project power at a distance from the home base through unrealistic and unaffordable aspirations around capabilities and force structure.

In the next part of this series we will look in more depth at some of the assumptions made for the forces which emerged from the SDR, and in turn the work surrounding the ‘New Deal’ chapter that even though it is mostly forgotten today, was arguably a far more influential piece than we give it credit for today.