Report: MoD faces a decade of cuts

Thursday, July 02, 2009

The MoD could have to make cuts as deep as £6bn from its budget in the next six years if the country does not recover from the economic recession or if the MoD is not exempt from the looming cuts, a new report has found.

Professor Malcom Chalmers' Future Defence Review working paper from RUSI, paints a dark picture of the coming years at the MoD.

If defence spending is kept in line with the cuts expected across the government, defence spending will drop in real terms by 6.8 per cent by 2014 and 11 per cent by 2016.

Even if the MoD can win an exemption in the budget cuts battle, it may still face deep and painful cuts in the coming years.

Whichever government is in power from next year will have to maintain spending commitments to the NHS and education, resulting most likely in their massive budgets being frozen instead of cut. Factoring that in with the growing demand on the unemployment pay and state pension system, and the MoD and other departments may have to face cuts in order to pay for all of this.

Chalmers predicts that the MoD could face a budget cut of 14 per cent if these variables all fall into place.

Then there is the issue of the economy. The Treasury predicts a return of growth by late next year. But these figures are arbitrary at best and are rapidly changing in this uncertain economic climate.

As a result, if growth is less than predicted so will tax revenues, meaning even deeper cuts will be required for the MoD.

The government has also emphasised that many of the pending cuts will come from the capital budget. In the MoD, capital investment is among the highest in Whitehall, totalling around £9bn.

"If the new chancellor persists in focusing cuts disproportionately on the capital budget, therefore,
the MoD could be one of the hardest-hit departments," Chalmers wrote.

When the MoD's lower standing in the cabinet is factored in, the department could face a cut of 10-15 per cent in real terms over the course of the next decade, Chalmers argues.

To make savings , the MoD will have to make some tough choices. Chalmers recommends reductions in operations, the number of MoD and Armed Forces personnel, or the most likely option: Huge cuts to the procurement programme.

If Chalmers is correct in his predictions, the next decade could be one to forget for the MoD.

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Defense Spending in Britain Facing Cuts Up to 15%

Defense spending in Britain is facing a 10 percent to 15 percent cut in real terms over the next six years as the government puts in place austerity measures to tackle massive public debt, a top British military think tank said in a report released July 2.

The Royal United Services Institute says the 2010-2016 period could see between 4 billion pounds and 6 billion pounds wiped off the defense budget as a consequence of Britain's fiscal crisis.

But it warns that even if the government increases taxes, bigger defense spending reductions are in the cards if the administration opted for a modest level of real terms growth to health and education or if the economy fails to recover its previous rate of growth by next year.

The RUSI report, called Preparing for the Lean Years, is authored by Malcolm Chalmers, the Professor of Defence and Foreign Policy at Kings College of London. It is the latest contribution to a growing debate here about what sort of armed forces can Britain afford in the medium to long-term

Three days ago, a report by the Institute for Public Policy Research urged the government to consider restructuring the military to focus on specialist capabilities as part of a deepening European defense integration and the wider NATO alliance.

The IPPR report said Britain should also reconsider how it could provide a minimum nuclear deterrent when the existing Trident missile submarines go out of service and look again at whether major projects like the CVF aircraft carrier , Joint Strike Fighter and the Astute nuclear attack submarine are relevant to projected defense requirements.

A general election here is scheduled for no later than June 2010. With both the leading political parties planning a strategic defense review immediately after the election, academics and others are already scrambling to influence thinking.

The RUSI report, though, is probably the first to sketch out just what the financial picture might be during the period a strategic defense review is likely to cover.

The core defense budgets out to 2010 and 2011 have already been set and are unlikely to be substantially altered. But RUSI said the immediate aftermath of the next election will see a "comprehensive review of government commitments leading to a prolonged period of austerity in public spending starting with the fiscal year 2011/12.

The total British defense budget for 2010/11 is currently set at almost 37 billion pounds. That's not enough though to meet even current program requirements as the MoD has sought to balance its books in the face of a potentially huge overspend.

Among the key findings, RUSI says:

* Reduction of the MoD current and capital budgets in line with those for the whole government would see total defense spending dip by an estimated 6.8 percent in real terms from 2010 to 2011 and 2013 to 2014. The estimated reduction over six years from 2016 to 2017 would be 11 percent in real terms.

If the MoD succeeds in obtaining an exemption from the full impact of planned capital cuts, it could face pressure from another source. If health and education are given special treatment and their budgets are frozen at 2010 levels in real terms, and the rate of growth of social security spending is reduced to 1 percent, this would leave the rest of government, including the MoD facing a budget cut of 14 percent over the period 2010 to 2016.

The report says procurement, pay, operations in Afghanistan and capabilities could all be potential victims of a budget cut.

Postponement of the replacement for the Trident-armed Vanguard nuclear submarine program "could be particularly tempting given it is due to be the MoD's largest procurement project from 2016-17," according to the report.

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