Original URL: http://www.theregister.co.uk/2007/11/27/brown_mod_finance_treasury_arms_tech_biz_cauldron/

MoD budget train crash behind Brown v forces rumpus

PM's choice: Outsource arms makers or squaddies

By Lewis Page

Posted in Government, 27th November 2007 07:02 GMT

Comment A complicated battle is going on behind closed doors in Whitehall at the moment regarding the British armed forces' budget. Some of those involved are making public statements; others are briefing the media off the record; others still are saying nothing at all.

The players include the upper echelons of the Ministry of Defence (MoD), civil servants and uniformed both. Des Browne, the UK defence secretary, and his junior ministers are also embroiled - though Paul Drayson, Baron of Kensington and until lately MoD purchasing boss, has lately quit.

Gordon Brown, the new Prime Minister, and his old Treasury subordinates are of course intimately involved. From the sidelines - and often enough from within government buildings - the arms industry tries to keep as many fingers in the pie as it can.

It is a fairly open secret that, as usual, the MoD's finances cannot be made to add up. This is because the UK is committed to huge kit purchases over the coming years. Hundreds of exorbitantly expensive Eurofighter jets will arrive, and a dozen airliner-sized MRA4 Nimrod subhunter planes which - horrifyingly - are to be even worse value. Now the MoD has also pledged firmly to buy two big new aircraft carriers and a whole different fleet of jump-jets to fly from them. At the same time, a fleet of billion-pound air defence destroyers is building, and the MoD seriously needs to make up its mind about replacing large parts of the Army's antiquated combat vehicle fleet.

Quite apart from all that, there are two large wars going on overseas, which mostly call for entirely different things: most notably infantrymen, but also unmanned surveillance and weapons drones, satellite bandwidth, close air support and - above all - transport aircraft, both helicopters and fixed-wing. Of all the new multibillion pound projects currently in the pipeline, only the carrier jump-jets and the new Army vehicles have much relevance to Iraq and Afghanistan. Hard-pressed fighting commanders right now would probably swap even these for more troops and more aircraft to move them around in.

Meanwhile, as ever, ordinary British service personnel remain very badly paid and often abominably housed. Where they are also fighting hard - as in the infantry, and certain other arms - there is a very serious recruiting and retention problem, which is not totally out of control only because of a significant influx of overseas personnel.

Now five former chiefs of staff - that is, ex-heads of the army, navy, air force or perhaps overall boss of all three - have stood up in the House of Lords and heaped damning criticism on the new Prime Minister, saying that he has never been a friend to the armed forces and that he continues to starve them of cash.

Lord Charles Guthrie, a former SAS officer who rose to be Blighty's top uniformed serviceman, was especially scathing. He said the only time Chancellor of the Exchequer Brown had ever been seen at the MoD was "when he came to talk about the Rosyth dockyard, which was in his constituency”.

(The Royal Navy had four dockyards in the early 1990s but only wanted three. The Tories unsurprisingly decided to close Rosyth, in the Labour stronghold north of the Forth bridges. Then Labour took power, and as a result Rosyth remains an unofficial fourth naval base to this day. Porkbarrel politics relating to the Rosyth shipyard is also a major factor behind the recent decision to buy the new carriers.)

Meanwhile, it is no secret that the MoD is short of a large sum of money in the annual budget now being planned - perhaps a billion pounds - with which to pay the bills it is committed to; let alone doing anything serious about soldiers' pay, helicopters, transport planes etc.

The exact details are especially obscure, as in late years the MoD has been getting significant amounts of extra money from "conflict resolution" funds set aside at the Treasury while Mr Brown was Chancellor. Brown would perhaps have intended this cash more for peacekeeping and development-type efforts, but in the event much of it is going on the expenses of Iraq and Afghanistan.

An example is the new privately-owned Skynet military satcomms network, financed by City investors because - though they know the MoD has no money in its own budget to pay for Skynet - the conflict resolution cash will be there to rent their new bandwidth as long as the wars go on. By the time British troops pull out of Afghanistan, Skynet will probably have repaid its owners several times over.

The Treasury has also agreed in the past to pay for urgently-needed new kit from the conflict resolution funds, as in the case of the Iraq invasion. A lot of the new gear which British squaddies have actually used lately - night vision kit, for instance, as opposed to antisubmarine gear - has arrived in this way.

However, in the aftermath of the Iraq invasion there was a big closed-doors row, with Brown's Treasury refusing to pay several big bills, saying that they were expenses the MoD would have incurred anyway and nothing to do with "resolving conflict" in Iraq.

The MoD could have balanced its books by cutting a big procurement project, but this is always difficult as it will normally involve civilians losing their jobs and thus politicians losing votes. And the part of the armed services which wants the given new thing will always defend it to the death, too.

As a result, in 2004 combat units were cut across all three services to make up the shortfall. Astonishingly, even though it had just plunged into one big infantry war and was about to get into another, the UK actually shut down 10 per cent of its infantry units. People suggested that the infantry was at least 10 per cent understrength - owing largely to the terrible pay and conditions - so this was somehow a sensible idea. (Now the infantry is 10 per cent understrength again, indicating that the manpower bleed has continued unabated.)

Now, according to reliable sources, the same MoD/Treasury argument is happening again. Recent MoD budget increases have been wiped out and then some by spiralling procurement costs, and yet again the military needs more cash just to cover bills - let alone improve matters for its fighting men and women. Yet again, the Treasury won't authorise the full extra amount from Mr Brown's carefully accumulated "conflict resolution" chest.

The Independent reports that Browne went to see his boss Brown about some more cash last week, and was rebuffed: which probably led directly to the attack in the Lords on Friday. (Not that Browne is in league with the ex-chiefs, but they will have heard about the result of the meeting.)

Meanwhile, the MoD is fighting internal battles as well as external ones. Another big procurement decision is looming on the new Army vehicle fleet, a project known as FRES (Future Rapid Effects System). Three different plans are under consideration here; one involves the use of American vehicles, the other two would be based on European ones. No matter which is chosen, a "systems integrator" company will mod the vehicles and kit them out, scooping much of the profit from the £16bn contract.

Strong rumours suggest that the recently-departed Lord Drayson would have chosen a European vehicle and European/UK system-integrator company, a decision which would probably have increased costs but placed more industrial work in Britain. Drayson's entire ministerial record was that of a man who wanted to boost the British weapons-tech sector first, last and always; even if this meant that fighting troops had to wait for what they needed, or even didn't get it at all.

It now appears that other priorities - such as value for money - may have gained some traction at the MoD, with the trade press suggesting that Drayson departed after a row with permanent officials and officers who wanted to buy cheaper American gear. It has also been hinted that Drayson may have resigned over the larger failure to increase overall defence spending, but this would be uncharacteristic for a man who was principally focused on a bigger equipment budget - as opposed, let us say, to more cash for soldiers' pay, or even for hiring more troops so as to ease their workload. (And indeed, these two things are in opposition within a given defence budget).

However, the Whitehall battle is surely not yet over, as the FRES decision is now to be delayed, along with the updated rewrite of Drayson's (in)famous "Defence Industrial Strategy" (DIS) policy - which was in effect a charter of continued existence for most of the onshore UK arms industry.

So the DIS 2.0 rewrite - now pushed back past Christmas - will reflect a massive free-for-all in Whitehall, with two major departments of state, the UK arms biz and its many allies, Brown, Browne and Darling all weighing in.

Drayson's ousting and political scuffling by Guthrie and his fellow military lords means that there is a hope of some cash being found for British servicemen as well as British arms workers - but it's only a slim hope. The Prime Minister, as Guthrie says, left to himself would always spend money on respectable dockyard and electronics workers rather than brawling, thuggish soldiers. Admirals and air marshals and even generals often favour plant over people too, and they are woefully unwilling to disagree publicly with their political bosses. Uniformed officers and permanent officials are at least willing to consider buying kit more cheaply, though - especially if it's better and arrives quicker. Often enough the uniformed men choose equipment more to big up their own branch than because it's useful, but sometimes they get it at least partly right.

Lord Guthrie, for instance, managed to push through the decision to buy US Apache attack helicopters in the mid-90s rather than than the European Tiger. Sadly, the deal was hijacked by the UK whirlybird biz, more than tripling the price of the Apaches and delaying them by years, but at least we've got them now. By contrast, French Tigers won't be up and running until late next year.

A few months ago, Guthrie told this reporter that even with the Apaches assembled on a brand new purpose-built assembly line in the UK and specially fitted with Rolls-Royce engines, he'd faced an "unbelievable" level of opposition on the deal. Workshare for UK factories would have been much higher if Britain had bought the Tiger.

In the end, the MoD's finances could be sorted out fairly easily. Cutting the third tranche of Eurofighter; axing the Nimrod subhunters altogether; buying cheap vehicles, aircraft and drones from overseas rather than expensive ones partly made in the UK - all these would yield many billions in savings. Examples of the expensive-but-partly-British kit currently on order include the A400M transport planes, Merlin lift choppers, Watchkeeper recce drones, FIST super-soldier suits etc, etc.

But all these projects bring jobs to Blighty, and the companies involved typically argue that:

"Retention of key skills in the UK is vital if the front line is to be assured of receiving the service it needs..."

But in fact the associated, colossal expense and delay of these projects usually assures that the front line gets nothing at all, or even gets cut back in numbers to meet their costs. Paying for partly British gear nowadays - literally - means that the UK can't afford to hire British soldiers.

Gordon Brown has said he will "do his duty" by the Armed Forces, in response to Guthrie and the ex-military lords' attack.

He'll need to be aware that is not the same as doing his duty by the British arms industry. Not unless he's willing to find a hell of a lot more money, anyway. ®