Politics

Integrated Review In 'Disarray' Following Spending Assessment Change

Professor Malcolm Chalmers says the reduction of a Treasury spending review to cover only a one-year period could be costly for defence.

The Deputy Director-General of defence think tank the Royal United Services Institute (RUSI) says the Government’s decision to reduce the window for a Comprehensive Spending Review (CSR) has "thrown its plans for the Integrated Review into disarray".

Publication of the Integrated Review, which is set to cover foreign, defence, security and development policy, was due by mid to late-November 2020, in parallel with the cross-government CSR.

The Treasury says its spending review will now be a one-year assessment, rather than a three-year review, due to uncertainty created by the coronavirus pandemic.

In his paper, 'A Reckoning Postponed? The Defence Arithmetic of the Integrated Review', Professor Malcolm Chalmers says this will be particularly costly for defence, as key decisions on long-term priorities may have to wait until the Government is ready to have another CSR, in 2021 or 2022.

Ben Wallace told the House of Commons today the Integrated Review's future will be discussed in more detail "once we have thought through those consequences" of the Treasury's announcement.

The world of external threats, force development and contractual obligations, meanwhile, "will not stand still", Professor Chalmers suggests.

There is increased importance attached to major power competition and the Government is committed to playing a more active military role on the world stage, he adds.

The need for hard decisions is especially important, he says, in relation to what is likely to be the UK defence's largest procurement programmes of the next decade and beyond – the Future Combat Air System (FCAS) and Future Nuclear Warhead System (FNWS).

Professor Chalmers argues that a judgement to delay key decisions on these programmes, until the Integrated Review that follows the next General Election, would risk losing ground on crucial cutting-edge development work over the next five years or so, among other issues.

Silhouetted anonymous Royal Marines on a joint personnel recovery exercise on Dartmoor
Royal Marines on a joint personnel recovery exercise on Dartmoor (Picture: Royal Navy).

He added: "The UK’s largest defence programmes are some of the biggest and most complex capital programmes conducted by Government, rivalled in size and challenge only by those for major transport infrastructure.

"Their technological complexity, together with the changing nature of requirements over time, typically leads to large increases in costs over initial estimates, as well as significant delays."

The Government, he says, must clearly set out its objectives for these projects at an early stage before full development, resolve vital design questions and ensure all requisite resources are in place to take the programmes to completion.

Speaking to Forces News, he said: "I think the best thing for defence planning would be if the Treasury was to concede that the Ministry of Defence should be an exception to the general rule, along with health and schools and should have a three or four-year settlement, especially on the capital side."

When asked if that would be currently realistic, Professor Chalmers responded: "It’s very hard for anybody, I think, to understand the political dynamic within the Government.

"It's not unusual for the chancellor and the prime minister to take different positions on these issues and it’s going to be critically important for defence, that they have some certainty of where they are going in budgetary terms so that then they can advise on what the right decisions are for the country."

It comes as the Joint Committee has written to the Prime Minister to express its concerns about whether the Integrated Review will be delayed or published incomplete.

Meanwhile, the chair of the Defence Select Committee has urged the Government to complete the Integrated Review.

Conservative MP Tobias Ellwood warned if the review does not go ahead, it will cost the Ministry of Defence (MOD) billions of pounds and could damage the wider standing of Britain in the world.

Defence Funding Challenge

Professor Chalmers says most major defence reviews since the end of the Cold War have failed to fully close the gap between capability plans and available resources. Typical assessments have been followed by mini-reviews and budgetary adjustments. Money is saved in the short term, at the expense of increased overall costs.

Following interviews he undertook with senior officials, Professor Chalmers says, as of mid-October 2020, a big gap still existed "between the money that the MOD believed it needed to implement its long-term plans for the Integrated Review and the Treasury’s willingness to provide the necessary resources as part of the CSR".

He adds that uncertainty over the long-term economic implications of the coronavirus pandemic and Brexit, as well as the lack of clear political commitment to an increase in tax burdens to facilitate these, "also made the Treasury more reluctant to make longer-term spending commitments".

Professor Chalmers writes: "The mounting financial costs of the coronavirus pandemic have increased the possibility that the defence budget will be asked to share in the burden of subsequent austerity, as it was asked to do in the 2010 Spending Review that followed the 2008 financial crisis.

"So far, however, this has not been the case.

"The Government has made clear that it is committed to meeting the Conservative Party manifesto commitment to increase the defence budget by ‘at least 0.5%’ in every year of this Parliament."

Professor Chalmers notes the lack of any reference to defence capital investment in the chancellor’s statement on cancelling the CSR, despite a mention of how continuing multi-year budgets for health and schools would be protected, as well as 'priority infrastructure projects', such as hospital building and HS2.

Queen Elizabeth-class aircraft carriers, HMS Queen Elizabeth and HMS Prince of Wales, in their home port of Portsmouth (Picture: Royal Navy).

He goes on to say, due to the multi-year CSR’s postponement, there is a high level of risk that any Integrated Review published (at least from the MOD’s perspective) will be another statement of policy or doctrine but will fall short of progress on an agreement of a coherent and balanced long-term defence programme.

Moreover, when the Government does get around to holding a multi-year CSR, the climate could be even less favourable to calls for increased public spending than is currently the case, with defence "unlikely to be exempt from these pressures", Chalmers says.

Running costs

With projected inflation now close to zero, the chancellor has indicated a repeat of the 2% annual pay increase for the military is unlikely, Professor Chalmers writes.

However, in the period of recovery from economic recession, some increases during the next CSR period “remain likely”. Chalmers notes the Institute for Fiscal Studies has estimated that an average annual pay increase of 1.2% across the public sector is possible during the CSR period.

Chalmers goes on to say, in addition to potentially increased costs of employing existing personnel, the Integrated Operating Concept means running costs could increase still further. This includes the imminent operational deployment of the Queen Elizabeth-class aircraft carriers and associated F-35B aircraft, which has “already added a significant amount to planned operational costs (fuel, spare parts and maintenance)”.

The view of HMS Queen Elizabeth’s flight deck during operational testing with the UK’s F-35B Lightning jets (Picture: Kyle Heller/Royal Navy).

He writes: "The wider commitment to increased defence agility and readiness, along with the increased forward presence in the Indo-Pacific and elsewhere that is being proposed, is set to involve operating current assets – people, platforms, infrastructure – at an increased tempo, with increased expenditure on deterrence and reassurance operations in areas of interest, and with more spent on building up stocks of munitions and spares.

"Something will have to give.

"Given the pressures for higher readiness across the force, a freeze in total recurrent spending in real terms is likely to involve further downward pressure on personnel numbers."

Investment programmes

There are challenges here, too, Professor Chalmers writes.

He notes the Army, for example, having already signalled the need to trade reduced physical protection for increased mobility and for longer range and more powerful artillery than the Army have ever used, firing on targets identified by swarms of drones.

Such Army modernisation would require an increase in levels of capital expenditure.

There could also be greater demand for increased investment in areas such as cyber and space.

Professor Chalmers argues that the Tempest programme, a project to build a sixth-generation jet, could well be impacted by delayed decisions.

He told Forces News: "I would not argue that Tempest will be substantially and badly impacted by a one-year delay.

"What I would suggest is that some really key decisions about the shape of what Tempest is cannot wait.

Tempest aircraft flying over London's River Thames CGI image 200720 CREDIT MOD
A CGI image of a Tempest concept aircraft flying over London's River Thames (Picture: MOD).

"This includes decisions on future F-35 buys, because there is a pretty direct choice to be made about the balance between investing in some of the additional F-35s which the UK has pencilled into its programme but hasn’t made any contractual commitment to, and investing substantially in UK-produced, or substantially UK-produced new aircraft, so there’s that trade-off, which is really important.

"There’s also trade-offs between a variety of different platforms.

"Tempest, at the moment, is conceived of as a system of systems, so it's a combination of piloted aircraft, drones, perhaps remote-controlled autonomous weapons and so on, all tied together with a complex command control infrastructure.

"In order to proceed to full-scale development, you have to specify that a bit more clearly."

Outlook

Professor Chalmers says that despite the cancellation of the multi-year CSR, “the MOD can still reasonably hope for some real growth in defence spending over the next decade, focused on increased capital spending".

He adds: “Given the prospects for economic growth over this period, it should be able to maintain its commitment to spending 2% of GDP on defence.”

However, he stresses that, despite the hard work that has gone into the 2020 Integrated Review, the MOD might have to repeat the process with a new IR in summer 2021 or 2022.

This outcome, Chalmers says, "would not be good for defence, and it is likely to be bad value for money for the taxpayer".

He told Forces News: "The Treasury instinct is to make as few long-term spending commitments as possible, but of course, that cuts directly across the MOD’s need."

Cover image: MOD.