I was defence secretary, here’s how we fund our armed forces
There is a way to attract more capital investment – whether it is the better utilisation of MoD assets, or attracting capital from pension funds to invest in other priorities like NHS hospitals to meet the knock-on impacts of getting to 3.5 per cent of GDP on defence, says Lord Hutton
It’s easy to be cynical about defence procurement in the UK. The aircraft carriers without any aircraft. The overspends, delays and reported safety problems with the Ajax armoured vehicle programme. The SA80 rifle which failed in Sierra Leone.
John Healey was in an impossible position. His principled resignation is regrettable and reflects his commitment to our security. This should be a moment for the Prime Minister and Chancellor to reconsider the way forward, and an opportunity for the new Defence Secretary Dan Jarvis to try something different, with more private investment in defence.
But we shouldn’t indulge in too much traditional British self-defeatism. With operational urgency in Ukraine, we stepped up. A parliamentary enquiry found the UK was at the forefront of granting military equipment – including 10,000 anti-tank weapons, 600 Air Defence Missiles, 3m rounds of small arms ammunition, 2,000 uncrewed aerial systems, alongside cold-weather clothing. The logistics and supply chain support has been widely praised by Ukrainian and partner nations.
That conflict illustrates how much warfare has changed – with drones, autonomous weapons systems and automated targeting systems becoming normalised. It has also overhauled procurement. Processes of amending equipment, that would previously take months or years, has had to happen in a matter of weeks to meet the changing tactics of our enemy.
Disrupting defence
Innovative defence companies will tell you how they have tweaked unmanned ground vehicles in days to meet changing battlefield requirements. An executive at Anduril, the disruptor defence supplier, told an event during London Tech Week that the process of iteration with MoD has been ‘world class’. While the UK market for defence is not huge, our companies are leading exporters – and where we innovate, many countries often follow.
But that doesn’t excuse successive government’s failure to fix defence procurement with spiralling costs, late delivery and over specification. Meanwhile, the Defence Investment Plan is locked in a classic Whitehall knife fight pitting Net Zero spending against defence, as if we can’t afford to do both.
A strategic programme could be developed for increasing solar array, wind turbines and other renewable and heat projects on MoD land, to give one example.
There is a way to attract more capital investment – whether it is the better utilisation of MoD assets, or attracting capital from pension funds to invest in other priorities like NHS hospitals to meet the knock-on impacts of getting to 3.5 per cent of GDP on defence.
Public private partnerships may not have the same vogue they did in the noughties, the only time the UK has come close to meeting what other OECD countries spend on infrastructure capital, but a refreshed model can deliver as the NAO puts it, ‘on time and on budget’.
26 strategic PPPs in the defence and security sector were signed three decades ago, with a capital value of around £7.5bn. Why not have the same ambition before 2030 when two thirds of those contracts expire?
Those partnerships included the Future Strategic Tanker Aircraft programme – which developed the RAF Voyagers used in combat against ISIS and for many humanitarian missions. Remarkably, this was the first UK aircraft programme that delivered on schedule and on budget since the Second World War.
Reducing delays and overspend requires active early engagement with the private sector. In France, which admittedly has more state-owned defence companies, contractors are brought in earlier and the procurer engages not just with the prime, but all the way to the tier 4 suppliers to ensure skills and quality are guaranteed throughout the supply chain. Israel achieves remarkable innovation in defence technology, all with a far smaller number of procurement professionals (just 300 in their Ministry of Defence).
Smarter spending decisions can get better value, and gain the advantage over our enemies, while delivering jobs and growth. It requires confidence from investors though to choose the UK over other nations. They need clear pipelines, deadlines met and existing projects and commitments honoured. In a small number of cases partnerships have become adversarial – tied up in disputes with expensive third party lawyers and consultants.
A new pipeline of private capital could ease the pressure on MoD’s capital budgets. With the right leadership from ministers, investors can be persuaded to buy the DIP.
Lord Hutton is a former defence secretary and chairs the AIIP, the trade body for UK social infrastructure investors