Defence Spending

Lord Walney Excerpts

Tuesday 16th July 2019 Westminster Hall

[Anne-Marie Trevelyan]

I thank the right hon. Gentleman for his comments.

The challenge is that the premise of SDSR ’10 was not just financial; it was that there was no longer an existential threat to the UK. It said that Russia was no longer a nation that we had to watch and fear. That has turned out to be a false premise, if it was ever anything other than an excuse to reduce defence spending. We were told that, owing to the sudden outbreak of global neighbourliness, we could return our Army from Germany. The freedom to move safely around international waters was assured because the middle east had become stable and unthreatening to the 20% of the UK’s energy requirements that travels by sea through the strait of Hormuz, so a reduction in the size of the ageing fleet was a perfectly sensible idea. Global airspace was going to be full of fluffy clouds and rays of sunshine, so there would be less need to patrol the skies or deliver force from the air to those who wish our allies harm, and we could reduce the number of airframes we would need. All that has, perhaps not surprisingly, turned out to be a false premise.

The Government seemed to make a conscious choice conveniently to forget that new equipment, recruitment and high-tech training takes time and money if we are to maintain our military advantage by having the best and most advanced equipment with the best-trained men and women in the world. I am afraid that SDSR ’10 was allowed to set out that false premise due to financial pressures. There was a realignment, as those in post realised that the position that was set out was not right. The work done for SDSR ’15 started to assess more honestly the instabilities across the globe and their risks to UK safety and prosperity, but the cash needed did not follow that strategic assessment.

It is a pleasure to see the Minister for the Armed Forces in his place; it is not him whom I challenge, but our Treasury Ministers. The pertinent question is, after setting out what was eventually understood to be required to meet minimum security risks in SDSR ’15, why have we not funded it properly to get the outputs that we know we need? We must be able to look our constituents in the eye and promise them that we can defend them. This is about not just the level of GDP that we use to invest in a larger force, but whether we are meeting future need.

In SDSR ’10, the MOD declared that we should reduce RAF aircraft numbers substantially while pushing forward with the aircraft carrier class of warship, but by SDSR ’15, those decisions had evidently proved incompatible, given that we need to increase aircraft numbers once again. We need to think holistically about transformation—the time it takes, the training requirements to achieve it and the best value-for-money methodology for doing it. As the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) said, that is the invest-to-save model, and the Treasury needs to help the Department. Short-term decisions for annualised cash-flow rules simply do not work for our defence programme and produce an output that meets our defence needs or our value-for-money rules.

[John Woodcock (Barrow and Furness) (Ind)]

The hon. Lady is making an excellent speech, and I congratulate her on securing this debate. Her point about through-life costs is very powerful. Does she agree that there should be more scrutiny—possibly independent—of the increase to the overall cost of projects caused by changes early in the cycle? I am, of course, thinking of the decision to delay the vote on renewing the deterrent submarines, which has added a significant amount of risk and cost to the project. Many of us said that to the Government at the time, but there was no ability to assess independently what the increased costs would be.

[Anne-Marie Trevelyan]

The hon. Gentleman’s point is well made. I will refer to submarines later. We need to challenge the Department continually on whether Committees such as the Defence Committee and the Public Accounts Committee, on which I sit, have the tools to look pre-emptively at the risks of those sorts of decisions.

There is also a mantra that technology is changing how we do everything and that it will, as if by magic, solve all challenges. It is implied that it will make everything cheaper, and that we can stop doing things the old way because there will be a whizzy, less manpower-hungry solution. Although it is true that world-leading UK defence businesses are creating extraordinary cutting-edge kit, that is not the only tool for solving our defence challenges. From Florence Nightingale and her medical advances to Alan Turing, the urgent need to gain advantage over the enemy has always brought out the brilliance of our citizens’ inventive genes. Defence has always been at the forefront of innovation because defence in action stretches human ingenuity under the insane pressures of war.

--- Later in debate ---

[Anne-Marie Trevelyan]

I thank the right hon. Gentleman. The Minister will have heard his perspective.

One of the key issues for defence is its people, who are flexible, selfless, uncomplaining and serve willingly—indeed, alongside the Minister, who puts his life on the line to serve his country. Equipment changes constantly—if it did not, we would still be sending our Navy to sea under sail—but the quality of our people is always critical. We spend more than a third of our defence budget on people. I say that that is an investment, since they are highly trained and we invest in their training throughout their careers, in a way almost no other employer does. However, we classify them as a cost, so departmental behaviour fails to look after them—our human capital—as assets.

We would not fail to repaint a warship—clearly, that would make her less seaworthy or less capable of dealing with the scars of battle—yet we are perfectly content to fail to invest in the personnel who serve, by not looking after their families and by failing to demonstrate what the armed forces covenant should mean: that if someone has served or is serving, this country genuinely thinks they and their family should not suffer disadvantage. It is imperative that we change the financial models the MOD is allowed to use so that our human capital can be classified as an asset. Service chiefs cannot determine how to reward their personnel, because they are not allowed to use their budgets freely to maximise the benefit to their people and their service. For small change—in both senses of the word—the behavioural changes achieved by flexibility would be substantial and immediate.

I believe the reason change is not happening is that the Department and the Treasury fail to understand the nature of military preparedness, and do not seem to question our resilience if we need to put our military under pressure. Although we put kit that is small, plentiful, cheap and speedy to resource on to the soldier, we put highly skilled men and women, who take years to train, into equipment in the Royal Navy and the RAF that takes years to build. A modern warship or fast jet cannot be whipped up in a few months. It is at the mercy of international supply chains, the risks of which, as the right hon. Member for Warley (John Spellar) mentioned, perhaps are not properly understood.

Importantly, that equipment would take a long time to replace if lost. Although bullets for small arms can be produced at speed if necessary, the missiles sustaining our warships and Air Force cannot be churned through a production line at speed if they are suddenly required. Training a submarine commanding officer or fast jet pilot takes years of investment—it takes time. Too often, it feels like the Department’s financial models simply refuse to acknowledge that and fail to understand the human capital investment that is being made, leaving us with huge risk from poorly assessed decisions.

We must consider the key tenets of successful defence and assess whether we are investing enough to sustain them. The first is deterrence. Deterrence works. Nuclear is the ultimate deterrent, but we must never forget that conventional deterrence has greater utility and that strong power generates respect. Let us consider for a moment our nuclear deterrent in its 50th year in our Royal Navy. Our continuous at-sea deterrent is an extraordinary feat. I always refer to it as our best weapon of peace, because the threat of nuclear war has ensured that we have had no more global wars. Humanity understands genuine existential threat, and the CASD is the embodiment of the UK and USA’s global policing, which reminds any rogue state why using a nuclear weapon would be a bad decision. But do we invest properly in our submarine service?

[John Woodcock]

indicated dissent.

[Anne-Marie Trevelyan]

The hon. Gentleman shakes his head violently. I have talked about the CASD repeatedly in the House since I was elected in 2015. It strikes me as bizarre that the long-term nature of that critical weapon of peace is stuck in a funding framework that stubbornly refuses to allow long-term planning and flexible funding. All credit to the former Secretary of State for Defence, my right hon. Friend the Member for South Staffordshire (Gavin Williamson), for persuading the Treasury last year to bring forward £600 million of funding—not additional funding but simply to reduce future financial risk—to assist in making efficient decisions to move the Dreadnought programme forward a little more effectively. Deferred cost is always increased cost. I speak as an accountant who has done this many times.

[Anne-Marie Trevelyan]

I agree completely. Deferred cost will always be increased cost in such big projects. We need more financial flexibility to get better value for money. Why did we have to battle so hard last year to get the Treasury to move on that £600 million? Why is the Treasury not doing its long-term cash-flow thinking in a rational way? If we are going to keep the CASD—there is overwhelming support for that across the House and the nation—it would make financial sense to allow a multi-year rolling financial commitment so Ministers can make rational decisions.

[John Woodcock]

The hon. Lady is making a superb case. Is there not a case for going so far as to make good on the commitments, which have been made at various points of the successor programme but then conveniently forgotten when there have been changes of personnel, to properly insulate the programme and remove it from the conventional defence budget? That would allow it to be managed as a proper long-term national endeavour capital commitment, rather than being subject to the in-year in and out of defence spending on other programmes.

[Anne-Marie Trevelyan]

I completely agree. Both I and the hon. Gentleman have pushed that campaign. I would not dare to suggest that I want another general election in a hurry, but we attempted to put that in the Conservative manifesto at the last election to bring about a change. I will continue to do that as and when the appropriate moment arises.

The hon. Gentleman is absolutely right: the MOD is not like any other Department of State. It has these 20-year programmes, which should be funded in a different way—a more intelligent and stable way. We need to get the Treasury to hear us and realise that the financial models need to be separate so that, exactly as he says, those programmes are treated as national endeavours. In the same way we funded Crossrail through a separate fund so it could roll forward as effectively as possible, despite the often challenging technical issues as we create state-of-the-art kit, we should give those working on these programmes the best financial framework to work within.