Sunday, October 9, 2011

Post SDSR - Implementation through PR11

(Hunter PR 11*. Like MoD PR 11 but much more elegant...) 

Planning Round 11 - PR11 
I accept that it's boring bureaucracy, but process is vital in Government, and never more so than when dealing with budgets and finance. What's critical to remember is that the settlement reached in a Comprehensive Spending Review (CSR) / Strategic Defence and Security Review (SDSR) is in a very meaningful sense Churchill's "End of the Beginning", rather that an end in itself: all that has been agreed at this point is the budget "envelope" within which the Department will have to operate for the length of the budget deal.

What then happens is the process of converting the CSR / SDSR settlement into something that actually can (at least theoretically) be implemented by the MoD. This is a critical, and often under-rated / misunderstood step - many a drip slip betwixt cup and lip and all of that. It is also where the painful decisions become crystallised - where the metaphorical rubber really does hit the road.

In the MoD a key part of this process is known by the catchy title of "Planning Round XX". This process costs lots of options, prioritises them, chooses which elements to fund and which cuts to make to make the proverbial quart fit into a pint pot, and ultimately spits out an answer that is the operational annual budget of the MoD; the work for next year is PR 11.

What was done?
The first pass results were announced by Liam Fox on 18 July 2011. As Chalmers points out, this is effectively another Defence Review less than a year after the SDSR was completed, underlining that the SDSR did not resolve the funding dilemma - and was therefore unimplementable. It is hard to imagine a more damning indictment of a review of SDSR's scale and ambition.

Some good news came in July - there was a planning commitment that the MoD equipment procurement and equipment support budgets would increase 1% in real terms from 2014/15. Of course, this is an attempt to bind a future spending review - and indeed a future Parliament in a way that A. V. Dicey et al would decry as unconstitutional interference with Parliamentary Sovereignty - which may or may not work; not the least reason is that if the economy doesn't turn around the pressure on the post-Afghanistan MoD budget will all be one direction.

In return for jam tomorrow, MoD has agreed to make what Chalmers calls "further difficult decisions on capability reductions, notably in Army personnel numbers." Specifically, this means bringing the Army down to 84,000 by 2020, a figure that was bandied about in the SDSR process. But the problem is that what these reductions are to be hasn't been announced, which implies that it hasn't - or at least the phasing and the force mix - hasn't been agreed. The answer to maintaining capability by cutting numbers is to shift to (cheaper) reservists from (expensive) regulars, with £1.5bn over the next decade to fund this. What impact £150m p.a. will have is not yet clear.

UK Future Capabilities Pit Falls Overspends

 (Type 26 Global Cocktail Party Platform Combat Ship)

 (F-35C Lightning II - shiney, American, over-budget, late)

 (RN Trident II-D5 SLBM Launch. No, you don't get to see the "cool" submarine thing.)

The most obvious risks in a strategic steady state - ie, without any new unplanned for threats or wars -  are the three biggest ticket items - replacement submarines for Trident, F-35 Lightning II strike fighters for the FAA and the RAF, and the future frigate, Type 26.

Trident is perhaps the easiest to discuss because it is so binary as a programme - it is largely independent of the rest of the MoD force structure in that though it has supporting assets, at a pretty profound level you either do Trident or you don't. And therefore you can consider the £30 - £100bn bill with a degree of isolation from the rest of the budget. It is also a significant technical risk given that it is a new UK submarine design, as with the unfortunately named "Astute" class, this is an area of significant weakness in the UK defence manufacturing base.

 (All of this for 20 sorties a day? Really? Really?!)

F-35C is connected to other programmes, most obviously the carrier. It is also different in that the UK is a bit part player in the US programme, and the US will make F-35 work for the USAF and the USN, because without it, their qualitative edge over "near peer" adversaries will erode. The cost, however, is vast, and initial (optimistic) UK procurement figures of 132-150 F-35s simply will not happen as the unit cost seems destined to be around the £100m mark. At that price, 60 airframes - or enough for just four 12 aircraft squadrons plus a training flight - is a £6bn+ programme - similar to the aircraft carriers.

It is easy to see why Chalmers cites an MoD decision to routinely deploy the UK carrier with only 12 aircraft (versus the 36 originally intended). Unfortunately, 12 aircraft the work of 36 cannot do, and the MoD has scaled back the sortie-generation requirement of the carriers from 72/day to 20. 20?! Given that the cost spiral and delayed service entry date for the F-35C was known and knowable in 2010, it is hard to understand how the carrier programme could have made prioritisation sense if it is only expected to produce 20 sorties per day. Charitably, all that can be assumed is that the planners were planning on having more than four squadrons of F-35C in total, making it more likely that the FAA could have 36 aircraft and crews trained and deployable. Except that if there are only four 12 aircraft squadrons in toto, this is not going to happen. From this, it is hard to understand why the UK is pursuing the carrier programme at all.

(Type 45: Stalin's maxim that "Quantity has a Quality all its own" doesn't work in reverse...)

Type 26 is much easier to argue for and against. The UK needs a new frigate. It is not clear that the UK needs to go to the trouble of developing one for what will never (sadly) be more than 20 hulls, and may well end up being half of that. Given that the Canadians are not interested in a collaborative programme, the Brazilians may buy one and then build their own, and there is lots of competition, it would surely make more sense for the UK to buy off the shelf from Europe (FREMM, Lafayette or F124 would do nicely). And before anyone shouts "HORIZON was a disaster", if we had proceeded with it, the RN should have been able to afford 9 or 10 instead of the 6 Type 45s they're going to operate at £1bn each.

Tough choices. But they need to be made if the UK is going to get maximum value for money from the small defence budget: MoD is not there to create or sustain jobs for BAES. 

So, with the greatest respect to Malcolm Chalmers, it is hard to see how he can conclude that, "the MoD now appears to be well on the way to closing its £74 billion funding gap" until the cuts are detailed and the numbers and the underlying assumptions can be independently verified (as the NAO is now empowered to do.) Let's see how they get on, but I'm a long way from convinced.
* Ok pedants, I know the RN used the Hunter PR 11s as trainers and not operationally, and that therefore they should probably been designated T(PR) Mk. 11 - or indeed T(PR) Mk. 12 as they were based on Hunter F Mk. 4 airframes, not the FGA Mk. 9 that begot the RN's GA Mk. 11. If this is a burning concern, I suggest you complain retrospectively to the Chief of Staff (Aviation and Carriers) and Rear Admiral Fleet Air Arm, as he's presumably less busy than he was, given the scrapping of the Harriers and the Carriers...

No comments: