Don’t Worry, We Have a Fully Funded Equipment Plan (For Now)

UK Defence

 

The Parliamentary Defence Committee has produced a report entitled Re-thinking Defence To Meet New Threats. The report points to a number of short comings in the UK’s defence capability especially in regards to fighting a peer threat. The major basis of the report is that the defence assumptions in SDSR 2010 were wrong and urgently need to be revised.

However our current Secretary of Defence has dismissed the current report saying “the government is already Europe’s biggest defence spender and was committed to spending over £160 billion (US $239.1 billion) on equipment and support over the next 10 years.

The suggestion that we need to rebuild our defence capabilities is nonsense. Under this government we have gone from the £38 billion black hole in the defence budget that we inherited to a properly funded £34 billion annual budget. That means we have been able to commit to spending over £160 billion on equipment over the next decade to keep Britain safe — including new joint strike fighters, hunter killer submarines, two aircraft carriers and the most advanced armoured vehicles”

I am not sure if Mr Fallon is aware that a balanced budget is not a weapon and a potential adversary will care very little about the vagaries of MOD accounting and the magic £38 billion black hole.

Really sums up what currently passes for Government in the United Kingdom at the moment.

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Hohum
Hohum
March 24, 2015 6:55 am

What do you want? An unfunded defence budget? You really think revising the SDSR10 assumptions will make any difference to the capability choice if it were to actually be done?

Wait until your get your Labour government, their interest in defence spending makes the current one look stellar.

monkey
monkey
March 24, 2015 6:59 am

“enhance the NATO alliance and retain US involvement in Europe,” said the lawmakers.”
From that it seems that the commitment from other European NATO members other than the French seems lacking and the US have other things on their priority list and have in effect stated we (Europeans) need to pull our own weight or they are taking their ball home. Too f**king true.
I may of said this before but the vast majority of European NATO troops are based along with their kit in the wrong place to meet the potential land threats Europe faces . Brigades and regiments based in the Algarve , Andalucía and Aldershot etc are 1000’s of km from were they need to be to deter Eastern threats . They are there for financial reasons not military ones.

clinched
clinched
March 24, 2015 7:35 am

The problem with politicians is they are hypocrites. For example, whilst Fallon says that the UK is Europe’s biggest defence spender, when it comes to the NHS his party has repeatedly said it is outcomes that matter, not how much you spend. I suspect other countries achieve a much better result for their spending than us. Another example is Cameron in Wales telling every bugger else how vital it was to stick to the two per cent. Not vital enough for the UK to stick to the two per cent, though.

From Luddite Lodge
From Luddite Lodge
March 24, 2015 7:48 am

Given the rearming of Russia, the rise of The Caliphate and the re-arming of Argentina with 30 fighter bombers a prudent government would be increasing its defence spending. Too many politicians seem to have forgotten the dual purpose of the defence spend
a) to actually protect the country
b) to give politicians control in times of crisis

This is a government that does not think there will ever be a crisis.

S Barnard
S Barnard
March 24, 2015 8:06 am

What exactly is a pier threat?

Hohum
Hohum
March 24, 2015 8:07 am

clinched,

People understand outcomes in health because they see them, if their parents are tortured to death in an NHS hospital (Mid Staffs) they know the outcome is negative.

Wat are they to expect from outcomes in defence?

jedibeeftrix
jedibeeftrix
March 24, 2015 8:10 am

“fighting a peer threat”

???

clinched
clinched
March 24, 2015 8:41 am

Hohum

Using the different filters in this link will show you that, whilst the UK may be fifth in terms of spending, it is 27th in terms of the number of fighters/interceptors, 36th in terms of navy ships, 38th in terms of active military personnel, 42nd in number of tanks.

http://www.globalfirepower.com/active-military-manpower.asp

Think Defence
Admin
March 24, 2015 8:54 am

Piers for use on beaches, obviously !!!

If we are talking assumptions being incorrect then we should question the 1998 SDR which has shaped our defence policy since.

The assumptions were…

1. The Cold War was over
2. Interventions abroad being the new norm

Are those two still actually valid today

monkey
monkey
March 24, 2015 9:45 am

“The assumptions were…
1. The Cold War was over
2. Interventions abroad being the new norm
Are those two still actually valid today”
The Cold War is not over just a lot smaller a threat ( excluding nuclear) as most of the Warsaw pact has now swopped sides and joined NATO but Russia is still a very real threat to the security of Europe.
On interventions abroad , how successful were Iraq and Afghanistan? Before we are pulled along by the ring through our nose we need to listen to experts on the nature and attitude of the local population(s) we are trying to interfere with, correction intervene with before we decide to stay for 10 years ,spend a s**t load of money for no outcome that wasn’t achieved in the first 3 months of regime change. Will they tolerate let alone welcome an occupying military force from a different culture not matter what promises are made about rebuilding, healthcare, education etc.
The committee mentioned multiple small scale disparate interventions which would give something all our top heavy Brass something to do but are they upto it based on passed performance? Do we have a big enough intelligence community and cultural experts ( we should considering our ethnic diversity ) and the funding for them? The resources exist in both the academic and business communities but do we tap into it when required to extrapolate what after effects our actions will have .

The Other Chris
March 24, 2015 10:05 am

The “Rapid Raptor” approach is the way to go setting if we’re setting up to combat multiple, distributed asynchronous threats but then want to unite these units for a large near-peer or peer threat.

Decide upon a unit of measurement: For “Rapid Raptor” this is a “package” of four F-22’s with ground footprint (crew, tools, logistics) hauled by one C-17, deployable globally within 24 hours and (allegedly) sustainable for the selected package duration (not revealed).

Would a naval equivalent be a single “cruiser” (e.g. T23, T45, T26, River)?

What would a light, medium, heavy, vehicle, armour, infantry, artillery, etc, “package” be considered?

What ratio would be required to sustain the “package”? e.g. the USN is trialling a 3:2:1 ratio with their new LCS/SSC/FF. Three crews rotating between two vessels in order to keep one deployed.

What is the equivalent for a tank? Platoon? Section?

Hohum
Hohum
March 24, 2015 10:28 am

martin,

The budget is considerably more balanced today than it was in 2015, the deficit as percentage of GDP has been halved over this parliament. Yes there are more cuts to come, and so there should be as the state is far too large, but fiscal situation is far more stable than it was in 2010. And ultimately, fiscal is very important indeed from a defence perspective, see every failed socialist crap hole for that.

SDSR10 was the product of a cost cutting drive on military that didn’t what it wanted to be Politicians that also didnt know what they wanted it to be. If you actually read the select committee report you will discover behind the hyperbole that it’s authors have contributed nothing towards correcting that situation- all they do is this a diverse range of threats that require and equally diverse range of capabilities.

William Forbes
William Forbes
March 24, 2015 10:28 am

>> … committed to spending over £160 billion (US $239.1 billion) on equipment and support over the next 10 years. <> … the magic £38 billion black hole. <<

There was no such hole – it was merely spin on the inherited Long Term Costings (LTCs) that no one then understood anyway, perhaps because they made so little sense while Gordon Brown was PM and Ursula Brennan was PUS.

jedibeeftrix
jedibeeftrix
March 24, 2015 11:06 am

Hi martin,

My apologies, I actually thought it was a piece by admin, and put the note there as a prompt for correction.

My writing is likewise riddled with mistakes, some I later catch, and some I never see until they are pointed out to me.

Take it easy.

Jbt

Chris
Chris
March 24, 2015 11:26 am

This week’s JDW has two reports relating to Ukraine, the first that the Ukranian defences are suffering issues relating to all out use over the past months (presumably combat damage plus maintenance backlog plus shortages of spares and stores plus crew exhaustion) and that a surge from the rebels and their entirely not Russian Army reinforcements could be difficult to repel. Facing that a report that the Dutch investigators have concluded that Flight MH17 was brought down by a BUK missile, that the launcher was in Ukraine, that it was Russian owned and that it was ‘most likely’ Russian crewed. Well that will be the BUK system photographed scurrying back towards the Russian border immediately after the missile was loosed then.

Other JDW reports relating to UK equipment: UK has mothballed 25% of the Apache fleet – if we have too many already the chances of buying more from Boeing (far less Westlands) seems remote. The Public Accounts Committee have warned MOD it has underestimated the final costs of its equipment programmes by some £5.2bn, consuming all the contingency they thought they had plus a bit more – it would seem some of the creative accounting methods used to close the previous black hole are beginning to show. And a lengthy report on Crowsnest in which I see some of my old ideas surfacing.

Other news: DoD is funding research on a variable-geometry turbofan with adjustable pressure ratios to improve fuel efficiency hence aircraft range. Singapore ups its defence budget by 5.7% – lucky Obs. Saudi Arabia is looking to its own industries for future defence equipment. And a briefing on infantry HUD-like devices.

Also two pages on the effect of the election on UK defence commitments in which (I may be wrong) there seems to be TD influence. Note to all: keep writing the good stuff and guide the future…

Hohum
Hohum
March 24, 2015 11:42 am

UK cuts its Apache fleet to 50, Russia receives 16 of a total order of 146 Ka-52s this year

Not a Boffin
Not a Boffin
March 24, 2015 11:43 am

That Global Firepower site is comedy on a massive scale. Clearly, the US Navy needs to be sh1tting its pants that Kim Jong Un’s horde of DPRK ships is going to sweep it from the seas. The 4500 Syrian tanks are obviously a threat to us as well.

It’s all about context. When you start looking at the countries nominally “above” us in the tables, you soon realise that the vast majority of them can play within their borders or occasionally in their direct neighbours territory. Which makes them worthy of note if we’re going to confiscate their playtime sweeties, but not so much as a threat to UK.

Which brings us to SDR98. As noted above, while the Cold War appears to have returned, there’s the rather significant difference that instead of defending the Inner German Border (remember that?) from GSFG (remember them?), who were able to stage quite happily in Poland, Czechoslovakia, Hungary etc, the threat now sits to the East of Belarus and Ukraine. That’s quite a difference from being five days drive to the Channel ports, as used to be the case and certainly a less direct threat to the UK than it was.

One might counter that threat with a BAOR/RAFG redux sat in Poland etc, but the British Taxpayer might be entirely justified in asking why we need to put an Armoured Bde (or division if you want to play fantasy pongoes), their logistics chain and a wing or more of Fast Jet out there defending the rest of Europe, who are appreciably closer to the threat. This is actually a case where the Homer Simpson DPA has some validity. Particularly when you think that once they’re there, you can’t use them anywhere else – the same logic often applied to jets aboard QE for carrier strike for example – because you’re leaving a gap in defences.

Or you can go for a UK based force that is selectively mobile and can be committed where required worldwide, which in essence was what SDR98 was about. It’s also one reason why our Top Trumps rating in the Global Firepower site is low, because we’ve retained a significant number of enabling capabilities (Engineer Regts, med units, 17 P&M, amphibious force, strat sealift, strat airlift and the logistics to go with them), which don’t show up in the force stats. None of which makes HMAF invincible or in rude health by the way, funding is still too low to support what HMG has committed to, but nowhere near as bleak as painted by some. Definitely nowhere near as trivial as portrayed in Top Trumps websites either.

But the choice is actually quite simple. If you have a fixed budget, you can put a land-centric force in Eastern Europe (although I’m sure the Boxheads would be delighted to host us again, provided they didn’t have to contribute), provide deterrent, MCMV for UK port and some residual shipping protection (you’ll note that Battle of the Atlantic 2 is off the agenda, unless Putin massively expands his land forces) and accept you’re not going to play anywhere else, ever. Should actually save quite a bit of money, which might justify to the taxpayer why we’re defending eastern Europe, although they might ask, why not save the lot and go for a purely home defence force?

Or you can stick with the SDR98 ideal (albeit in the reduced FF2020 form) which allows limited intervention (for example NEO, enforcement of UNSCR, prevention of genocide – like Ellamy) across a larger part of the globe, but is quite clear that long-term combat operations require both local allies and a diplomatic endgame. If these don’t exist, you can still achieve short-term aims, but don’t be surprised if there is no land of milk and honey and fluffy bunnies afterwards. The latter also gets you some level of influence with both the US and the UNSCR, as you are actually demonstrably pulling your weight worldwide, rather than talking a good game off the efforts of others.

Monty
March 24, 2015 12:45 pm

This is a welcome report and has at least got the Government to admit that it won’t cut defence further if it wins the next election. More important, it is the beginning of an acceptance that we will need to spend more on defence post-2020, assuming we don’t need to deploy internationally before then. Of course, there is nothing concrete about what we should acquire and the desired size and capabilities we need to plug any perceived gaps.

My ideal state for UK Armed Forces would be as follows:

Strategic Nuclear Deterrent
4 x Nuclear missile submarines (Trident)

NAVY
2 x Carriers
2 x LHDs
12 x Destroyers
24 x Frigates
24 x OPVs
12 x Attack submarines
12 x Mine Sweepers
50 x ASW helicopter (Wildcat/ Merlin)
20 x Support helicopter (Merlin)
10 x AEW for carriers (Merlin / V-22 Osprey)

AIR FORCE
200 x Air Defence aircraft (Tornado)
200 x Strike fighter/ STOVL aircraft (F-35)
100 x Long-range strike-bomber aircraft (Tornado replacement)
200 x Advanced training aircraft / CAS (Hawk)
200 x Basic training aircraft (PC-9)
10 x Strategic heavy lift aircraft (C-17)
50 x Strategic transport aircraft (A400M)
20 x Maritime patrol Aircraft (P8)
20 x air tankers (Voyager)
10 x AEW& C aircraft
10 x ISTAR aircraft (Sentinel)
50 x Heavy Support helicopter (Chinook)
50 x Medium Support helicopter (NH-90/ Blackhawk)
50 x UAV for ISTAR and CAS (Reaper)

ARMY
400 x MBT (Leopard 2)
800 x IFV (ASCOD 2)
400 x CVR (ASCOD 2)
100 x Attack helicopters (Apache)
100 x Recce / Light support helicopters (Wildcat)
100 x SP artillery (AS90)
50 x LR missile vehicles (GMLRS)
200 x Medium wheeled artillery (M777)
800 x UVW (Patria AMV)
400 x UVW Recce (Patria AMV)
400 x LPPV (Foxhound)
400 x LPV (Jackal/Coyote)

12 Cavalry regiments (6 x MBT regiments, 6 x Recce regiments)
36 x Infantry battalions
1 x SFSG
12 x Reserve Army infantry Regiments
4 x Reserve artillery regiments
4 x Reserve cavalry regiments

This structure would provide three divisions plus a dedicated reserve.

God knows how much this lot would cost, but we could go anywhere, do anything and only the US, Russia, and China would have larger forces. (And we could retake the Falklands, if necessary.)

WhitestElephant
WhitestElephant
March 24, 2015 12:54 pm

I don’t think anyone has ever suggested we have the capacity to deploy an armoured division. But a divisional sized force consisting of an armoured brigade with 16 Air Assault, 3 Commando brigade, a few battalions from the adaptable force and other “enabling capabilities” (as you put it) is certainly within our capacity (albeit sustainable for the short-term).

The trouble is, if things ever did get out of hand with Russia in Eastern Europe, is the short-term good enough? Certainly not. With only the capacity left to sustain a brigade sized force for any meaningful length of time, we are not prepared to fight a peer nation such as Russia on land.

SDSR 2010 got it all wrong, and SDSR 2015 will be more of the same salami slicing, despite the fact the strategic situation has changed dramatically over the last five years.

Nick
Nick
March 24, 2015 1:00 pm

Hohum

“Wait until your get your Labour government, their interest in defence spending makes the current one look stellar”

Looking at where our defence industry manufacturing is based, I’d say it’s much more likely to sit in a Labour seat (or soon to be SNP) seat. I would argue that Labour would actually be more likely to fund than the Tories as they have strong political reasons to do so (hence Gordon’s non-cancellable carrier commitment).

Whilst I don’t believe what either Tory or Labour say on their future spending plans (the OBR clearly doesn’t believe Osborne at all), I think it is clear Labour would reduce the current account deficit more slowly than the Tories (probably over at least 2 parliaments and not 4 years Osborne claims). Whilst this might add another 10 % of total UK government debt as % of GDP, economic growh will probably be higher (which itself reduces the deficit by boosting tax revenue).

Hohum
Hohum
March 24, 2015 1:07 pm

Nick,

All wishful thinking. The location of the defence industry has never made any appreciable difference to topline defence spending- it has had some (though much less than people like to claim) impact on individual contract awards but none on the overall budget. Equally, a greater increase in public debt will not produce any significant shift in GDP and will instead weaken the UK’s fiscal position should there be another economic shock.

Hohum
Hohum
March 24, 2015 1:13 pm

TD,

The only thing that report does is point out the glaringly obvious, there are lots of bad things happening in the world and without spending a bunch more cash there is not much the UK can do about them. That’s hardly news. What it does not do is explain why we should do more about most of these bad things, which is the argument that needs to be made if this is to happen, and it also fails to prioritise them in any meaningful way, the net result is long wish list.

Not a Boffin
Not a Boffin
March 24, 2015 1:19 pm

WE

You need to re-read my post. The choice is between a return to BAOR/RAFG or an SDR98 force structure. It wouldn’t be a deployable division, it would be a permanently based one. In Eastern Europe.

Nick

The Brown/carriers thing is a complete myth. Those who were involved know that the Great Financial Genius did everything he could to avoid ordering them, right up until the last moments when he was scrabbling for any sort of positive gesture. The cancellation clause in the contracts was actually inserted by the ACA – on the basis that they’d been forced to consolidate and kept hanging for several years, partly by Paul Draysons Maritime Industrial Strategy and partly by the monocular Scottish pillock not wanting to spend money on defence. Having done all that, they were ensuring that they couldn’t be double-crossed by a political whim.

Nick
Nick
March 24, 2015 1:27 pm

Hohum

The next economic shock could be as early as next week when lack of ECB loans forces Greece out of the Eurozone leading to 60 to 100 billion + of government to government debt to be written off. Knock on effect would be increase in Italy, Portugese and Spanish interest rates and a new Eurozone bank liquidity crisis…

Chinese growth is slowing still (and there is a risk of property bubble collapse there as well) which will have considerable effects if the chinese government can’t manage a soft landing.

Much as our politicians like to think otherwise, we’re still in the middle of the biggest economic crisis since the 1930s depression (or the 1870s depending on who you read). It remains likely that the world is going to have to inflate itself out of this mess by big government spending (and creation of 100 % GDP plus debt with a long WW 2 like overhang).

Nick
Nick
March 24, 2015 1:44 pm

@Thread

Its always fun to read about Weapons of Financial Mass Destruction:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11490796/The-worlds-next-credit-crunch-could-make-2008-look-like-a-hiccup.html

The UK budget deficit is small beer compared to the real market wide financial risks out there.

BTW Oil price fall plus sanctions have already let off such a weapon under the Russian economy…Worse to come on that front I suspect if only to keep the people on side.

a_c_eplym
a_c_eplym
March 24, 2015 2:01 pm

,
Might want to update your air force a little – unless you’re proposing we ditch Typhoon for a new build of Tornado ADV? :)

A Different Gareth
A Different Gareth
March 24, 2015 3:37 pm

The Other Chris said: “Decide upon a unit of measurement: For “Rapid Raptor” this is a “package” of four F-22’s with ground footprint (crew, tools, logistics) hauled by one C-17, deployable globally within 24 hours and (allegedly) sustainable for the selected package duration (not revealed).”

How about ‘Tactical Typhoon’ – 4 (maybe, I don’t know) Eurofighters with the ground crew and kit spread over two A400m. Perhaps flying as a flock. All set off together with the A400m topping up the Eurofighters on the way. Or would the additional fuel eat too much into A400m cargo capacity?

Scaled up and you could deploy in large numbers to one location and maintain a local airborne refueling capability and an air bridge to home.

If it worked you’ve got a capability that can be instituted across the A400m consumer air forces and a foot in the door for mutually supportive sales of A400m and Eurofighters.

Obviously it’ll have to wait until there are enough A400m to try it with. And most importantly it has to have a snappy name.

WhitestElephant
WhitestElephant
March 24, 2015 3:38 pm

@NaB

Oh yes sorry, that makes much more sense. I was in a hurry reading your post before I left the house, excuse me!

Pacman27
Pacman27
March 24, 2015 8:42 pm

You might also want to update your navy as they will run out of fuel pretty quickly without the RFA.

I just don’t know how we spend £16b per annum on equipment and receive so little. As for Tanks get rid of them and replace them with Apaches or similar. We need to move with the times, Destroyers are pointless when a Frigate can house everything and corvettes can easily be 120m – we need lethality in volume not the biggest or best.

The Taranis is a real eye opener and should be agressively pursued as the yanks can land their UCAV on their Carriers already. Terrines looks as if it could be a world beater and if we order in volume the price will be right.

I have said this before but we should be ordering 4 – 6 ships every single year, its no use building 12 and then nothing for 10 years. We can build a sub every 2 years and various other ships. 4ships every year equates to a 120 strong order, so that it becomes a 30 year lifecycle. Oh and we should never ever buy another carrier, waste of money. Missile destroyers are the way to go.

Our military needs to survive on £40b and have a force close to 200k personnel – that leaves £20b for ops and equipment which over 30 years is £600b, now that buys a shitload of planes, ships and stuff.

Lastly, we need to buy missiles etc and let our guys use them, its pathetic saying “bang” or pretending to fire – give them the bullets and munitions and use them on the ranges or live.

Chris
Chris
March 24, 2015 9:43 pm

Pacman27 – the problem with radical deletion of equipment types is that somewhere sometime against some foe that one item of equipment would be vital for victory. As we know, the issue is the piggy-bank hasn’t the funds to cover every variety of equipment (and their manning) in robust numbers. But while its easy for any of us (or any politician for that matter) to arbitrarily select equipment for retirement, it really needs the tefal-headed boffins to wargame the various shapes of UK forces against all sorts of enemy in all sorts of environments taking all the softer issues including supply chain into account, to work out exactly and with auditable proof what the optimum fighting force looks like within the defined budget. If the real and verified answer is to scrap tanks and replace them with bicycles then that’s what should happen.

However I do agree and have stated the argument before that there is much advantage in increased numbers in the military, both because attrition will happen no matter how much the experts deny the possibility, and because one platform can only be in one place at a time so more platforms means better optimised distribution of capabilities.

Repulse
March 24, 2015 11:16 pm

NaB: “The choice is between a return to BAOR/RAFG or an SDR98 force structure.” Not sure I agree, as you say the Russians are now weaker and there is much more land / tanks / ground based aircraft between them and the English Channel now. Also the naive Blair expeditionary days are over. So in my view both are defunct.

The most immediate threat from Russia to the UK seems to be from the north. I’d say focus on our maritime, MPA, QRA and BMD assets, which could also be used globally. This includes carriers, SSNs and AAW / ASW ships.

cky7
cky7
March 24, 2015 11:39 pm

Monty,
If only. Would bet a lot of money i’ll never see anything like that in my life time though! :(

jon livesey
jon livesey
March 25, 2015 2:45 am

Nick: “The UK budget deficit is small beer compared to the real market wide financial risks out there.”

That is absolutely correct. In fact the budget deficit is *zero* risk in a country that has its own currency and borrows in it. The UK can make its defence budget whatever it wants it to be, and whether it is “funded” or not makes no difference.

In 1936, Chamberlain kicked off the UK’s biggest ever peacetime re-armament and paid for it with new debt. Obviously the Germans didn’t care one way or another whether the UK’s defence was “funded” or not, only whether it existed. To the UK, having adequate defences was obviously more important than ending the war with large numbers of pieces of paper marked “Bond” that needed to be gradually inflated away.

Talk about the deficit is mostly people confusing nations with households. Households have hard limits to their spending, but nations – real ones with their own currencies – do not. It baffles me that TD spends so much time over a complete non-issue.

The UK either does or does not have adequate defences, and a given Government does or does not spend enough on defence. But it’s not an issue of funding or “running out” of money. it’s a political choice. If the politicians pretend it’s about money, they are just trying to kid you.

Nick
Nick
March 25, 2015 6:08 am

Jon L

The argument against too much debt are:

1. It creates inflation (welcome back to the 1970s) which is bad. True it is, but that was triggered by a real Oil shock (increase) amongst other things (there was a property boom in their as well). Whilst to be avoided, a slightly higher level of inflation than today (zero) or tomorrow (we’re already in price deflation today) would be no bad thing.

2. High interest rates and high borrowing costs. After QE, we’re at a record low interest rate level for the UK. We have a relatively short window (probably) before rates start to increase, but even then we are expected to maintain super-low rates historically. This isn’t due to any fundamental change in the world economy, but is a side effect of the QE and other measures used to reflate the banking sector (which was much more than just the bail-out of certain banks) and the vast amount of money created out thin air by the US, UK, Japan and the now the Eurozone. A huge amount of debt has also been created in China (both government and private). This funny money is going to take years to “disappear” as the global economy grows. Low rates are hear for a while (probably).

The UK government is actively retiring old debt alongside new borrowing to lock in low interest rates for at least the next 10 years. UK government debt already – pre-2008 – had one of the best maturity profiles in the world (ie we needed relatively little new borrowing each year. Our current year interest cost is actually pretty low by historical standards (interest rates are low), but the debt pile is pretty massive. However, we aren’t close to record levels of the past.

To put all this in context, the UK government was able to support our banking sector by a massive extent, without any obvious immediate cost to the real economy (in terms of higher interest rates, less availability of loans, currency issues, lack of buyers for government debt) and has been borrowing c100 billion pa for the last 5 years as it hasn’t been able to reduce government spending (and refused to increase taxation significantly) similar at no immediate cost.

The government spent 130 billion on the bank bailout and taking over certain banks (on top of that would be the new equity HSBC and Barclays raised). The Bank of England created new money to buy 375 billion of assets from the banking sector. This is over 500 billion. This is equivalent to about 70 % of annual government spending, or around 5 years of our current deficit or about 30 % of GDP.

We were in a small debt deflationary cycle for at least 4 of the last 5 years (ie GDP growth is low, so debt increases as a proportion on GDP). The return of real GDP growth reverses this trend. This is one major reason why Osborne doesn’t need as much austerity cuts in the next 5 years projection as in the last 5 years (although the OBR doesn’t believe his deficit plans (deficit to surplus in 4 years) can actually be met without much bigger cuts). The idea that it must be done in 4 years as opposed to 8 years (say) is as much a political decision as economic.

In any case, the idea that running a 5 billion pa budget surplus is going to repay what will be about 1.6 trillion of debt is a farce. It would take hundreds of years to do that.

Obsvr
Obsvr
March 25, 2015 7:40 am

Actually labour does spend on defence, as long as it is in UK in appropriate electorates, two large ships come to mind. Military relevance is a second or third order issue.

Only an idiot would waste UK money on M777, has everyone forgotten that a decade or so back responsible adults were onto the case, ie logisticians. They pointed out that there was no prospect of UK having the heli resources necessary to support 155mm guns over the distances anticipated. 105mm with ammo is far more useful than 155mm without it. Of course this doesn’t apply if your only ambition is to be an asphaltenplatz army.

jedibeeftrix
jedibeeftrix
March 25, 2015 8:16 am

interesting discussion this article has generated, thank you.

The Other Chris
March 25, 2015 9:27 am

Gordon Brown didn’t exactly rush to confirm the CVF order. He delayed it necessitating the ACA to add cancellation/delay clauses and only ordered when the clauses were due to kick in.

Hohum
Hohum
March 25, 2015 9:44 am

The economic ignorance here is astounding, the argument that debt for a nation state is just fine and it doesn’t matter how much we have is utterly ludicrous as every sovereign debt crisis in history will tell you.

Nick
Nick
March 25, 2015 10:28 am

Hohum

No one, least at all me is arguing that running too much debt (ie more debt that your economy has the capacity to finance) is a good thing. It clearly isn’t. However, if you wish to argue that Osborne is right and we should return in budget surplus in 4 years, please provide an argument why it needs to be 4 years and not 8 for example. You might also want to explain just how the US is going to reach a budget surplus (it isn’t by the way) let alone Japan, China, most of the Eurozone.

What amount of surplus do you want to run anyway ? ie. Given that we have 1.4 trillion of government debt today (which will be about 1.6 trillion by the time we attain government budget surplus), please explain what is the economically ideal level of government debt you want to attain and how quickly do you want to get there.

Being simplistic and ignoring interest and inflation, If the UK government ran a 100 billion surplus (ie tax income c600 billion pa, spending c500 billion pa – as opposed to c700 billion spending today), it would take 16 years to reach zero debt. Osborne hopes to attain a 5 to 10 billion pa surplus by 2020. That suggests repayment term of over 100 years.

Lets be honest here, the UK is never going to repay this debt, we will roll it over into new debt and let time deflate the value of the principal as inflation, GDP growth and higher interest rates reduces the value of the dent in real monetary terms. The UK government has been doing this since the Bank of England was formed, if not before then. We’re slap bang in the middle of one of the largest economic crisis ever, in a much more globally integrated world than ever, and we’re worrying about taking a few years longer to attain budget surplus ? It would be like telling the Hitler in 1942 we had run out of money and could we surrender now ?

Gloomy Northern Boy
Gloomy Northern Boy
March 25, 2015 11:02 am

I’m no economist, but surely the main role of government debt is not that it should be repaid but that those holding it can have complete confidence that it will routinely and regularly meet it’s interest payments as agreed, and in a currency that is actually worth something world-wide…that it will reliably contribute to a balanced investment portfolio held by either an individual or more probably an institution like a pension, hedge or sovereign wealth fund.

In which case maintaining good governance, the rule of law, and a level of independence of action…as well as a safe place to live if you pay the membership fee…are all vastly more important than the details of the balance sheet…and the ability to adequately defend those benefits against all comers is absolutely central to the ability to borrow in the first place.

As a chap called Cameron once said, “I agree with Nick”… :-)

Couldn’t resist as election fever mounts…I’ll get my coat.

GNB

monkey
monkey
March 25, 2015 3:58 pm

I think I understand that institutions who want long term secure interest AND capital repayment on maturity (if required) buy UK debt. During the crisis the BoE generated QE ( printed money) to buy debt UK related business could not refinance as they matured on the open markets as was the original investors right as they deemed the risk to high ( bless the little Gulf Sovereign Investment funds). The BoE took on the debt , bless their hearts , to secure said business’ from going illiquid.i.e. insolvent. That debt now lies with the BoE ( you and me) who at some point will ask for repayment in full or extend the lending for another term , hence why no harm unless Sterling goes through a meltdown but then were all f**ked then aren’t we :-)

Tim
Tim
March 25, 2015 8:20 pm

Keep the tranche 1 typhoons in operational reserve , double the number of Type 26 and make sure that they are jammed to the gills with weapons and double the cyber attack spend and we should be fine to protect the UK and our overseas concerns.

Frack for gas and invest in tidal and nuclear and then our only threat is Putin and his days are numbered. So long as we can shut down a tinpot nation like Argentina in a few hours via sub attack and cyber warfare what else do we need to do?

The whole full spectrum madness is pure BS.

Chris
Chris
March 25, 2015 10:00 pm

Clearly I am, to use a fictional quote, a bear of very little brain. I carefully read the various comments that should have educated me how national debt is meaningless and nothing to worry about, but I remain worried. So, here are some very basic questions. If we have a national debt measured in thousands of millions, who do we owe it to? Another state? Banks? Private investors? The reason I ask is that it seems the majority of the rich Western nations operate hefty debts, which makes it unlikely any of these are our creditors. I believe Israel does have a surplus accrued over a very long time and it lends much to the US, but they are historically best buddies. If the national debt is partially owed to states (or organisations in states) that support our national enemies, does the presence of that debt change how we would respond to hostilities? That’s quite scary.

But mostly it makes no sense to me at all that the balance of exports vs. imports is seen as an irrelevance when it comes to the wealth of the state. I thought Britain became the world’s powerhouse because it worked out the most lucrative international trade system centuries back (including state sponsored trade in slaves and opium but we won’t go into that) and it was the profit from trade that built national wealth and created the sphere of influence that led to a huge Empire, all ruled from our chilly damp island off the edge of Europe. If national debt is unimportant then trade is unimportant so we might as well all go on extended vacation and just pay to import whatever we want – surely that is the obvious conclusion? Except that has to be the dumbest idea ever, with guaranteed plummet in world ranking on almost every measure.

I remain a bear of very little brain. Must be time for a marmalade sandwich.

Mark
Mark
March 25, 2015 10:30 pm

Chris

Some people share your concern especially over the trade imbalance!

Too interesting takes on debt and trade

http://www.morningstar.co.uk/uk/news/133345/would-cancelling-qe-gilts-boost-the-uk-economy.aspx
http://www.bbc.co.uk/news/business-30585540

Jennings
Jennings
March 25, 2015 11:15 pm

This is all electoral pantomime rather than strategic necessity.

The present Government have, within a 5 year window, legislated for fixed term Parliaments and again by further legislation given these Parliaments the obligation to re-write Defence strategy at the end of every single Parliament……. when Defence capabilities have 15-20 year gestations.

So Defence, competing against other Departments for spending, is afforded a guaranteed role at GEs every 5 years whether or not the strategic picture is really changing between the elections and is also guaranteed the tempo that when it is looked at, it is bound to be in the fervour of GE campaigns thus against obviously popular short term spending commitments at election time – and this tempo is built in for ever.

Genius.

Bet Defence will do well from this…….

Pacman27
Pacman27
March 25, 2015 11:21 pm

The Tanks we have are old and slow in comparison to an upgraded and larger apache force and are in my opinion obsolete. It is unfortunately a sad part of life that everything has its day and for the tank it was WW2 and the cold war.

The apache is just so much more flexible and lethal and deployable that I would rather have 300 of these than 600 tanks.

I understand what you are saying about options and you are right to say its easy to strip individual items, but realistically the challengers are end of life , totally under used and now superceded by attack helicopters. We just need enough attack helo’s to support forces on the ground.

For me it really is time to rationalise and more flexible and deployable force rather than having kit just in case. If we need the capability that is one thing, how we fill that capability is another, that is really my point here.

Nick
Nick
March 26, 2015 5:13 am

Chris

The balance of trade is very important and ignore by politicians (right now; it used to have higher prominence in the past). The argument for a long time was that the UK had very significant overseas investments (generating income) and a strong service industry (which also generates some export income). The data from these sorts is more difficult to collect and often took longer to realize than manufactured exports. Historically, this invisible trade (as it used to be referred to) often mostly balanced out the deficit in manufacturer goods, which meant that the actual end of year figures were closer to balance than the monthly statistics suggested.

Since 2008 crisis, UK overseas investments (especially the Banking/finance sector) have generated much less income than they used to (not surprising really, given over over-dependence – relatively – on financial services industry).

You can take a view that this is a short term anomaly (short term being 5 to 10 years) or actually a major problem for the UK economy. I think virtually ever single commentator believes that we need to rebalance the economy. This doesn’t mean doing less of what we do today, but doing more oof the things like manufacturing. Generally preferred to be hi-tech, high skills type (not screw driver assembly work in a load paid economy). The problem is how to do (different preferred approaches out there) and how to do it quickly.

Many prefer direct government intervention (special funding, special tax regimes). Since Thatcher, UK governments of all shades have preferred to focus on general legal and tax regime aspects. Osborne’s corporate tax reductions and simplifications as a process started under Labour, but Osborne has prioritized it. UK corporate tax rates are amongst the lowest in the world. Unfortunately, our employer NIC rate offsets this to quite a degree.

Obsvr
Obsvr
March 26, 2015 7:57 am

@ pacman

Apache are undoubtedly useful in the combined arms battle. However, their capability to seize and hold ground is a tad limited.

Chris
Chris
March 26, 2015 8:09 am

Martin – I can sort of see some of the argument, if only by considering the treasury as a sort of überbank that uses bonds like the rest of us use pound notes (‘I promise to pay the bearer on demand’ etc). I am aware that the point of modern banks is to use the deposited cash for investment purposes, partly to fund the bank activity and partly to create interest that entices more cash deposits. I guess the Treasury does much the same but with the added responsibility of paying out for national infrastructure and services. But I still think a net outgoing of cash from UK PLC is a very bad thing in the long term.

Nick – glad you have a similar opinion (and from a position of greater understanding). Although I think the nut & bolt manufacturing sector could still be very lucrative; to a degree the three Japanese car plants here are just that, and apparently operate efficiently enough to export around the world, and of course Germany has retained this capability which it uses (in conjunction with the high-end tech capability) to great effect. Bring back the factories!

Pacman27 – ref AH or MBT – I have regularly argued the best structure for the military is a broad mix of capabilities such that Command can use whatever is most appropriate for the task. An army configured as an entirely low-flying combat force is not ideal in my opinion – can the Apache lurk unseen in the undergrowth to guard against snurgly attack? Can they impose an unwilling cessation of conflict by hunkering down ominously in front of the town hall? Can they hide in barns, use railway tunnels, crash through defences to clear the way for the logistics chain? They do have many very useful attributes, true, but they are not the answer to every problem. Plus of course everything they do is noisy with a significant heat signature and with the exception of occasional tall trees and buildings the sky offers few places to hide. I challenged a US Apache gunner once to explain why he thought his helicopter was the world’s best weapon. His answer, after a run-down of all the sensor capabilities and the various weapons carried, was “If I can see the target, I can kill the target.” Now that SHORAD systems have improved the same goes in reverse, and I suggest the helicopter is more visible than a well driven armoured vehicle. That said, I am of course a fan of smaller faster armour, so would be quite cheerful if the current heavy forces (modern knights in full armour) were augmented with rapid raiders (modern version of the medieval light cavalry which Wiki describes as “scouts, skirmishers or outflankers”). In my opinion Scout-SV is too heavy and slow for this.

DesDizzy
DesDizzy
March 28, 2015 3:21 pm

I pretty much agree with NotABoffin, I wish people wouldn’t parrot this juvenile numbers game from list. It is obvious to any intelligent person that 10 vintage Austin Healey’s are not the same as 10 2015 BMW’s!. To compare the Russian/Chinese/Indian defence forces with that of the USA/UK/France is a comic relief scholarly effort.

So where does that leave us? With the second most potent fighting force on the planet, yet to read some of the nonsense on these forums you would think that we had thousands of obsolete pieces of junk like Russia, where they have problems providing enough fuel for their jets never mind making new ones!

Chris
Chris
March 28, 2015 8:23 pm

DesDizzy – looking at ground forces if the scenario to be played out was a number of Chally 2s against a similar number of T-80s then I suspect most would predict a win for the Challengers. But there are two factors muddying the water a bit.

Firstly Russia is renewing its fleet. Within the last month the first of their new BMD4 and BTR-MD light armour have gone into service, the Armata MBT is due into service this year with the total order of 2,300 due to be delivered by 2020 (remember we have 277 Challenger 2 and they are 20 years old now). Their BMPT multi-weapon urban fighting vehicle was new in 2011. And shortly the Kurganets-25 IFV will start replacing BMP2 & 3. There is a lot of new build under way; it may or may not be as good as western equipment, but its not likely to be thousands of obsolete pieces of junk.

Secondly, there is the numbers game. Put one man with a rifle up against one wolf, and most would predict the wolf losing. Put ten men with rifles against ten wolves and you’d probably put the wolves down to lose. But put ten men with rifles against a hundred wolves? Sure the man with the rifle has technology on his side but a rifle can only point in one direction at a time; the weight of numbers makes victory for the technologically advanced minority quite unlikely. Numbers bring a quality all of their own.

Your analogy has a point though; the Healey 3 litre is not the same as a modern BMW. The BMW is comfortable fast competent and economical with benign road manners and lots of safety features. It is also stacked with a thousand electronic toys of no value which cause intense annoyance and is quite easy to drive. The Healey is rattly uncomfortable noisy temperamental unpredictable and drinks like a fish, it slides and snaps and will severely embarrass a nervous hesitant driver. It has no safety features and no on-board electronics save the radio that can’t be heard once the engine’s running. But take it by the scruff of the neck and master its challenging behaviour and it rewards with one of the most involving glorious drives this side of the Pearly Gates that will fizz in the memory for years. No they are not the same. The Healey is much better.

Chuck
Chuck
March 29, 2015 1:35 am

I’d also like to remind everyone in the “LOLRUSSIA” camp. They won their last few wars, we didn’t.

Anyone want to play spot the difference between Kabul and Grozny? http://www.airpano.ru/files/Grozniy-Russia/images/image9.jpg

Yes they have lots of knackered old gear, but instead of just cutting whole units and capabilities to hide that fact like we do, they’re fixing the problems. Babies and bathwater, seem relevant. Not to mention during Putin’s reign increased GDP 700% and boosted the national average wage 3 fold. Despite western mockery; based on soviet stereotypes and sanctions(sanctions they already have a timeline for ending). Russia is going from strength to strength.

Back on the British economy Krugman had some thoughts the other day, http://www.nytimes.com/2015/03/23/opinion/paul-krugman-britains-terrible-no-good-economic-discourse.html?rref=collection%2Fcolumn%2Fpaul-krugman&_r=0

jedibeeftrix
jedibeeftrix
March 29, 2015 9:25 am

@ Martin – “However Japan has kept this going with debt levels 3 – 4 times our size. The latest figures from the treasury now suggest that the deficit will decline over time with little help from the government in cutting spending.”

Japan is something a special case.
It has long been recognised that the Japanese state does not so much tax its people to finance public services, but borrows from them instead.
Japan has comparatively low rates of taxation, and makes up the difference with borrowing.

Borrowing this amount has worked because the insular nature of the internal economy makes japanese t-bills the obvious place to park Mrs Watanabes pension fund.
It is aided somewhat by the high-tech export nature of japans economy, which traditionally made it a popular destination for foreign direct investment.

On a separate note; whilst I agree with the distinction between a household budget and a government finances the simple fact is that debt interest repayment would be the second largest departmental expenditure limit after the NHS if we could pin it on the Treasury.

That is just the interest, and not including paying back the principal, and its larger now than Education or Defence. Broadly speaking, I demand that government spends no more than the electorate are willing to part with in taxation (~37% of GDP), but of course I have no problem with a little keynsian deficit at the low point in the economic cycle.

Gloomy Northern Boy
Gloomy Northern Boy
March 29, 2015 11:32 am

@Jedi – Broadly speaking I demand that Government does not cripple rational decision making by ring-fencing some budgets but not others, or indeed reserving x or y% of GDP for this or that…I’d like them to have a rational discussion between intelligent people with each other and indeed with those electors who meet that description… :-)

…but they won’t, any more than they won’t limit borrowing in the perfectly rational way you describe. :-(

GNB

jedibeeftrix
jedibeeftrix
March 29, 2015 11:57 am

@ GNB – “Broadly speaking I demand that Government does not cripple rational decision making by ring-fencing some budgets but not others, or indeed reserving x or y% of GDP for this or that”

I happily accept the logical absurdity you imply, but we are already in that world and defence is the bottom of the priority list, which is why we are getting to this point:

https://www.thinkdefence.co.uk/2015/03/the-budget/

Notice how Defence doesn’t even rate specific mention, just part of the ever declining “other” percentage.

Chris
Chris
March 30, 2015 1:15 pm

jedi, Gloomy – the Beeb has a manifesto synopsis on its news website. Here is the Foreign policy & Defence area: http://www.bbc.co.uk/election2015/foreign – according to the BBC not one party stands for defence (some already have made promises on spending, UKIP for example, but it seems the BBC is being a bit selective). If their synopsis is right, then the defence budget will continue to be a piggy-bank for other public spending. I suggest we spend the remaining £3.50 of the defence budget on cheap black paint so we can splodge “Big Giveaway! Come take whatever you want! No-one will stop you!” on the White Cliffs of Dover.

In a blinding flash of the obvious I realised the most likely next PM if the polls are on track is Alec Salmond – he has already declared he will control Labour, and would topple a non-majority Tory administration on its first day – I could well see his price for keeping Labour afloat being the keys to Number 10; “Give me what I want or face another election.”

Gloomy Northern Boy
Gloomy Northern Boy
March 30, 2015 3:49 pm

“Give me what I want or face another election”…probably the best possible outcome, and in fact Boris might be exactly the right charming, clever and ruthless bastard to engineer it…assuming Cameron falls (as he would) and Farage gets a handful of seats and a lot of second places…I’d back him to factor said consolation prizes into a lot of wins in the Labour Heartlands by the judicious use of clips of Salmond and Sturgeon crowing and preening in their inimitable style, with the first looking smug, the second spiteful and both sanctimonious…

Furthermore, Boris would do a deal…with the Devil himself if required to win the top prize…although I’m damned if I know what might come after.

Interesting times chaps, interesting times…

GNB

DavidNiven
DavidNiven
March 30, 2015 4:00 pm

‘next PM if the polls are on track is Alec Salmond’

So it will be just another Scotsman to ruin the country, it’s not as if they didn’t have enough of them doing the job in the last Labour government so nothing new there. ;-)