FTI Consulting Public Affairs Snapshot – The 2021 Defence Review: Domestic Bliss for UK Industry

Fighting the 21st Century War

When the Government launched its quinquennial defence review last year, the ambition was for a much broader reset of the UK’s international policy, the largest since the end of the Cold War. However, as the scale of the COVID pandemic became apparent, many predicted that it would preclude another opportunity for a much-needed reappraisal of defence posture.

Yet, confounding such pessimism, the Integrated Review of Security, Defence, Development and Foreign Policy was published on 16^th March, followed this week with two more detailed policy papers, ‘Defence in a Competitive Age’ and the Defence and Security Industrial Strategy. They are not short on ambition.

Beyond the shrinking of Army manpower, the message that the Government wants to convey is that together these publications mark a generational shift in defence capability, one that will ensure that the armed forces remain fit for the 2020s and beyond. In line with the strategic shift towards emergent technologies, they positively brim with references to future capabilities built on artificial intelligence, robotics, and autonomy.

The establishment of new offices such as the Defence Centre for Artificial Intelligence, a National Cyber Force and an RAF Space Command all add credibility to this rhetoric. Nevertheless, turning such ambitions into reality will demand sustained commitment from ministers if the oft-repeated assertion that the UK is a ‘tier one’ military force is to remain credible.

This emphasis on technology is also intended to create knock-on effects in the domestic economy, targeting money towards ‘high value-added’ programmes and growing a more diverse base of suppliers. This redirection towards a more innovative approach to capability development was a central tenet of Dominic Cummings’ world view. The adviser may have departed, but his legacy lives on.

It’s the (Defence) Economy, Stupid

Defence reviews are ultimately judged in hindsight. In the past, grandstanding ambition from ministers has too often succumbed to budgetary realities. As a result, scepticism tends to prevail unless and until promises are translated into tangible outcomes. Welcoming words from the defence industry – for whom the Government is foremost a customer – nevertheless belies a commercial concern to carefully evaluate the Ministry of Defence’s (MOD) plans in order to best safeguard investments from future policy divergences.

The failure of the 2015 Strategic Defence and Security Review to live up to its promises thus looms large over its 2021 successor. Defence Secretary Ben Wallace has spearheaded a multifaceted campaign to secure a credible financial settlement for the MOD, while simultaneously repeating warnings to military planners about the danger of eyes bigger than stomachs.

Wallace thus deserves credit for securing a four-year budget, including a £16.5bn uplift, in November. This drew envious glances from other cabinet ministers and provided renewed confidence that, despite the pandemic, the armed forces might emerge from the review intact.

Yet critics will claim that this largesse represents the bare minimum that the armed forces deserved. Indeed, it stretches no further than the estimated £17bn blackhole in the current 10-year equipment plan. The implication was clear in November; the price of a generational shift in strategy would be that the MOD must stop doing some things to fund the new.

Mind the capability gap

Whether you conclude that the removal of military capability is the necessary result of strategic realignment or the prioritisation of parsimony over security, probably depends on how cynical you are (and the colour of your politics). What can’t be denied is that ‘cutting your cloth accordingly’ – as Wallace has himself put it – has required military chiefs to accept suboptimal outcomes in some domains to fund priorities elsewhere.

The result is new capability gaps that violate previously sacrosanct commitments. Some of these will be temporary; the early decommissioning of two Type 23 frigates will mean that the Royal Navy’s fleet will soon be reduced to 17 warships – and possibly sink as low as 15 – before new capabilities are introduced. This despite the longstanding guarantee that the number would never drop below 19. Not until 2027 will we see the first of two new classes of frigate, the Type 26 and Type 31. Given that both programmes have already been subject to delays, the resigned shrug of ‘jam tomorrow’ is the likely response of many a sceptical sailor, even when accompanied by a promise of a fleet strength of 24 by the early 2030s.

At least the Navy has a glimmer of light at the end of the tunnel. The Army, already denuded in number, will see its fleet of Warrior armoured vehicles retired without receiving its long anticipated – and already hugely expensive – life extension. Bringing forward purchases of Boxer, a new infantry vehicle, offers little succour. Though undoubtedly capable, it is hardly a comparable capability.

The equally long-awaited upgrade of the Army’s main tank, Challenger 2, has also been hollowed out. Just 148 of the 227-strong fleet will go through the re-christened ‘Challenger-3’ upgrade. Though individually this offers a much-needed capability lift, the question of critical mass is legitimate; the ability to hold a battlefield still has a dependency on brute numbers and the fleet already suffers from being near-halved in size a decade ago.

As for air capability, there has never been much confidence in the ambition to buy 138 F-35 jets, a target established in 2010 and reaffirmed in 2015. In 2021 such a figure is notable only by its absence. The mere ‘intent’ to grow the fleet beyond the 48 already on order rings hollow in comparison. While it is debatable what a sustainable fleet size is, concerns that it may never reach enough to fully compliment both Royal Navy’s aircraft carriers, let alone service the RAF’s requirements, is widely held.

It ain’t what you buy, it’s the way that you buy it

Nevertheless, if we accept that these cuts are necessary strategic decisions, then there is much here that will encourage UK industry. The re-gearing of MOD procurement practices to protect domestic industrial capability has been long called for and is arguably the most significant policy realignment of the past week for the MOD’s domestic contractors, who will welcome the recognition that industrial capacity is a vital guarantor of military output.

Can we thus conclude that the decade-old policy of defaulting to procurement through international competition is over? New concepts for determining the operational imperative of onshore procurement certainly offers such hope. ‘Strategic Imperatives’ and ‘Operational Independence’ are the new instruments for determining whether industrial assets are so fundamental to national security that their outputs must be sourced domestically, and whether offshoring might impair the UK’s ability to conduct military operations or protect sensitive technologies.

However, whether policy reform will lead to practical change remains to be seen. There is enough flexibility in these new definitions to provide considerable leeway to buy from abroad. Indeed, the now redundant concepts of ‘Operational Advantage’ and ‘Freedom of Action’ were, arguably, not so dissimilar; perhaps not in themselves flawed, just never applied assiduously. The irony that this all arrives as the Government otherwise unwinds the concept of industrial strategy might serve as a warning.

There are wider reasons for optimism. Defence’s contribution to national prosperity has been given new teeth as a vehicle for the ‘Levelling Up’ agenda.  Social Value criteria will be built into future procurement competitions with allowances in the scrutiny process made to preference tenders that locate jobs, skills, intellectual property, and industrial capacity within the UK. The promise is that this will extend down the supply chain, with new incentives to encourage more of the UK’s small businesses to participate.

It’s delivery that counts in the end

This is a review that promises much for the UK defence industry. Certainly, difficult capability decisions have been taken and the losers will be left feeling bruised. But few can argue against policy reprioritisation, provided it is accounted for by a credible strategy and ultimately leaves the armed forces better off. However, the pathways to such sunny uplands rarely run smooth and defence reviews have a habit of unwinding even more quickly than they are written.

Ben Wallace knows that his legacy lies in how successfully the MOD delivers on the policy promises made in this review. Certainly, as a long-term plan, it deserves long-term commitment. However, the Department is unlikely to be completely free of near-term budgetary headaches. A knee-jerk return to short sighted decision-making to muzzle issues before they turn political may prove hard for ministers to resist. The danger is that this will only result in same questions being asked again in five years’ time.