Towards the review of the Review

The SDSR 2015 is under a new review, and there is no denying that it all depends on money, and specifically on shortages of it, rather than on government taking actual notice of the “changed security environment”. We should all be aware of this: money is tight. The savings that were integral part of the financial plan are very hard to make. The amount that is supposed to come from “efficiencies” is enormous, and government has kicked out this review of the review primarily because it is becoming undeniable that generating that much money is just not feasible.

Efficiency targets

The 2010 SDSR ordered the MOD to find, in the following ten years, efficiencies for 7.1 billion pounds.

The 2015 SDSR ordered the MOD to find a further 7.3 billion of money to re-allocate elsewhere within the defence budget. 5.8 of these are expected to come from within the Equipment Plan, and 1.5 from the wider budget.

The Better Defence Estate strategy is estimated to require 4 billion of expenditure on infrastructure over ten years. One billion is firmly allocated, one billion is expected to emerge from budgeting measures already ongoing and 2 billions have yet to be found.

These efficiency targets add up to 16.4 (or 17.4, depending on how much you believe to the vague lines about the second billion of infrastructure budget) billions to be found from within the defence budget, to be reinvested to deliver the aims of the SDSR 2015.

Lately, press sources but even the MOD itself, in the person of Stephen Lovegrove, the MoD’s permanent secretary, consistently talk of a target of 20 billions in “efficiencies”.  There is no immediate explanation for the missing 3 – 4 billion from the targets announced previously, although the MOD claims that the “20 billions” are not a new request and were in the plan all along.

In any case, it is a lot of money. The last time the NAO reported about it, the MOD had identified 4.6 of the 7.1 billion efficiencies mandated by the SDSR 2010. That was months ago, yet the talk still is of 20 billions, like nothing had been achieved at all.

In short: the details are, as always, not provided. The gap could be as “little” as 11,7 billion or as large as 24.6, depending on how you add the numbers that get thrown around.

It is a big hole that needs filling, but the feeling is that there is still a lot of confusion.

Currency exchange rates

Many like to put a lot of focus on the drop in the value of the sterling and identify it as a major factor. It certainly doesn’t help, but is probably not quite the elephant that some would have us believe. At least, not yet.

I will not venture into trying to guess how much coverage the MOD has though currency edging and forward buying as it is not my sector and there are not enough published information about it, but I will put some focus on one factor that regularly gets overlooked when the currency exchange rate gets mentioned: the MOD did not and does not plan its budget according to the day’s exchange rate. While it is true that work on the SDSR 2015 was carried out when the pound traded well over 1.40 or even 1.50 dollar, the SDSR was not built on the assumption that such a rate would hold.

The department writes out its plans on the basis of a central, more prudential assumption about what a longer term exchange rate might be like. As far as I know, the assumed pound to dollar rate that underpinned the SDSR 2015 estimates has not been revealed. A document suggests that, regarding the pound to Euro rate, the central assumption was that a pound would buy 1.20 euro. This means that the actual drop compared to the planning baseline was smaller than if you just looked at the daily fluctuations.

Of course, while 2015 saw the pricetag of several programmes descend in-year due to a strong pound, the situation today still is clearly inverted and this does add pressure.

The absolute vagueness of the 10 year plan

Another factor to keep in mind is the extremely murky nature of the 10 Year Equipment Budget. The document is published yearly, but it is extremely vague. It contains little to no indication of the number of programmes included in any macro area (“ships”, or “land”) and tells nothing about when they start, when they end, and what they procure (number of vehicles, for example).

A little more information comes from the MOD’s Major Project Report sheet, again published once a year and which paints the picture of the status of the main ongoing programmes in the previous financial year.

The NAO used to publish its own review of the MOD’s Major Projects, and that document was particularly interesting because it offered some more detail (dates, numbers) and context for in-year and historical variations. Unfortunately, the NAO no longer produces said report.

The end result is that it is extremely difficult to track MOD plans and detect changes or predict what is going to happen, especially outside of the main projects.

Some points that need to be made: the plan covers a period of 10 years and rolls forwards with each year that passes. The last issue to be published covered expenditure plans between 2016 and 2026. Several programmes, including some of the biggest ones, actually stretch far beyond 2026, so that only a part of their value is included in the current plan.

When the press reports say that the 10 year plan is in trouble because of the “31 billion for the new Dreadnough class of SSBNs”, for example, keep in mind that those 31 billion are mostly outside of the current horizon. In 2026, the first submarine in the class will still be in the shed and most of the programme will still lay into the future.

Similarly, the latest report (finally!) gives us a realistic indication of when the MOD expects the procurement of 138 F-35s to be completed, and that is 31/03/2035, which means that almost a decade of expenditure is outside of the current equipment plan horizon.

Same goes for Type 26, with only 3 ships at most entirely covered within the period (possibly, even they extend outside of the current horizon, depending by how much delivery dates have shifted. The MOD is no longer offering precise dates, only talking about "around the middle of the 2020s"). 

Obviously, this does not mean that these problems aren’t “taking away a lot of space” within the budget, but we ought to be careful with the figures and with the blame-laying.

It is worth noticing that the imprecision in collocating projects and expenditure in the correct timeframes completely skewers perception of who gets more money: there is a common perception that the Navy is getting the vast majority of the equipment money while the army gets “nothing”, but the truth is somewhat different. The Navy “proper” had a share of 30,695 billion in the pre-SDSR 2015 plan, which became 31,983 with SDSR-induced changes. A 4% growth coming from the bringing forwards of some elements to earlier years.

The Army went from 23,387 billion to 28,368, a 21% expansion that makes it a winner in the SDSR, although the enduring confusion in its plans would never make you think that.

The RAF went up 11% from 29,613 to 32,837. Joint Forces Command grew by 35%, in large part due to the fact that it is the budget holder for the P-8 Poseidon as well as the Future Beyond Line of Sight programme for the replacement of the current SKYNET communications satellite capability.

With 49 billion, Strategic Programmes is the largest budget, driven by the Nuclear element, from reactor cores to AWE infrastructure to the (very expensive) maintenance and life-extension of the stockpile of nuclear warheads, with their refurbishment into MK4A standard.

When you count the nuclear deterrent separately (it is not directly controlled by the Navy), Navy Command isn’t quite as rich as people think. And the army is not at all as poor as it claims to be. It is my opinion, already detailed more than once, that the Army is, more than poor, dramatically confused about what it wants to be and do. Some will not agree, but that is the feeling I get from the current situation. There are many, many programmes the Army is grappling with. Many requirements requiring attention. Many of these programmes have been in the limbo of "concept" and "assessment" phases for many years. They swallow money constantly, and never deliver anything. 

And more requirements open up in the early 2020s when the Heavy Equipment Transport truck fleet contract expires, when the C Fleet PFI expires, and the tanker fleet reaches its OSD point. Replacement for DROPS and Light Equipment Transporters have been on the "to do" list for years, as well, and progress is virtually non existent.  

It is extremely difficult to say which programme is most at risk and most in trouble, simply because we actually are given no information about the vast majority of ongoing and planned efforts. This also means that a lot of things (and a lot of money) will shift around in the incoming review with us, on the outside of the MOD, getting little to no clarity about it.

One example of just how hard it is to keep track of things will help you realize the extent of the problem: in 2014 the Army had a massive overarching programme known as “Mounted Close Combat” which covered everything from Challenger 2 to Warrior and from Ajax to Mechanized Infantry Vehicle. That monster programme had a budget of 17.251 billion, spread out to the project end date of 31/12/2033.

Obviously, as a single programme its scope was way too great and so it was split into four separate components going into 2015.

“Armoured Cavalry 2025” chiefly covers the acquisition and entry into service of the Ajax family of vehicles, to culminate by 30/04/2025 in a completely renewed Armoured Cavalry capability.

“Armoured Infantry 2026” includes chiefly the Warrior CSP, but not only that. There is the enduring problem of replacing FV432 as well, with a notional OSD of 2026.

“Armour MBT 2025” covers the delivery of life-extended MBT capability to be fully operational by 2025.

“Mechanized Infantry 2029” covers the renewal of this other area, with FOC in 2029 and with the main focus being MIV.

In 2015 the MOD included only Armoured Cavalry and Armoured Infantry in the list of the major active programmes, so no detail at all was available about the other components. The Cavalry component had a budget of 6831,53 million; the armoured infantry a budget of 2176,45 million. Thanks to the NAO’s own report, the last one of its kind, unfortunately, we learn that Warrior CSP aims for 445 vehicles in total, including 65 “Armoured Battlegroup Support Vehicles”, aka converted, turret-less hulls to replace FV432 with. The report, however, notes that the ABSV requirement is larger than 65 vehicles and the army envisages a greater procurement effort, including more variants. A delay of two years to the ABSV element is anticipated, and once implemented it is decided that ABSV will be its own Category A (aka, worth over 400 million) project, separated from WCSP proper.

The report published this year, and which actually details the year 2016, has the Armoured Cavalry pricetag reduced to 6248 million thanks to vaguely described “cost saving measures” including an extended Initial In-Service Support Contract for Ajax. Good news, in theory. In practice, we don’t know what elements of capability were traded out to make it happen.

Armoured Infantry also drops, all the way down to 1612,72 million, to be expended out to 31/12/2026. In this case, the budget has shrunk because ABSV was “removed as a direct cost-saving measure in the Annual Budget Cycle (ABC) 2016”. There is no way to tell whether the removal is permanent or not, and if, when and how we can expect ABSV to reappear. Is the 2015 plan of making it its own programme later on still on the cards? The FV432 still definitely needs replacement. But we are given no clue of what’s happening.

Together, these two changes amount to almost 1150 million which have shifted around / vanished. With no fanfare, no real way to assess how bad the damage is.

Armour MBT 2025 gets finally reported, with a budget line of 744,79 million to be expended between 04/12/2014, start date, and 01/06/2026, current end date.

Mechanized Infantry 2029 remains unreported as it is still in very early stages, with little to no money allocated to it yet. There is still a lot of money left to get to the over 17 billion originally attached to the MCC, but tracking all movements is difficult if not impossible.

It gets worse when considering the Multi Role Vehicle Protected, which made the news recently when the US approved the UK request for purchasing up to 2747 Joint Light Tactical Vehicles from Oshkosh. The number surprised a lot of people because the Army had earlier been reasoning in terms of far smaller purchases, of a few hundred vehicles at most, while saying that the rest of the requirement was still being defined.

Details about MRVP are extraordinarily scarce, despite the Army having talked repeatedly in public about this programme. To this day, the exact requirement remains non formulated. MRVP includes three “Groups” or “Packages”. Group one is for a general purpose 4x4 platform, and is the one to be fulfilled via JLTV (if the go ahead will be given early next year, when Main Gate is planned).

Group 2 calls for a larger vehicle, probably a 6x6, that must deliver a Troop Carrying Variant with a capacity of 2+6, probably in various sub-variants; plus the Future Protected Battlefield Ambulance variant.

Group 3 should deliver a lightweight (air portable) recovery vehicle for support to the other two groups and the other platforms within the Protected Mobility Vehicle portfolio (the likes of Foxhound, Jackal, Husky, RWMIK+).

The Army hasn’t yet been able to decide exactly what replaces what, and when. Group 1 will replace a number of unprotected Land Rover and Pinzgauers in various positions across land formations, but is also “candidate” replacement for everything from Panther to Foxhound. The graphic offered by the Army, however, offers a variety of OSDs (some of which ridiculously absurd, such as Foxhound leaving service in 2024!) while not formulating a concrete plan for replacing those fleets.

The Army itself, as early as last year, seemed utterly confused about the where, how and when of the Multi Role Vehicle Protected. Confusion appears to rule supreme in many areas. 

The most amazing thing is that we don’t even know where the MRVP belongs. In a presentation given by the army at DVD 2016, the MRVP is the future solution to the Light Protected Mobility Requirement, and sits under Protected Mobility Vehicle Programme, itself just one of three areas of the Operational Support Programmes, with the others being Operational Support Vehicles Programme (including the MAV SV fleet, Heavy Equipment Transporters, tankers, C fleet, B fleet, Phoenix service for the provision of civilian vehicles etcetera); Operational Infrastructure Programme (including tents, shelters, deployable workshops and bridging equipment). 

From the presentation it seems that even MIV sits in this area, but we would expect it to be under Mechanized Infantry 2029. Where does it actually sit? Is MRVP part of Mechanized Infantry 2029 too? Impossible to say. Is Group 2 progressing? How many vehicles will, in the end, be pursued? Over how many years? Few know it, and those few are all somewhere within the MOD or Land HQ in Andover. Nobody seems to have a complete picture of what is going on. 

What next?

There is a lot of uncertainty ahead. It is very hard to tell in which exact direction things will tilt. I do not think the government wants to be seen walking back on major SDSR commitments after banging the drum about them so much. The review is not MOD-limited, and this might actually be somewhat encouraging as it signals that the pain will be shared, and that some more money might be shifted towards defence to plug the worst holes. There will be pain, but wherever possible it will be kept well hidden in the vast dark zones of the equipment plan, the voids in which entire programmes float, out of sight.

Among the big ticket items, MIV is, I think undeniably, the most vulnerable one. Main Gate for the MIV is only expected in 2019, and until then there is little to no money solidly committed to contracts relating to it. It is also a relatively unglamorous programme, which is far less recognizable in the public eye that the MPA, or the carriers, or even Warrior and Challenger 2 themselves.

Rumors have started to circulate about the putting on hold of the “Strike” experimentation, and if there is any truth to them the army must be thinking about what it can (and what it should) salvage.

I’ve already argued at length about the reasons why I consider Army 2020 in its current form is a suicidal move, so I won’t repeat it now. I will only say that if the review puts a stop to this half-formed Strike madness and forces a more realistic look into the army’s force structure and goals, then some good can still come out of it. 

Other commitments that already look vulnerable or dead include expanding the Shadow R1 fleet. So few know about it in the general public that it is easy to imagine the expansion being quietly abandoned. Especially as the RAF takes over command of the Army’s few fixed wing Islanders and Defenders in the new year. Who wants to bet that the additional Shadows never come; or if they do they come at the expense of the Islanders?

Another vague SDSR commitment that looks essentially dead is the “longer range helicopters” for the Special Forces. MV-22 Osprey was greatly desired, but is not going to happen. Chinook air refueling probes and a couple of tanker kits for C-130J were the second option, but even that seems dead, especially with the wing box replacement programme on the Hercules being targeted only at the long fuselage variant, while the tanker kit is associated to the short fuselage.

657 AAC, which flies for the Special Forces, is flying on borrowed time. Latest information released show that only 8 Lynx AH9A remain in use, and nothing can be seen moving in terms of procuring a dedicate replacement. Director Special Forces might end up having to regret turning down the 8 “Light Assault Helicopter” configured Wildcats that were put forward in 2011.

Sentry updates are up for scrutiny as well, although the RUSI proposal of dropping the update in favor of a new fleet purchase might not be realistic. While the update is expected to cost a lot of money, i'm not sure there is a cheaper new-buy alternative out there. 

MARS Solid Support Ship is also at risk, as it is a rather expensive programme (i think the ballpark for the 3 vessel was in the region of 1 billion), with no contracts yet signed. It is unfortunately pretty easy to imagine it shoved into the future once more. Type 31E herself is still essentially a question mark. There is no indication of when the actual programme might actually begin, and it comes as no surprise that the Shipbuilding Strategy is taking ages to come out. Even though i fully expect it to leave more questions than answers, even when it'll come out. 

Warrior CSP manufacture and entry in service is delayed by an expected 12 months due to the reported difficulties with integrating the new turret and negotiating new terms for the final contract, so that is yet more pressure that gets pushed to the right.

MRVP is penciled for Main Gate early next year, but will it actually begin? And with what numbers, and over how many years?

Apparently, the Army is trying to see if something can be done to cut down the “regiment mafia” and streamline the string of RHQs and Infantry Divisions commands. This is extremely controversial and already has caused an explosion of leaks and comments by illustrious ex-high officers, but it is highly desirable to press on with a reform in this area and, indeed, with a realistic reassessment of the Army’s structure and the balance of infantry to supports.

If the MOD wants to carry out a serious rethink, they do have plenty of areas to touch.

The amphibious force is unfortunately badly exposed. The loss of a Bay, the incoming loss of HMS Ocean, the mothballing of one LPD and the delay to a vague future of every single major programme the Marines tried to get funded (BV206 replacement, lost in the wilds; Desert Hawk III replacement, not funded; Fast Landing Craft and Force Protection Craft, out in the cold...) are signals of how weak their position is. 

It would be a tipical MOD cock-up, to close the carrier gap but kill off amphibious capability while at the same time saying that it is key and that the future of war is dictated by geo-demographic considerations, with more and more people living close to the world's shores. 

I'm particularly worried about the future of the amphibious capability. It is badly exposed and i don't know if the Navy is in any condition to be an ally and a defender, considering the difficulties elsewhere in its own budget and manpower. 

We’ll be subjected to increasingly catastrophic news report in the coming period, as always at times of budget reviews. MOD insiders will make sure to drop soundbites to the press about some of the most unpalatable options in an attempt to rule them out by public outcry. We’ve seen it all happen in the past.

As of today, I don’t think anyone can claim to know the ins and outs of the budget situation, and even less can guess what exactly will happen next.

Regardless of what happens, everyone who cares about the armed forces should renew the call to the Defence Committee to push in Parliament for a substantial change in how the long term equipment plan is shaped up, formulated and reported. The current 10 Year Budget Plan is absolutely unaccountable and basically doesn’t commit government to any measurable target. And the feeling is that, even within the MOD itself, this convoluted and deliberately vague method of planning is preventing joined up thinking, generating capability holes where a programme doesn’t properly talk to another and in general promoting a “decide only at the last second, and only for the short term” culture which ensures the math of the budget will never work out. Type 31E risks to be too disconnected from the future programme for replacement of MCM and Survey vessels. There risks to be an overlap between the two ships, which will drag the Royal Navy’s capabilities towards the bottom. The Navy risks to go from having no “second tier” flotilla to having 3 classes of low-capability ships for use on constabulary tasks (Type 31, River Batch 2 and the future MHC). In the Army, the disconnect has reached levels of ridiculous that are simply hurtful: Ajax being out of place and awkwardly trying to reposition before its production even starts is just the most glaring example, but the ABSV saga adds to the pain. In general, the Army seems to have little clue about how to make sure that WCSP, Ajax, ABSV (?), MIV (?) and MRVP together cover the requirements.

Budget cuts happen everywhere, and in most of Europe the budgets are much smaller than the one the MOD gets to play with. It is high time to ask why only the MOD cuts generate such nightmares and the brutal cancellation of entire capabilities. No, the fault doesn’t sit only on the shoulders of politicians.