Abstract
Prime Minister Gordon Brown has maintained that there will be no significant
cuts in public spending
after the next general election, which has to be
held by June 2010. However, independent financial
analysts – and
reportedly the Chancellor of the Exchequer, Alistair Darling – do not
share this view and
believe that cuts in government spending of at least
10% are needed in most government departments,
including defence. As a
result, uncertainty surrounds UK defence policy’s long-term
prospects.
Recent procurement cuts underline the fact that the UK defence
industry is hostage to the macroeconomic
environment and spending
priorities of the government. The current deep recession, huge budgetary
deficits and collapsing house prices have seriously harmed consumer and
investor. Some procurement
programmes could come under closer scrutiny
owing to the Smart Acquisition initiative, and could be
more susceptible
to an early closure. BMI has revised down its UK 2009 real GDP forecast from
-3.5% to
-4.2%, and has left our 2010 forecast at 0.0%. The UK’s
dire Q109 numbers have been a major driver
behind our revisions, while
real GDP growth is increasingly volatile. The UK’s real GDP growth fell
by
1.9% quarter-on-quarter (q-o-q) and 4.1% year-on-year (y-o-y) in Q109.
The announcement in July that
the government would launch a Strategic
Defence Review, but that it would not report until after the next
general
election, added to the uncertainty over major UK defence projects. Critics
have complained that
the government was only trying to ‘kick the
defence issue into touch’ in the run-up to the general election.
Issues such as the future of the independent nuclear deterrent, the Future
Carrier project and Eurofighter
Typhoon will all be on the agenda in this
review. Meanwhile, the UK government has been severely
criticised
regarding the shortage of helicopters in Afghanistan. A panel of lawmakers
consisting of
members of the UK’s three main political parties has
called on the Ministry of Defence to increase the
number of helicopters in
Afghanistan and also to improve the support structure that underpins
operations,
such as the training of crews. The report has increased the
pressure on Gordon Brown, came under severe
criticism in July after 15 UK
soldiers were killed in Afghanistan in the first 10 days of that month.
The
increased availability of helicopters would reduce the threat from
roadside bombs, which were
responsible for many of the recent deaths.
However, it appears that Brown has ruled out a further procurement drive, and
he has publically stated
that the army has the equipment that it needs.
Meanwhile, the Chief of the General Staff, Gen. Richard
Dannatt, has
claimed that UK troops are ‘better equipped than ever before’.
However, Conservative
defence spokesman Liam Fox, as reported by
Bloomberg, criticised Labour’s decision to cut the army’s
helicopter budget by GBP1.4bn in 2004. Yet, the government claims that it will
be sending more Merlin
helicopters to Afghanistan in December 2009 as well
as a number of additional Chinooks in 2010. It is
also spending GBP2.5bn
upgrading 200 helicopters and GBP3.5bn acquiring 120 new helicopters over
the next 10 years.
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