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Defence budget in danger of shortfall despite increase

Nick Chaffey
PA Consulting Group
Financial Times
13 February 2008


Sylvia Pfeifer ('Fears over defence industrial strategy', February 6) highlights the funding crisis facing UK defence. The government's recent announcement of a 1.5 per cent increase in the defence budget does not come close to bridging the gap between the anticipated costs and available budget for two key reasons: first, the additional short term equipment costs from operational commitments, in particular in Afghanistan and Iraq; and second, the ever-increasing complexity of defence equipments which means that defence equipment inflation outstrips general inflation, probably by a factor of three to one.

To make matters worse, our experience working with the UK Ministry of Defence, US Department of Defense and the National Audit Office highlights that substantial upfront investment in such complex programmes is vital if they are to be specified and designed sufficiently to de-risk programme delivery. Without this upfront investment, the delivery timescales and costs are placed at substantial risk, making future programmes more expensive and further delayed. The current MoD funding challenge makes such under-investment in the early phases of new defence equipment programmes far more likely. This risks the MoD falling into a spiral of cost escalation at a time of funding constraints.

The Defence Industrial Strategy, which was published in 2006, holds key elements of a solution to this problem. It proposed long-term partnerships between the MoD and industry to deliver programmes on an entirely new basis. This holds the potential for both sizeable reductions in cost and improved equipment performance - with industry making the necessary upfront investment and designing the equipment for long-term performance to minimise 'whole-life' costs. Progress has been made in this direction already, as exemplified by the recently commissioned Falkland Islands' patrol vessel, HMS Clyde. If well designed and implemented, such approaches defer the costs to the MoD and should minimise costs to the public sector. However, this can only be pursued if there is sufficient confidence and trust between both parties and, critically, that there is a long-term commitment to stable defence spending. The current uncertainty could take us in the opposite direction.

Nick Chaffey
Global Head of Defence and Security
PA Consulting Group
London SW1W 9SR

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