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5 January 2017 · 3 min read

Do we need another Strategic Defence and Security Review?

UK Armed Forces have secretly begun preparing for another round of defence cuts

In last July’s blog ‘Can aerospace & defence weather Brexit?’  I wrote that the economic and political impact of the UK’s decision to leave the UK would require a new Strategic Defence and Security Review (SDSR). This has proved wrong thus far; Theresa May has maintained that the strategy remains intact and therefore the 2015 SDSR is extant and fit for purpose. However, press reports over Christmas that the UK Armed Forces have secretly begun preparing for another round of defence cuts suggest that my prediction may yet come true.

In July, my reasoning for needing a new SDSR was that if UK GDP is lower after Brexit then priorities will have to be reassessed, with cuts from the procurement budget likely. Six months on from the vote, the lasting effect on our GDP is unclear, however the impact on our currency is indisputable. The 17% fall in the value of sterling against the dollar over the past six months means that planned purchases of US made equipment (for example the P-8 Poseidon aircraft, AH-64 Apache helicopters and the F-35 Joint Strike Fighter) are now significantly more expensive. This is a major problem for the MOD as the budget was always reported to be tight for 2017 and 2018 and planned acquisitions from the US are estimated to total billions of pounds a year every year for the next decade.

The easy option for the Government would be to just make cuts to the procurement plan without reassessing the bigger picture through an SDSR. However, I believe this would be a flawed approach and one which would take us back to the incoherent approach to equipment buying seen during the Afghanistan and Iraq campaigns. Troop numbers are in crisis; the number of trained soldiers in the Army is at its lowest since 1750 and there is currently a personnel deficit of 4.1% across all three services compared to the SDSR targets. Therefore with low troop numbers, an under pressure procurement budget and a volatile global security situation, it feels to me that the time is ripe for an explicit re-evaluation and restatement of our defence priorities.

So how would a new SDSR impact the defence industry? Most companies are planning on 1% real growth in procurement spending over the next five years, and a new SDSR would probably rein in these expectations, with the outlook likely to be flat. Major programmes such as the costly acquisitions from the US are likely to be protected at the expense of smaller ones which would impact the smaller tier two suppliers the most. We may also see some reduction in customer funded R&D.

The Prime Minister’s number one priority in early 2017 is to trigger Britain’s departure from the EU, and therefore it feels likely that the government will take the easy option of making procurement cuts behind the scenes. This is the more challenging outcome for the defence industry because it leaves companies trying to second guess where the Government’s priorities actually lie in the balance between procuring according to the current SDSR and balancing the books.

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