United Kingdom Defence and Security Report Q4 2009

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.

The UK’s commitment to the war in Afghanistan is increasingly controversial as a result of the spike in casualties in July 2009. Brown had refused to sanction a surge deployment of 2,000 additional troops Afghanistan in the spring of 2009, leading to accusations that the government was providing sufficient resources.

In terms of security, in April 2009 it was reported that more than half of the people arrested in the UK on suspicion of terrorism, since the 9/11 attacks in 2001, have been freed without charge. The government has reported that of the 1,471 people arrested, 819 have been released while just 102 were found guilty of terrorism offences. A further 92 were found guilty on charges relating to terrorism. The relatively large number of arrests has been the result of an increase in activity from the UK security services following the terrorist bombings on the London Underground in July 2005. Newly appointed Home Secretary Alan Johnson signalled a major change in government anti-terrorism policy on June 30 2009 when he dropped the compulsory identity card scheme. Opposition within the Parliamentary Labour Party was behind the about face.