Rishi Sunak, who announced last month a £75billion boost in funding for the British Defence Industry over the next 6 years, was disappointed. The share prices of BAE Systems, and Rolls-Royce – the two largest defence contractors in the UK – spiked by three percentage points within a 24 hour period. However, this soon dropped.
There is no better way to ensure that the value of your defence stocks will continue to rise than by fighting a war. BAE shares, which produce munitions, build fighter jets, and ship warships have increased by 125% since Russia’s advance on Kharkiv began a little more than two years ago. Britain has also pledged to stand by Ukraine. Rolls-Royce (the military engine maker) has seen a 250 percent increase in the past two years, while Babcock, which builds warships and runs the Devonport Naval Dockyard in Plymouth, as well as other military support services is up 70%. Qinetiq shares, a defence technology company have increased by 36 percent.
It was widely hailed as a powerful signal of intention when the prime minister announced that defense spending would be capped at 2.5 percent of GDP by 2030. There are a few “buts”, particularly in regards to where the money will be spent.
When asked to comment publicly on the actions and maneuvers of the “customer”, the government, British defence industry executives are known for their dissembling. One commentator said: “It’s an acknowledgement that we’re preparing for war.” It is harder to quantify and translate it. It’s a lot more guesswork to try and figure out the details.
“It’s more about politics — the Prime Minister defending his position in his own party, and in an electoral year, putting the Labour Party under the spotlight. What about 2030? By 2030, we’ll already have two general elections.”
One said: “It’s unclear how it will be done and how much money it is.” The majority of the money spent on Ukraine could be in the future. It is important to remember that during the Cold War, GDP was at 4%.
Ukrainian drone pilots are in Donetsk Region
The real change in spending is dependent on inflation and economic growth.
Paul Johnson, the director of the Institute for Fiscal Studies described himself as being “intensely annoyed” by the Prime Minister’s presentation of numbers. On the one hand, he came up with a large number that was “essentially unmeaningful”, but on the other, he insisted that the taxpayer would barely be affected, when it is true that there will be significant cuts made elsewhere to honour the commitment. Johnson said that the seriousness of the intent is what needs to be explained.
70% of the jobs in the defence industry are located outside London and southeast. The annual turnover is estimated to be over £25 billion. The wages are 12 percent above the national average.
The current defence budget is spent on the acquisition, sourcing and support of military and other equipment. A little more than a quarter of the budget is spent on personnel, both military and civilian, and the remainder on various other commitments. The largest, which amounts to nearly 10%, is the infrastructure or maintenance of the defence estate including housing. A further 4.3 percent goes to research and development. This is below the 5 per cent target set by the prime minister.
Already, there are several large programmes underway: the development of the new Tempest fighter jets and DragonFire Laser Beam Weaponry.
Trevor Taylor, director of defence industries at the Royal United Services Institute, says that these commitments can absorb a large portion of extra expenditure, and not just to make them affordable.
It is not as simple as it seems. He said that it was clear that western forces capable of waging a conventional war for a long time were needed to deter Ukraine. This has a great impact on stock levels and industry capacity. There is also the challenge of protecting established platforms and infrastructure from novel systems such as uncrewed aircraft, cheap ballistics missiles, and offensive cyber.
This is the word of industry. The Ministry of Defence is suffering from the “eye of Mordor syndrome”, a Tolkien-inspired reference to its inability to focus on more than one thing at once. For example, the Royal Navy is undergoing a transformation thanks to investment in aircraft carrier programmes and the Astute and Dreadnought sub-marine programmes. , the nuclear deterrent, are also being implemented.
A BAE Systems facility in Barrow-in-Furness, Cumbria houses an Astute class submarine
When , the Russian invasion arrived, Britain was unable to increase its munitions production. In the Ukraine and Gaza conflicts, drones that are available off-the shelf have caused a lot of destruction. Has the UK focused enough on the integrated air defence system or hypersonics development?
Hackers from Russia and China have also revealed the UK’s capability in cyber-defence. One official said that cyber-defence should be weaponised and integrated into the military domain.
It is important to invest in military personnel. In a recent report, the House of Commons Defence Committee questioned if the UK is “war-ready” when limited resources of the armed services are exhausted by “sustained overloading” during a period of declining recruitment. Skilled workers leave the forces. The shortage has grown, and the pressures are increasing. According to the committee, “the government must break this vicious circle” quickly and with sustained efforts.
Dame Meg Hillier bemoans budget overruns, delays and other problems in the defence procurement
Defence companies have complained for years about stop-start policies, a lack visibility and the inability to invest in their manufacturing base and develop skills. It is still a question of the past: Is the defence budget coordinated and aligned to industry capability? And is the money that is already available spent wisely and efficiently?
Chairwoman of the Commons Public Accounts Committee, Dame Meg Hillier says “no”. She said that the lack of a credible plan by the Ministry of Defence to provide fully funded military capabilities as requested by the government puts us in a very alarming position.
This problem is not a new one. Our committee has witnessed budget overruns in defence procurement year after year. The lack of discipline and consistency in the MoD budgeting has resulted in an inconsistent plan which is not a reliable view of the affordability of the equipment program.
Kevin Craven is the chief executive officer of ADS, an aerospace and defense trade body. He has stated that the industry stands ready to meet the new commitment made by the Prime Minister.
He said that this unprecedented commitment is essential to the collective economic, national and social advantage of our country, as our world becomes more dangerous. “We must ensure that we’re always prepared to deal with the threats we face.”
The Typhoon fleet will be replaced by the Tempest aircraft