Arms length
The government should be bold in how it raises and spends money for defence, argues Josh Arnold-Foster
In his letter announcing his resignation as defence secretary, John Healey argued that there were “credible ways” of addressing the funding challenges facing British defence. Now, he holds the purse strings for all government departments. Presumably, work will already have started, in the Treasury and elsewhere, on previously rejected proposals. Arguments about the impact this will have on government debt will continue, but in the meantime, there are a number of options to raise funds for defence.
One proposal, widely discussed until recently, is to repurpose the £24bn of Russian state assets currently frozen in UK banks. These assets could then be used as loans to Kyiv, replacing or even increasing the current £3bn a year of UK taxpayers’ cash being used to support Ukraine. Once the Russian government had paid repatriations to Ukraine, the assets would be returned to Russia.
Current FCDO policy stipulates that any such action should be done multilaterally with our European allies. However, hesitation by Belgium has blocked this approach for years, which raises the question of whether the UK should now go ahead independently. Unfortunately, legal opinions on this matter are divided, but there are certainly credible experts who argue that the risks are relatively minimal.
A bolder option would be to seize Russian private sector assets as compensation for the billions of pounds of investments that the Kremlin has stolen from western companies including BP. There is a lot more legal risk to this option but UK legislation already requires the seizure of proceeds from criminal actions. Why not apply the same logic at the international level? Surprisingly, this has attracted little political attention. More surprising still is that the Greens and other left wing critics of the government seem to ignore this potential opportunity.
Some ministers and senior officials may believe that the risk of a more aggressive approach is not legal but economic: that companies from countries such as China will reduce investment in the UK, particularly in the City of London. However, the recent decision to nationalise British Steel (which would have been cleared with Burnham) perhaps indicates a bolder approach to foreign investors. All of this suggests that the new chancellor could avoid the arguably false choice between welfare and warfare or at least mitigate the impact of such a choice.
More money is one thing, but it needs to be spent well. Current debates around MoD have understandably centred on reforming defence equipment procurement. There is evidence of improvement in this area, with new permissions and greater flexibility recently being used to support Ukraine. Yet there is still much more to do.
A less well-known issue that the controversial Defence Investment Plan (DIP) failed to address is the rigid divide between what the MoD can spend on capital equipment (known as Capital Departmental Expenditure Limits or CDEL) and what it can spend on personnel, training, stockpiles of spare parts, and munitions (known as Resource Departmental Expenditure Limits or RDEL). The imbalance between RDEL and capital spending helps to explain why the UK military is so understaffed compared to its European equivalents. The reluctance among Treasury ministers and some senior military officers to tackle this shortfall is baffling. There is no explanation of how the British military could provide our Nato commitment of two divisions and still provide enough troops for home defence, so if the UK is involved in a major conflict, conscription seems inevitable.
Another structural problem is that the DIP provides a four-year spending profile rather than the previous 10-year profile. The reason given is that this will allow the government “to respond to the evolving threat and seize new opportunities as technology advances” with someone involved in social value modelling for the Treasury recently stating that “future costs and benefits should be discounted to reflect society’s preference for benefits received today rather than in the future.” These arguments are unlikely to sway defence investors or service personnel. The new prime minster has said that he wants a 10-year plan, so many in the defence sector are anticipating significant revision to the Defence Investment Plan.
Defence trade unionists, UK service personnel and most voters may not take a keen interest in repurposing of Russian assets or social value modelling, but they will reward Burnham’s government if his decisions on defence spending radically and rapidly improve our defence capabilities. Meeting the target of 3 per cent of GDP on defence spending by 2030 is essential, but he also needs to change the way in which it is spent and measured. The choices he makes on defence spending in the next few months may well determine his success or failure at the next election. Above all, they will determine whether the British people will be able to live in peace and security over the coming decades.
