LONDON — British defense spending could face a new wave of cuts totaling about 11 billion pounds ($16.6 billion) over the next decade due to further budget reductions demanded by the Treasury, according to a leading military think tank here.
“On reasonable assumptions, the Ministry of Defence may need to find around 11 billion pounds in savings over the next 10 years as a result of decisions taken in the Autumn [budget] Statement 2012 and the Spending Review 2013,” according to the Royal United Services Institute (RUSI) research director, Malcolm Chalmers.
The report, to be published Feb. 27, also rang alarm bells over the potential impact on other military budgets of the coming bow wave in spending on the renewal of Britain’s submarine nuclear deterrent.
The study into the defense implications of the upcoming Government Spending Review scheduled to be unveiled in the middle of this year says although the potential cuts pale in comparison with the 74 billion-pound funding gap faced by the MoD in 2010, the current gap between planned spending and available resources could “still be significant.”
New Treasury assumptions on inflation will add pressure to find further savings, Chalmers said, even if the government maintains its commitment to real-term growth in spending post-2015.
The MoD announced last year it had balanced the books after being faced with a massive funding gap caused by the combination of cuts under the Conservative-led coalition government’s budget austerity measures and 38 billion pounds in unfunded defense commitments left by the outgoing Labour administration in 2010.
Military and civilian personnel numbers have been slashed and numerous programs and capabilities axed over the last two years to bring a degree of budget normality to a department where spending plans had been notoriously out of control.
The government’s “strong preference” to accommodate the potential budget shortfall is likely to through further efficiency savings, with equipment support costs being among the primary targets, said the RUSI report.
Last week, Prime Minister David Cameron suggested that part of Britain’s huge overseas aid budget could be diverted to defense activities that featured stabilization and peacekeeping, offsetting some spending pressure on the MoD.
Philip Dunne, the defense procurement and support minister, said, “The MoD budget for 2015/16 will be set this summer and the budget for subsequent years will be finalized in the next full Spending Review. The Treasury has made clear that the MoD may plan on receiving a 1 percent real-term increase in the equipment budget from 2015/16 onwards. This has been endorsed by the prime minister.”
Government spending reviews, which set departmental expenditure limits, are normally undertaken on a four-year cycle. The current review runs through fiscal 2014/15. This time, though, with the coalition government facing a likely election in 2015, it has agreed later this year to a departmental budget limit for just one year, 2015/16.
A further spending review by a new government will have to take place in 2015 at about the same time as the next strategic defense and security review is being finalized.
Analysts here reckon that with a poor economic outlook for much of the rest of the decade, further budget cuts could be painful. The government’s failure to cut the deficit and the poor economic outlook cost the country its Triple A credit rating last week.
RUSI said the MoD is likely to face a “very difficult” 2015 Spending Review if Britain’s wider fiscal problems remain.
Chalmers said the Autumn Statement reductions over the next two financial years have reduced the baseline from which future budgets will be calculated. The RUSI report says the budget cuts could rise to nearly 17 billion pounds in the 10-year period up to 2025 if the spending review in 2015 takes a further 2.5 percent from the MoD’s resource budget.
The additional reduction would be taken from MoD resource spending proposed in last year’s Autumn Statement by Chancellor George Osborne. Resource spending here mainly covers personnel costs, equipment support and the upkeep of defense bases and similar assets.
The resource budget is set to be cut while spending on new equipment is on the rise.
The MoD unveiled its 10-year equipment plan in January, vowing to spend about 159 billion pounds on new systems, support and other items of military capabilities.
RUSI said the plan “raised new questions” as to whether the MoD will have to make significant cuts in non-equipment spending to afford what it said was an ambitious program for new equipment — 95 percent of which has already been committed.
The report also drew attention to the growing problem the British will face as the Royal Navy’s Trident missile-based nuclear deterrent program exerts greater influence on the defense equipment budget.
The government’s own equipment plan pointed up the fact that building and supporting the new Astute attack submarine force and beginning the process of replacing the present four-strong Vanguard-class of submarines with the Successor nuclear deterrent boats will dwarf other areas of equipment spending.
Projected spending over the 10 years is about 35.8 billion pounds and accounts for 25 percent of the total equipment program. That level of spending is expected to rise further and be sustained throughout the 2020s as the boats enter their construction phase.
Chalmers said that without a government commitment beyond 2020 to annual real increases in equipment spending, nuclear deterrent spending will create a “sustained squeeze on conventional force modernization.”