Jim Murphy speech at Reform conference on 'value for money in defence'

21 November 2012

Jim Murphy

Advanced and Affordable Defence Policy - Speech by Jim Murphy MP, Shadow Defence Secretary

Jim Murphy MP, Labour's Shadow Defence Secretary, speaking at a Reform conference on ‘value for money in defence’, will today outline Labour’s plans for advanced and affordable defence policy. Specifically, Mr Murphy will say that Labour will aim to:

•strengthen affordability in defence with six priorities for action, including challenging the habit of ‘pushing to the right’, being clear about savings and real-time scrutiny of ten-year budgets

•develop an advanced equipment programme, priorities including carrier strike, improved ISTAR, strategic warning capabilities, two state of the art fighter fleets and advanced unmanned vehicles

•support an active defence industrial strategy and procurement reform, with government providing certainty over ‘sovereign’ capabilities, increased transparency in contract decisions and a new military-civilian service to manage acquisition

•support greater co-operation between European nations, with Europe contributing more to NATO, and Labour is against plans for a EU Headquarters for a joint military force 

FULL TEXT - - CHECK AGAINST DELIVERY

I am delighted to have the opportunity to speak to you today. Reform is a home for strategic thinking and intellectual curiosity and this event is certainly in that spirit.

My argument today is that value for money and prioritising affordability in defence should not just be viewed as a response to recent events, but rather essential components of a sustainable and deliverable defence posture.

But I also want to argue that affordability alone is not enough, and that in defence a drive for advanced Armed Forces, maximising high skills, technology and international partnering, is also vital.

This approach, to design an advanced and affordable defence posture, combining constrained spending with far reaching reform, will be Labour’s focus in coming months.

Action to date

During our period of Opposition we have sought to lay the foundations of our work.

Our independent review on defence procurement looked at ways to deliver programmes to time and to cost and will provide the basis of our thinking on defence industrial policy.

Our wider shadow defence review is analysing the threat environment and key capability fields required for a future core equipment programme. This will lead to a more detailed look at Force structures. 

Context

The security context in which this work is taking place is transformative.

New threats are matched by new technologies, uncertainty equalled only by unpredictability.

Fifteen years ago it would have been hard to believe that we would experience September 11th, Afghanistan, Iraq and the Arab Spring. Forecasting forthcoming years is arguably more difficult. Today energy security, climate change, demographic shifts and the spread of CBRN materials are threats alongside state-on-state warfare or contorted religiously-inspired terrorism.

The growing strength of Al Qaeda in parts of Africa, the rise of new powers in Asia Pacific, weak states outnumbering stable states by two to one and new threats in cyberspace all consume our attention.

In this context the UK must aim to have flexible Forces with whole spectrum capabilities, able to respond rapidly whether through preventative measures, reactive disaster relief or multilateral interventions.

Value for money: the challenge

And these external threats exist in a volatile financial climate in which defence spending is set to increase over the medium term at a lower rate than it did during the last Government’s period in office.

The ambition we have for our Forces is an extension of the ambition we have for our country, but to be realised it must be affordable, and that means we are going to have to do things differently.

The previous Government’s record on defence is strong and we are proud that we increased the Defence budget by 10% in real terms during our time in office. The equipment programme was upgraded and modernised, military operations were conducted with success and welfare for the forces community was greatly enhanced. However, despite all the investment and improvements, during our time in office some of the procurement problems which plagued successive administrations were not sufficiently tackled.

The global economic downturn means the majority of the UK’s allies are making spending cuts across their public sectors, with unavoidable consequences for capability and global reach.

In the UK the challenge has become more acute because decisions taken by this Government haven’t stimulated domestic growth and UK austerity is set to be extended. 

In short, budgetary restraint is unavoidable, however undesirable.

Priorities

But if the size of the defence budget is an expression of our nation’s ambitions, the profile of the budget is an expression of our priorities.

For us the priorities are clear.

Carrier strike and improved ISTAR are vital.

Strategic warning capabilities and intelligence will be essential to provide early indicators of threats and potential crises.

Two state of the art fighter fleets, advanced unmanned vehicles supporting all three Services and strategic air lift are also key components.

Skills must be a strategic capability. We need highly trained service personnel able to use higher technology platforms; Reservists using niche civilian skills in military con texts; advanced special forces; a high skilled, broad-based defence industry; and expertise throughout acquisition.

In most conflicts, even counter-insurgency, the edge can be found through technology, which can help minimise casualties while extending global reach. Remote surveillance, manoeuvrability in cyberspace, better communications and acting at distance with accuracy are all necessary features of our future force.

But alongside this must be a greater focus on international alliance-building. Shared threats and financial challenges demand that we pool resource and expertise. The UK-France accord may lay the ground for a landscape of multiple discrete bilateral or regional arrangements between European nations. More widely, NATO is the primary military grouping through which action will be taken, and Europe’s focus should be on greater deployability and burden sharing within the Alliance, not on new EU Headquarters for a joint force the UK will continue to oppo se. As the US pivots – and I say this as someone who takes a positive view of our role in the EU – it is vital that European nations work together towards meeting military objectives, not naval gazing on our own structures.

Furthermore, European NATO nations are making deep cuts to defence budgets in isolation of each other, the aggregate consequence of which could be cross-Alliance shortfalls or duplication – Forces by default rather than design. ‘Smart defence’ in Nato must become a reality.

Our defence posture today is also challenged by an internal force we don’t talk about enough, which our domestic public opinion. The public is wary and weary of interventionism following recent conflicts and the financial crisis. There is a risk of a growing ambivalence towards acting on responsibilities beyond our borders, but we cannot let the legacy of Iraq be increased potential for another Rwanda. We must make the case for strong, proactive defence postures, in t urn redefining the nature of interventionism.

Our goal should be prevention before intervention and early intervention before conflict. The careful prevention of development policy and diplomacy can be more effective than the painful cure of military action. Whether in tackling climate change, investing in civil society and governance, or diplomatic engagement, the spectrum of soft power capabilities at the UK’s disposal to defend our interests and promote our ideas in the world should be capitalised on.

People

An enduring priority for Labour will also be supporting our service personnel and their families.

Ed Miliband has spoken about Labour’s One Nation approach to developing a country where everybody has a stake and where we protect the institutions that bind us together. I don’t want to engage you in a debate about one nation politics except to say that on whatever side of the fence you sit, or indeed if you sit on the political fence, upholding the principles of the Armed Forces Covenant is the embodiment of one nation politics. Service is an act of solidarity. We must strengthen the support to those who go to the frontline as well as the bond between the service community and country at large. 

We have begun to lay out new proposals in this area. Our country is brilliant at turning civilians into soldiers, but we are not good enough when the time comes to turning soldiers back into citizens. That is why we started the Veterans’ Interview Programme, which has signed up 22 major UK companies to change their HR programmes, including by offering guaranteed interviews, to support service-leavers in finding employment. We want to increase opportunity as a means of smoothing the transition from military to civilian life. Similarly, Labour has argued for legislation to protect veterans from discrimination and for greater support for service carers and orphaned service children. The principles of the Cove nant, we believe, are there for us all to uphold – whether in politics, business, civil society or the Forces.

Government record

In defence our task is to ensure there is no imbalance between projected expenditure and affordability on an enduring basis and that Planning Assumptions are met through advanced Armed Forces.

Ministers may claim that this has been achieved.

There are, however, worries over capability gaps following the defence review, notably in surveillance and carrier strike; the impact of civilian and military skills shortages is unclear; Planning Assumptions now rely an increase in Reservists yet plans are under-developed at best; and only half of the MoD budget is claimed to be balanced yet we have seen no evidence that this is the case.

Labour’s approach

Labour’s approach, by contrast, will combine savings and strategy to match the needs of the frontline to those of the bottom line.

I want to outl ine to you our emerging thinking on how to strengthen affordability in defence to help deliver advanced Armed Forces, and there are six main areas I want to touch on.

First, we are open about fiscal restraint and the choices that necessitates.

Second, a future SDSR would take a zero-based approach, ensuring every penny is accounted for.

Third, we want to instil a new discipline in defence spending, ending the habit of ‘pushing to the right’, and I will set out how we plan to do this.

Fourth, we want increased, real-time scrutiny of ten-year budgets, with increased accountability.

Fifth, we would reform of procurement practice so more projects are delivered to time and cost.

And, lastly, we would work with industry to design a fresh defence industrial strategy which supports sovereign capabilities and exportability.

Labour cannot make commitments now as to which cuts in defence spending if any we would be able to reverse. 

Some decisions we simply could not reverse, for example the loss of Nimrod. Some cuts we wouldn’t reverse because we agree with them, which is why the Shadow Defence Team has been clear about where we would make multi-billion pound savings if in government, including in reform to MoD structures and personnel, the equipment programme, selling assets and reform of the Army’s non-deployable regional structure. 

So while there are some we wouldn’t and some we shouldn’t, for other cuts the Government has made we are simply unable to make commitments now because we are not in a position to know what the health of the finances will be in 2015. In the same way that families and businesses worry about the uncertainty of their future financial stability and spending power, so too do all policy-makers. 

Not knowing the state of the books in 2015 means we cannot guarantee which of the current government cuts we could reverse, other than through switching existing spendin g or freeing up resources through reform. That is why, for example, we have urged the Government to go further in tackling ‘top heavy’ manpower imbalances and suggested using a portion of the savings to research veterans’ mental health.

We can commit, however, to a Labour government being determinedly disciplined on public spending. We have made it clear that we will hold a zero based spending review, and as part of that approach a Labour SDSR would examine which capabilities could meet our global objectives in line with our financial requirements, questioning and justifying every penny piece of expenditure.

New discipline

And we would go further.

We support the principle of a ten year defence budget with in-built contingency being verified by the National Audit Office. Because this would reach across two Parliaments some may think that this comes close to one Government seeking to bind its successor. This is not the case. A new Government would of course be free to alter the budget, but what I hope would be more likely is that in formulating a decade-long budget a sense of bipartisanship would be encouraged with both Government and Opposition entering into the process.

Within this, Labour would introduce a new discipline in defence spending and would abide by the principle that any increase in cost and expenditure resulting from decisions made in a Planning Round would have to be accounted for across the rolling ten year MoD budget cycle, either through savings or increased revenue. Decisions could not be routinely deferred, creating a bow wave in the budget.

By challenging the MoD’s habit of ‘pushing to the right’ as a short-term fix for in-year savings we would help to prevent against imbalances between the bottom line and the order book.

Under our plan, the NAO would report on the outcome of each Planning Round and judge whether the Core Equipment Programme remained affordable and deliv erable. 

The report would include an MoD justification of its decisions and the Defence Secretary would present it to Parliament.

I share Education Secretary Michael Gove’s frustration that the current culture of the NAO and PAC reporting can limit risk, but I don’t share his conclusion. I want to change structures and increase accountability. Real-time reporting with a right of reply for the MoD will allow those with ownership of decisions to explain their actions, which we hope will both increase openness and end a retrospective blame game which can be corrosive to trust and policy-making.

Levene report

This enhanced financial rigour would be coupled with an embrace of many of the Levene proposals. We support, for example, empowering the Service Chiefs to run their Services with greater freedom with a focus on financial accountability, just as we must ensure enabling services such as the DIO are delivered efficiently and professionally.

Economic contribution of defence and Scotland

But while these moves are vital, we believe that the UK will be unable to deliver strategic military goals without wider reform of procurement and industrial policy.

And this is essential not just for defence but for our economy. It is estimated that the UK defence industry employs over 300,000 people and generates over £35 billion per year to the UK economy. 

In Scotland the largest single workplace is Her Majesty’s Naval Base Clyde at Faslane, which employs around 6,500 people. The 4,500 strong workforce at shipyards in Glasgow and Rosyth are sustained by MOD work. Independence would shut these yards, an act of economic vandalism putting families’ futures at risk, not just Scottish security.

Procurement and industrial strategy

While the Government emphasises buying off the shelf as its ‘default’ position, we want to use procurement power to provide certainty, support supply chains, increase transparency and to establish an active industrial strategy in partnership with business. Within this there is a trade off: on the one hand government must provide clear strategic direction, and in return industry must deliver on agreements.

We believe the Government could be more explicit in the capabilities it intends to purchase off the shelf and those it regards as ‘sovereign’. And we are examining whether ‘Off-the-shelf’ purchases should be subject to a ‘UK control’ test that states there must be UK-based upgrade capability to perform UORs.

When an effective market exists competition is of course the best procurement policy. However, the fact is that there is seldom a viable market for major defence projects. It is right that we explore how certain value for money tests could include wider employment, industrial or economic factors, something the MoD has rejected. This is complex, but given the social a nd economic impact of defence procurement it should be looked at on a cross-Departmental basis.

Defence decision-making could be made more transparent through the MoD publishing the cost-benefit analysis which provided the basis for awarding contracts, while respecting commercial sensitivities and any classified security issues. This would also add greater accountability to the senior civil service, something exposed as necessary during the West Coast Main Line fiasco.

A culture of confident professionalism is required in procurement. We propose a new mixed civilian and military service to manage acquisition, offering a permanent professional career choice in procurement, ending two-year stints and the undue influence of "cap badge loyalty". 

We also need a broader new culture of consequence. As sometimes happens in the US, the UK Government could be prepared to return a project to the Main Gate stage when forecast cost or timescale exceed set targets. Chang ing specifications and an acceptance of missed targets should not be the norm.

Furthermore, many have commented that the search for the ‘exquisite’ can delay the deployment of the excellent. All platforms must provide for 100% of frontline requirements, but we must instil a culture change where design is to cost and 100% of requirement.

There has been a long-running debate over reform of DE&S. We have practical reservations about the GOCO model, in particular over accountability to Parliament and the length of a contract being at odds with the life cycles of equipment programmes.

We support integrating private sector expertise in policy-making. There is no dogma, only a belief in partnership to deliver positive policy outputs. In Opposition, just as would be our approach in government, Labour’s approach will be characterised by learning from those on the frontline of defence industrial decision-making.

But we are also clear that elements of t he MoD-industry relationship need to change. Following cash-for-access revelations in the Sunday Times we proposed a new code of conduct. If someone breaks the rules there should be sanctions; if a company employ a lobbyist this should be done within the rules and with total transparency. 

Conclusion

In today’s security landscape we need a policy response as broad as the set of external and internal threats we face.

The global trends reshaping defence are increasingly interdependent in nature and their interaction – unpredictable and complex – can exacerbate threats. Demographic and climate change, for example, can increase the pressure on resources which can in turn inflame regional tensions and the potential for conflict, which can test our international governance structures. 

The wrong lesson to learn from recent history is that this complexity and unpredictability inherent to security policy today means that Britain cannot sustainabl y achieve our ambitions in the world, and that we must trade policy in one area against another.

But that is not good enough. That would be the defeatists’ view. A more comprehensive approach is required. I believe that the right lesson to learn is that by working in partnership with industry, the military and our international allies we can achieve this. We must take a longer-term look at the politics of defence finance, change our whole approach to procurement and its culture and see specialist expertise, whether skills or technology, as means to attain competitive edge. Without this, however many painful cuts are made now more may follow because we won’t have put defence on a sustainable footing.

On future structure, equipment, organisation and culture Labour will work with those who bring expertise and insight to the table, but, we will work by the mantra that if you defend the past you lose the future.

Defence is becoming more intricate and complex while the world is becoming more interdependent and multifaceted. Our aim in defence policy is an advanced Armed Forces supported by an advanced equipment programme able to help the UK defend our interests and ideas around the world. And the foundation of that is affordable defence finance.

That is our goal and we want to work with you to achieve it.