Labour to present plan to close defence budget gap

A newly elected Labour government would seek to close the multibillion-pound hole in Britain's defence budget by imposing an unprecedented 10-year programme that would be subject to annual independent oversight.

In one of the first examples of Labour's new "ruthless" approach to spending, the shadow defence secretary, Jim Murphy, will on Monday outline detailed plans to address the perennial problem of escalating defence costs. Murphy, who went out on a limb earlier this year when he pledged to accept £5bn of the government's defence cuts, will pledge to impose Whitehall's first 10-year rolling budget assessed independently every year by the National Audit Office.

In an interview with the Guardian before his speech to the Labour conference, Murphy said any cost overruns would have to be funded out of the MoD budget, although in emergencies the Treasury could be asked to help. The new approach is designed to end the practice, followed by governments of all colours, known as "pushing to the right". This describes the process in which costs that cannot be met from the MoD's annual budget are pushed forward even though extra funds are not available.

He wants to end what he calls the Mastermind "I've started so I'll finish" approach to spending. "This is an effort to change the architecture and culture of the MoD budget. It is real-time scrutiny, forensic and independent assessment of a 10-year MoD budget. We are determined to add discipline and rigour to defence spending."

The Tories claimed after the last election that the Labour government had bequeathed a £38bn 10-year hole by signing up to unaffordable defence projects. These were funded by rolling the costs forward, creating a deficit in the MoD budget.

Murphy disputes the £38bn figure, a point reinforced in his mind when the new defence secretary, Philip Hammond, announced the gap in the budget had been closed in double-quick time. But Murphy accepts Labour was, in common with previous governments, guilty of the practice of "pushing to the right" on spending. He says Hammond has not ended it, citing the new Astute class of submarines which have added £200m to the defence budget as costs are pushed forward.

"As a rule, for any increases in spending we would have to identify savings elsewhere in the ten year programme.

"We would deal with increases in the Astute costs, for example, by making savings either further down the line or to another programme. We will not tolerate an imbalance between the order book and what we can afford."

Murphy said this is not a new problem. "Successive governments have seen this as a way to make quick savings today and to delay tough decisions. The government are repeating these old mistakes. We want to end the culture of pushing to the right, doing so only where essential for technical or strategic reasons and ensuring actions are affordable and accountable.

"There have been huge cost overruns in, for example, the Typhoon project. But remember this was first envisaged by Michael Heseltine. We are still debating these cost overruns and how to deal with them."

Murphy believes there is a compelling political and fiscal need for restraint because the structural budget deficit will not have been eliminated by the next election in 2015. He says his plans, which have been approved by Ed Balls, build on the shadow chancellor's pledge to adopt a ruthless approach to spending by imposing tough zero-based budgeting on Whitehall.

But Murphy also believes that a series of expensive defence spending commitments after the next election require strict discipline. He agrees with Sir Nick Harvey, the former Liberal Democrat defence minister, who told the Guardian last week that Britain faced a "perfect storm" of defence capital costs in 2020. These include building the new joint strike fighter aircraft and Type 26 frigates, amphibious craft for the navy and a new global combat ship.

His first act as defence secretary would be to hold a strategic defence and security review to assess how to tailor the military to Britain's needs on the world stage.

This would then be followed by extending the core equipment programme (CEP) to cover 10 years. This would be assessed in the annual planning round. This in turn would be vetted by the NAO and Murphy would report to parliament. The rolling process means that the first planning round would examine the years 2015-25. The second assessment would be for 2016-26.

While Murphy praised Harvey for warning of a "perfect storm" of costs, he is yet to be convinced of the need to scrap Britain's immediate and permanent nuclear deterrent when Trident reaches the end of its life. He will wait for the outcome of the Trident replacement review, launched by Harvey, though Labour would be wary of ending Britain's "continuous at sea" deterrent provided by a fleet of submarines.

Hammond said: "Labour are still in denial over the catastrophic mess they left in defence. Wiping out the black hole inherited from the last government has allowed us to award contracts worth millions of pounds, thereby sustaining thousands of British jobs.

"In contrast, Labour still refuse to accept the financial black hole they left behind and the tough decisions this Government has taken to balance the defence budget. It just shows that Labour isn't learning. The MoD now has a fully-funded equipment programme with a planned £160bn spend on kit and support over the next ten years, including £5.5bn on new and upgraded armoured vehicles.

"It's time Jim Murphy and Labour accepted that they left the defence programme and budget in a shambles, and started doing what is right for the Armed Forces."

Powered by article was written by Nicholas Watt, political correspondent, for The Guardian on Monday 1st October 2012 00.24 Europe/London © Guardian News and Media Limited 2010


image: © EdMiliband