Economics: Armed forces must surrender to cuts

THE DEFENCE budget matters. Defence cuts could easily amount to 1 per cent of national income over two or three years. That would be enough to reduce Britain's burgeoning budget deficit to a sustainable level in the mid-1990s - and without the need for tax increases. If the cuts were deeper, the Chancellor could even build up enough fiscal reserve to hand out income-tax cuts.

The Treasury must be near to drawing blood. When the Defence Secretary implies that he would prefer to conduct a defence review than accept deep cuts in his budget without a corresponding diminution of the armed forces' tasks, he is beginning to play for time, which is always the last gambit before surrender. But the very fact that there has been no proper review since Options for Change in 1990 is testament to the need for the Treasury to sustain the pressure.

Options for Change was written in a world where the Berlin Wall had fallen, but the Warsaw Pact and the Soviet military machine still existed. Since then, the Russian empire has fragmented and the possibility of an invasion of central Europe by Russian forces has become so remote as to be inconceivable. Not only is there now a large land mass of independent states between us and the Russians, but several of Russia's near neighbours possess sizeable forces.

A threat entails both capability and intention: the Russian capability is increasingly questionable and the intention is obviously lacking. Many of Britain's forces - the Trident nuclear missile system, the Challenger tank regiments on the central German plain, the Royal Navy's anti-submarine frigates, and the Royal Air Force's defence of our air space - were designed to counter a threat that no longer exists.

The imaginative can construct new threats. The Russians' ambitions in the Caucasus are not always noble. An authoritarian ruler in Moscow, wanting to play the nationalist card, could find a pretext to invade the Crimea or other neighbouring areas. Even a skirmish between Russia and Ukraine would concern the Poles and other would-be Nato members.

But the logical leap from such a depressing scenario to the proposition that Britain should spend a particularly high share of her national income insuring against such eventualities is simply incredible. On the latest Nato figures, which take care to put each country's defence spending on the same basis, Britain's spending was 4.1 per cent of national income in 1992, compared with 3.4 per cent for France, 2.2 per cent for Germany and 2 per cent for Italy.

Nor, on present plans, will there be any closing of the gap in spending. The Organisation for Economic Co-operation and Development, in a recent comparison of defence spending, forecast that Britain would be spending 3.5 per cent of national income on defence at the end of the public expenditure planning period. We are going to spend more than any other Western European country, including France with 3.2 per cent, Germany with 1.5 per cent and Italy with 1.7 per cent.

Yet all of these countries are closer to any conceivable geopolitical eruption than we are. There is no large threat to the British Isles that does not also encompass France, Germany and Italy. It is unthinkable that we would want to act without their co-operation against any significant power. However much we may think others are underestimating the turbulence of the post-Cold War world, we cannot go it alone against any putative threat from the successor states of the Soviet Union.

Defence lobbyists argue that the gap in spending is in part due to commitments on top of the defence of the realm. However, France has similar overseas commitments, and spends relatively less. Northern Ireland, Belize, Gibraltar, Cyprus and Hong Kong simply do not account for more than a small part of the difference with Germany or Italy.

Some also argue that we spend more on defence because we have professional rather than conscript forces. But this has less impact than many suppose: the pay bill of the most junior ranks - that part which might be supplied by conscription - accounts for less than 0.25 per cent of national income. In any case, the traditional argument in favour of a professional army has been that it is more efficient and cost-effective.

Even the defence establishment is now split about the level of spending. Colonel Mike Dewar, deputy director of the International Institute for Strategic Studies, argues that we can safely make significant economies. Not only do we need a full-scale defence review, but we also need a proper security review involving the Foreign Office merely to define the remaining threats to our security. Like most others, he dismisses the Russian threat as a fading spectre.

Yet the navy's substantial commitment to anti-submarine frigates is posited on a Russian threat to North Atlantic convoy operations needed to reinforce Nato armies. Col Dewar argues that we ought to be able to cut far beyond the 35 destroyers and frigates planned in the latest defence estimates as the appropriate level for the mid-1990s. The Royal Air Force's defence of British air space is also increasingly anachronistic as the Soviet threat has vanished; a cut in the 100 Tornado F3 aircraft is sensible.

This reshaping of the armed forces does not mean merely cutting, although there must be a lot of that. It also means expanding some parts of the military that are clearly under strength, and that are likely to be needed in any rapid deployment in support of the United Nations, in dealing with brush fires, or in counter-terrorism in Northern Ireland.

For example, we were unable to offer anything to the peace- keeping force in Somalia, even if we had wanted to, because we did not have enough infantrymen available to meet our existing commitments - and you cannot send tank regiments to patrol Mogadishu streets. The Government plans eight tank regiments and two armoured reconnaissance regiments; it could manage with half or fewer of the tanks - enough to contribute to another Gulf force - while investing more in armoured reconnaissance or mechanised infantry.

But instead of some rational rethinking of the armed services to meet the reduced requirements of a post-Cold War world, we are treated to the sort of organised bleating from generals, admirals and defence contractors that one normally expects from trade unionists in an industry for which demand is shrinking. Defence - both the armed forces and the defence businesses that supply them - is like coal and steel before it. There is an unassailable case for restructuring to create a smaller, fitter and leaner industry.

Certainly, some people will lose their present jobs and will have to find new ones. But that is life. In any dynamic economy, businesses are constantly changing to meet new demands and cut out old activities that are no longer required. In September, more than 395,000 people became unemployed and more than 369,000 found jobs. There are plenty of historical examples where an increase in civilian jobs absorbed military job losses. Economies that fail to change eventually lose jobs on a far more traumatic scale.

Nor is there anything dishonourable in the Treasury's concern for cost. An unnecessary burden of defence expenditure causes both public deficits and taxes to be high, and thereby acts as a disincentive to economic activity. The new phrase for this old phenomenon, applied by American analysts to their own country's predicament, is imperial overstretch. Ultimately, overstretch weakens even political and military power, because it weakens the economic base needed to sustain it.

It is this point that rebuts the notion that we need to spend far more than other countries on defence so we can 'punch above our weight' on the international scene, the code for retaining our permanent seat on the United Nations security council. The countries that are jostling to replace us at the UN and the International Monetary Fund are Germany and Japan, which spend less on defence both proportionally and absolutely. But they get their economies right. Perhaps we should try to do the same. It might do wonders for our influence in the world.

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