Brexit – possible impacts on the Royal Navy

On the 23rd of June 2016 the United Kingdom voted by a narrow margin of 51.9-48.1% to leave the European Union and while much has changed, much remains the same. The day after “Brexit” Britain continues to move 95% of its traded goods by sea and imports 40% of its food from overseas. Offshore wind, tidal and North Sea oil and gas will continue to play a crucial part in powering the lives of millions of Britons. The maritime world remains as vital to national life as ever, as it has through centuries past and will continue to be for centuries to come. While our economic fortunes may wax and wane the UK’s dependence on the sea is eternal and unchanging. In line with this the Royal Navy will, ultimately, continue to perform its duties regardless of the economic and political weather. Now, more than ever, those functions may prove crucial to safeguarding the UK’s “place in the world” as an outward-facing trading nation with a major stake in international security structures. The Royal Navy defines its own functions as: preventing conflict, providing security at sea, humanitarian assistance, protecting our economy and being ready to fight. It is important to recognise that the result of the referendum hasn’t degraded the relevance of any of these. Sea lanes will still need to be protected, global hot-spots policed and potential aggressors deterred. Plus ça change.

In times of political disorder like these the activities of Britain’s armed forces will continue to represent an essential point of continuity, reassuring friends and allies of our enduring commitment to peace, stability and security around the world.

NATO will, of course, continue to play the essential role in the defence of the Western international order and Britain will continue to play an indispensable role in NATO. It is vital to recognise that “the West” is not simply a structure with two pillars: the United States and the EU. Instead it is better understood as a series of interlocking networks, bound together by common values and institutions. The UK’s stake in the security of its neighbours will not be diminished if it leaves the EU. Indeed, its contribution to common security structures may increase in importance, as a means of demonstrating continued commitment to the rules-based international order built by the UK and others after the Second World War.

On the economic front it is still very early days and the consequences of the decision have yet to begin playing out. Uncertainty is currently the word of the day and, as the saying goes, “everything is still to play for”. If the consequences for the country are unclear, then so are the consequences for Britain’s armed forces. A simplistic “straight-line” extrapolation of the short-term shock, which we’ve seen since the referendum result was announced, will probably prove to be unhelpful and misleading. However, it is clear that any lasting economic damage could translate into lower tax receipts for the Exchequer and less money to spend on public services, including the armed forces.

As it stands the current Conservative government has not suggested any intention to renege on its commitment to spend the NATO minimum, 2% of GDP, on defence throughout this parliament. However, it’s quite obvious that if the economy contracts then the money available to be spent on defence would also shrink, unless the government were to deliberately ring-fence current levels of spending. For the Royal Navy the impact of further reductions would likely be felt most in the equipment budget, as manpower is already stretched and the service would likely look to safeguard the small improvements it has made on that front since the 2015 Strategic Defence and Security Review. Some ongoing equipment programmes are unlikely to be affected because of their advanced progress; these include the Carriers, Tide class tankers for the RFA, River Batch 2 OPV and Astute class SSN. Others, such as the Type 26 frigate, the Type 31 “lighter frigate”, MARS Solid Support Ships and the “Successor” SSBN are at much greater risk if declining economic performance is coupled with strict adherence to the 2% commitment.

Beyond the quite obvious problems for the Ministry of Defence that would be caused by a shrinking economy there are other factors which could have a significant impact on the equipment programme. First, the weakened pound is very much a two-edged sword. It will place particular pressures on equipment programmes with high dollar content. Some key areas of exposure that will impact the Royal Navy include the planned purchase of nine Boeing P-8 Poseidon maritime patrol aircraft, the F-35Bs that will form the core of the new carriers’ Tailored Air Group and the US-made Mk.41 vertical launch system for the Type 26 frigates. Since the 2010 defence review the MoD has improved its capacity to absorb budgetary shocks to individual programmes, building substantial contingency funds into individual equipment budgets to cover eventualities such as this. The robustness of these contingencies will no doubt be tested in the years ahead, as will the Treasury’s not insubstantial foreign currency reserves; mostly held in dollars.

However, the consequences of a weaker pound aren’t all negative for the industries that support the Royal Navy. As imports of foreign-made goods become more costly UK exports become relatively cheaper and more competitive on the international market. An increase in the cost of buying equipment from abroad could also mean renewed impetus to build in the UK and this could possibly tip the balance decisively in favour of native shipbuilding, especially for the RFA. The net effect of a less valuable pound on the British defence industry as a whole could also be positive, improving the ability of UK firms to successfully export equipment, designs and sub-components: something they have often struggled to achieve. Potentially relevant for the “lighter general purpose frigate”, intended as an attractive export product as well as a means of ensuring the Royal Navy maintains its escort fleet of “at least nineteen” frigates and destroyers. The Type 26’s position in the competition for Australia’s next generation frigate may also be strengthened due to the lower relative cost of UK-made components. If BAE can successfully export the design the individual unit-cost of the class would be brought down, due to longer production runs of equipment and a larger fleet in service internationally, reducing the build and running costs of the eight Type 26s planned for the Royal Navy.

As it stands though, the greatest risk to the Royal Navy’s future remains the possibility of an independent Scotland.

Spurred on by the difference in majority opinion between the UK’s constituent countries the SNP have made it clear that “another referendum is on the table”. While it remains to be seen if another referendum will indeed materialise there is certainly a renewed risk for the Royal Navy. The MoD has, over time, concentrated the bulk of Britain’s complex military shipbuilding capacity north of the border; along with the specialist facilities for operating the UK’s fleet of nuclear-powered and nuclear armed submarines. Military shipbuilding facilities currently concentrated on the Clyde would also have to be steadily moved South, if the UK government continued to hold to its commitment of building complex warships within its own borders. This could potentially cause enormous disruption to military shipbuilding in the short-medium term. It is also unlikely that the UK could continue to base its nuclear forces in Scotland following a vote for independence and the cost of replicating the Clyde naval facilities currently located at Faslane and Coulport would place additional strain on an already tight defence budget. As an interim measure the UK’s deterrent submarines could potentially be operated from the US Navy’s East Coast submarine base, in Kings Bay Georgia, while new facilities were built. Scottish Independence might also give renewed momentum to those who wish to see the UK’s nuclear forces disbanded altogether, and the “Successor” ballistic missile submarines would undoubtedly come under renewed scrutiny.

We do not yet know how history will judge Britain’s decision to leave the European Union, it is still early days, yet the die has now been cast. Although uncertainty abounds, and the future holds a great many risks for the service, the Royal Navy will continue to serve the country and its people. It will continue to do its duty, as it has done for many centuries: Protecting our Nation’s Interests.

This is a guest article by Engaging Stategy Twitter: @EngageStrategy1