On 29th July 2010 the then Chancellor, George Osborne, announced that the MoD would have to fund the capital costs of replacing the Vanguard class submarines (Successor) from within its own core equipment procurement budget, instead of from the Treasury Reserve as had been expected. Defence Minister at the time, Liam Fox argued strongly that funding Successor from within the MoD would be hugely damaging to the rest of defence. He lost his argument with Osborne, but time has proved him right about the consequences.
Contrary to popular belief, the costs of the UK nuclear deterrent have always come from the MoD budget. The source of funding for Trident has always been contentious. Maintaining Continuous At Sea Deterrent (CASD) has been both a blessing and a curse for the Navy. While a top government priority and a prestigious responsibility, the running costs were moved from the MoD to the Navy’s budget in the 1981 Defence Review. This has inevitably has impacted directly on funding for other naval programs and a major contributing factor in hollowing out the navy.
Trident is widely perceived as a ‘political’ weapon, a national instrument and there is a strong case that it should sit outside a single service budget. It is also disproportionate to allocate the vast capital cost of the successor project to one of the smaller government departments. (In real terms, the MoD’s budget has approximately halved since the original Trident project of the early 1990s). Precedent exists for this arrangement. HS2 and Crossrail are also large long-term projects and they are funded from the Treasury budget, rather than by the Department of Transport.
The spending on the Successor project will peak in the next 5 years and will severely constrain MoD cash flow. The most challenging issue is the cost fluctuations or overspends which could force the MoD to find additional savings on an annual basis. The costs of building the Dreadnought submarines are likely to flex and alter considerably, year-on-year. The program would be better-managed holistically within a 30-year envelope, rather than under in-year budgetary frameworks which means that every other part of the MoD budget will suffer.
George Osborne’s excuse in 2010 was that by making the MoD fund the Trident successor programme, it would be incentivised to manage costs better if it was responsible for the budget. The reality is that even if it exercised the best management practice in the world, holding all the financial risk and inevitable cost growth leaves the MoD out of pocket. Already this financial year, £300 million in savings will have to be found within the defence budget to cover growth in expenditure on Successor. The construction program will see costs rise to almost 10% of the defence budget at its peak sometime between 2019-20. It is these peaks and unexpected over-runs that are a greater problem than the overall total cost.
Understanding the capital costs
Government has earmarked £31 Billion for the capital costs of the Successor project (with an additional £10bn contingency fund which most analysts expect to be fully used or exceeded). Precise figures are hard to come by, but the £31 Billion can be broken down into ‘ballpark’ figures something like this:
- Already spent on the assessment phase, design, facilities and long-lead items for first 2 submarines – £6.1Bn
- Construction of four Dreadnought class submarines – £16.4Bn
- Development of PW3 reactor – £1.4Bn (This project is already in trouble and likely to over-spend)
- Upgrades to infrastructure at Barrow (construction yard) & Faslane (submarine base) – £3Bn
- New nuclear warhead design and manufacture at Aldermaston/Burghfield – £3Bn
- Extending life of Vanguard submarines in operation until 2028 – £1.6Bn
- Joint US/UK Trident D5 missile life extension programme – £250M
The MoD ups its game
Recognising the great risks and magnitude of the task, the MoD has already established a new executive agency – the Submarine Delivery Authority (SDA) employing 1,300 people to oversee the Dreadnought construction program. Inspired by the success of the 2012 London Olympics Delivery Authority, the SDA is separate from DE&S and has the freedom to recruit the best managers to ensure the Dreadnought class are delivered on time and budget. It will also be responsible for the remaining Astute class submarines and support of submarines already in service. The SDA is led by Ian Booth, former head of the Aircraft Carrier Alliance that has built the ships on time and on budget. The Dreadnought submarines will be delivered by a similar MoD, BAE Systems and Rolls-Royce alliance. The SDA will report to the newly created Director General Nuclear (Julian Kelly, a former Treasury trouble-shooter) who is responsible for all aspects of the defence nuclear effort including submarines and warheads, from procurement through to disposal. Despite their effort to manage the Successor program with the best people available, funding challenges will remain a concern for the MoD.
Paying the premium for our ultimate insurance policy
Many opponents of nuclear weapons will use the cost argument as a good excuse to axe Trident. Fortunately this government, an overwhelming number of MPs and the majority of the general public recognise the critical importance of our deterrent. To put the costs in perspective, over its 35-year lifetime (assuming we continue to spend approximately 2% GDP on defence) Trident will consume an average of 6% of the annual defence budget, equivalent to 0.13% of total government spending. The annual running costs of Trident are about the same as what we spend on the NHS in a single week.
Unilateral nuclear disarmament on cost grounds would be a dangerous blunder and signal the end of Britain was a leading world power. At the same time, we must not allow our conventional forces to be so weakened that Brexit Britain is perceived by the rest of the world to be disengaging and retreating behind its nuclear shield.
The deeper reserves of the Treasury make it far better equipped to cope with the variables in the lengthy Successor programme. Moving the cost centre will not make it any cheaper but would immediately stabilise the MoD budget at a time when pressures are mounting.
With a budget that is already too small, the challenge of the Trident renewal program threatens to undermine and damage conventional capabilities even further. There are a growing number of MPs who recognise this and would back a change in Successor funding. General Sir Richard Barron’s recently exposed the perilous state of UK defence saying any further cuts would leave the government “responsible for tipping the armed forces into institutional failure”. Making this change would be a big step to remedy some of the funding problems of the Navy, Army and RAF.
Related articles
- Treasury and MoD battle over Trident replacement (The Guardian, 2010)
- Chancellor urged to take expensive Trident out of MoD budget (Times, November 2017)
- Forces must find £300m for rising Trident costs (Times, October 2017)
- Taking down the arguments against Trident (Save the Royal Navy)
I think it does need to be said that the reactors have a 25 year life cycle and it takes a good 10 years to build a class of 4.
Part of the problem here is drumbeat – If we are to spend £3bn pa on our CASD design, build and operation then that needs to be ring fenced.
We also need to make sure that we are building enough submarines in total to get economies of scale going. I think a force of 11 attack (not necessarily nuclear) and 4 SSBN’s would change the economics of this industry at which point the budget could be held by the MOD.
The stop/start nature of much of our military spending is at the core of cost over runs and delays, and we really are better having something that is 80% what we need rather than constant delays to gold plate.
This needs funded – the MOD should be able to deliver the budget window of 30 years (5 build +25 years service) or people should be fired.
I do think this is once again a lack of discipline and basic fleet management within the MOD – not just for CASD but actually for all assets it would seem.
The PW3 reactor is intended to last 30 years
Agree that start- stop is the problem. An SSN or SSBN every two years would work. A Destroyer or frigate every 12 months would also work. So simple you can work it out on the back of an envelope; whatever that is. Naval strength sorted.
Modeled on the aircraft carrier alliance and the London Olympics Delivery Authority, you have got to be joking! Might as well plunge a pair of dividers though the heart right now.
Where when left alone to actually build the ships did the Aircraft Carrier Alliance go wrong. The delays and additional costs were brought about, deferring the construction to save money in the current year budget and the STOVL/CATOBAR saga.
Wanna try that again in English?
Where, when left alone to build the ships did the Aircraft Carrier Alliance go wrong? The delays and additional costs were brought about by deferring the construction to save money in the current year budget and the Short Take Off, Vertical Landing / Catapult but Arrested landing saga i.e. the change from one to the other and then back to the original design. Hope that is much clearer now Ron.
Excellent and I agree!!
I think both projects did well and don’t deserve any flak at all. They delivered to time and budget, meeting their customers requirements. The fact their customers are government is the reason both cost more than originally forecast, the actual execution of the workload for both has been as close to flawless as you can get. Same goes for Crossrail and several other major projects on the go in the UK.
We are getting quite good at this as a nation and I am excited about what we can achieve if we put our minds to it.
The fact is that the Trident Programme is too expensive for the United Kingdom to pay the prove. Simply demonstrates how the British Empire has died. Given that it is effectively a suicide pill, the money is better spent on having for example a real navy. I would also point out that most Christian Denominations consider the idea a sin.
Once again comrade, try learning English before writing.
The Christian denomination in Russia seems happy enough. I haven’t heard much from the Chinese Christians and well, the North Koreans …
And just what do you know about the Christian denominations in the countries which you mention? In Russia those Christians who don’t agree to be an arm of the state (the Russian Orthodox) are persecuted. In China again outside the agreed Church they are persecuted, and are growing at a great rate, and in North Korea there is a hidden Church under great persecution.
In other-words what you are saying is total and complete rubbish. I would address you to the teaching of the Church of Scotland and this statement by the Pope.http://catholicherald.co.uk/news/2017/11/11/pope-francis-the-possession-of-nuclear-weapons-should-be-firmly-condemned/
You might like to look at http://christiancnd.org.uk/church-statements-on-nuclear-weapons/
There is little point in making a cheap debating point when it is clearly rubbish.
The old question remains in what circumstances is it justifiable to use Trident.
If you weren’t so stupid you might have tried to argue with me about the alternative conventional forces that the price of Trident could buy, but the moral case against it is simply overwhelming and the fact that we have it proves that the UK is not a Christian Country.
Given that “Christian countries” where responsible for the crusades, Spanish inquisition, burning of pagans, etc. I’m finew with not being a “Christian country.”
But that is the whole point, you have to distinguish between Christianity- the Faith, and Christendom, the sociological concept.
Can we get back to the main point of this forum which is the Royal Navy please
It was other people who tried to take the matter off track. I was merely commenting that inter alia there is a moral argument against the retention of Trident.
Having said that there is I would believe, a very good case for scrapping the whole project. That is on defence grounds, nothing to do with morality.
To put it crudely if the cheerleaders for a deterrent can’t raise the money for it without robbing the rest of the defence budget, they have no commitment to defence and are simply playing at it.
They’re the same thing. Faith is a sociological concept.
The crusades where a direct response to half a millenium of muslim attacks on the west.
If there is extra jam for the MoD, then there should be extra jam for the Home Office, DfES, DEFRA and other Whitehall departments.
Waving the flag is all very well but we have to live within our means or risk driving up the deficit which will have to be paid off by future generations.
I would hope the UK follows through with the new ballistic submarines. For one, it makes Britain a player. Two, in a real world crisis these subs could be a wild card in a face off with any potential enemy faced by the U.K., US or France. Three, Britain still needs to assert that it can defend itself at any level. As an American I want the Brits to have a credible Navy backed up by a nuclear deterrent.
Thumbs up!
I could not agree more. Having witnessed at first hand the Russian Navy at work very closely they do not miss a trick. They exploit our weaknesses at every opportunity including the comments being aired here.
RT is their weapon of choice. See recent post on Vanguard class submarines and RN engineering officer dismissed the service.
There is now the Submarine Delivery Agency, something which you ‘experts’ failed to cover. http://www.telegraph.co.uk/business/2017/04/14/mod-appoints-nuclear-chief-help-keep-dreadnought-submarines/
The SDA is clearly mentioned in the well written main article.
No one pretends to be an expert in these forums.
But all worthwhile comments are both polite and informative.
The issue that I have with the British Government and any major MoD project is the lack of foresight. Let me try and explain, the Vanguard class came into operation in 1993 with a 25-30 year life span. That to me means that I know that by 2018 I need to start replacing them. Discussions had already started by 2006 on the replacement then put on the back burner. So from 1993 until 2018 I now need to do the following, operate the Vanguard class, maintain the Vanguard class, upgrade the Vanguard class and save for the future class (Dreadnought). It is with the final point that things go wrong, equipment for the RN is long term, long lead and expensive. If you suddenly have a complete class of vessels going out of service at the same time they need to be replaced at the same time this puts a strain on budgets. Where as if the RN was given enough money where they could save say 0.5 billion, (1 billion would be better) every year for 20 years they would have a slush fund to go now. For mortals as you and I 0.5 billion is a lot but for government its a pitance, it would not supprise me if their overall national budget looses that amout in it paperwork. The money put aside by the RN over that period should then not be taken into account by the MoD or the treasury. What it will do is give the RN the possibility to build the ships and subs when needed rather then waiting for the Government or treasury to make up its min or delay by a year due to budgetry issues. Dreadnought is an example of government messing around and causing confusion in the industry as well as causing cost increase, as I said in 2006 under T.Blair discussions had already started on the Vanguard replacement, then under G.Brown it was halted and the discussions looked at the possibility of three SSBNs and not four, then under Osborne it was back to four and by 2011 that was the desission. It took five years just to decide if it was to be replaced and if it was going to be three or four SSBNs. Then in 2016 the budgetry approval was voted on in Parliament, 10 years, three Prime Ministers for the approval. This is only two years before the Vanguards were meant to have been starting to retire.
So what do these delays mean, well first the Vanguards will have to go through a life extension program, costing billions, which would have been not need if the Dreadnoughts were ordered on time, the Dreadnought project cost have increased by 20% even before anything has started. Again this could have been avoided if the project was started on time. Submarine construction capability would have expandand rather than contracted, again this could have been avoided.
To me it would make sense if the government put into law the minimum required size of the RN say 2 aircraft carriers, 20 major surface combatants, three major LPDs 4 SSBNs and 10 SSNs plus minor surface combatans, then let the RN save over a 20 year period so that they can start replacing the vessels that are needed to fulfil government requirements. The government then tops up the slush fund if the RN had to dip into it. Rather than the method now where the government waits until the ship or sub has come to the end of its life span then they start speaking about replacing it. What do they expect designers and constructors to do a Harry Potter and magic one out of thin air.
Finally I think that the cost of design, development and construction of the Dreadnoughts should come out of the treasury budget with operational costs from the MoD, that would be a compromise.