Royal Navy – Austerity version

Some Interesting gossip – and no more than gossip – I have been hearing for the last couple of days. I work in the public sector (nothing to do with defence) and some quite sensible people (we do have them) have been muttering that the hole that the bank rescue is knocking in public borrowing limits may (paradoxically) be good news because the Government “may as well” borrow bit more, ease pressure on spend, and get some money moving around the UK.

What is driving this is the suspicion that the medium term problem is the recession, not the financial crisis, and the Government may be mulling over a serious spending programme, funded by borrowing, to try to kick-start the economy: Good, old-fashioned keynsian stuff. And today Robert Peston relates this line in his blog on the BBC.

Now, if this were true, my current gloom will be shown to be completely mistaken and I will happily admit to having been utterly wrong – because the fleet could benefit mightily. This is because naval shipbuilding generates jobs and income and can be exempted from EU competition requirements. In other words, we can ensure that the business stays in the UK. So if a Keynsian spending programme was planned, then there would be a very good case to be made for a fleet expansion programme because it ticks so many Keynsian boxes – combining retention of heavy industry and high technology capacity, UK skills retention (in depressed areas), possible export orders as unit costs reduce etc etc. Even naval manpower expansion has upsides as it involves skills training.

Obviously this requires a 180 degree turn by both Treasury and Government. But if that was ever to happen, now would be the time. And if it happened, every possible effort should be made to make the case for more and better ships. Because the chance will not come again.

Sir Lancelot bought and named braveheart GLENN group bought it
Sir Bedivere is in Portsmouth still in good nick when i saw it
Sir Geraint has been broken up 2005 in India
Sir Percivale has been decommission unknown whats happened
the second Galahad is Brazilian ownership

is that all sorry if I missed any or repeated them as this was all i could find about all the serving LSL [bar Galahad which was sunk]

So Tristram, Bedivere and Percivale are still in RN hands in some way, shape or form.

Any idea what happened to the two castles? I know the islands went to Bangladesh.

Sir Tristram was reported a few months ago (with pictures!) to be moored (& staying moored: no sign of moving) at Portland, name painted over, but apparently in use for training.

Two LSLs sold, one scrapped – two still unaccounted for. Sir was in good shape when retired earlier this year.

Sir Lancelot bought and named braveheart GLENN group bought it
Sir Bedivere is in Portsmouth still in good nick when i saw it
Sir Geraint has been broken up 2005 in India
Sir Percivale has been decommission unknown whats happened
the second Galahad is Brazilian ownership

is that all sorry if I missed any or repeated them as this was all i could find about all the serving LSL [bar Galahad which was sunk]

The remaining recapitalisation will be through an issue of ordinary shares which govt underwrites – and may not need to pay up for if (big if) the issue is popular. But again, a provision must be made.

Hmmm, an interesting risk. Wasn’t the recent HBOS issue blessed with a feeble 8% take-up?

RN disposals

Two Hunt class are to go to Lithunania, but that was end-July. Not sure actual contract is signed yet.

Sir Tristram was reported a few months ago (with pictures!) to be moored (& staying moored: no sign of moving) at Portland, name painted over, but apparently in use for training.

Two LSLs sold, one scrapped – two still unaccounted for. Sir Bedivere was in good shape when retired earlier this year.

Out of curiousity, other then a bunch of decommissioned T42 destroyers in portmouth harbour (3-6?), what other decommissioned ships do the RN actually have lying around? For example there are 3 LSL’s that as far as i know are unaccounted for, two hunt class minehunters, plus the two castle class OPV’s.

Not to mention all the SSN’s that are sitting around, though probably stripped of parts since the Trafalgar’s and remaining Swiftsure’s use the same reactor systems.

Were those ships scrapped? sold? or are they rusting away in one of the Naval Bases? Similarly, are there other ships that are sitting around gathering rust?

Edit: and while i’m at it, and i’m afraid to ask this, were the ships that were recently mothballed placed in extended readiness in order to free up the sailors that went to afghanistan to drive trucks and stuff?

Having had a look at the FT over lunch, I believe you are right about 3), & I was wrong. As for the rest – yes. Public liabilities have greatly increased, even if the liabilities are not called upon, & that has worrying implications for government financial planning.

Swerve’s response is a completely reasonable one to what I actually wrote, which will teach me to post in a hurry. At the risk of wandering off into a discussion on public finance:

1. It is not necessarily unrealistic to assume that the special liquidity provision is absorbed. It could turn into real cash expenditure (and quickly too) given current conditions. Banks are sucking up that Govt capital at present.

2. Loan guarantees aren’t spending unless they are called on – but they require financial provisions to enable them to be honoured if necessary – They are on the books. The trouble with this sort of thing is that whilst it can be a very good deal for the taxpayer over time, it can hurt in the short term because of the cashflow implications if they are called on.

3. I think you are mistaken about the bank recapitalisation because it is a quasi commercial transaction – shares are being sold by the banks to raise capital and the Government will actually buy some (not all) of those shares (with borrowed money) transferring capital to the bank. If it were simply a paper transaction I’m not sure it would work. But it certainly is true that the Govt is only committing to buy a number of preference shares. The remaining recapitalisation will be through an issue of ordinary shares which govt underwrites – and may not need to pay up for if (big if) the issue is popular. But again, a provision must be made.

So the problem is the government has a liability of around (probably) £40m and a contingent liability of £550m – and must plan on the basis that it may crystallise…And it is what this does to future spending assumptions that worries me.

Remember the total cost of the Bank bail out may be in the order of £600 billion (i.e. recapitalisation funding of c.£40bn, £250 bn of loan guarantees and £200bn of special liquidity). Our total public expenditure budget this year was expected to be c £585bn. So the bill just doubled.

That assumes that the recapitalised banks become completely worthless, that all of the borrowers of guaranteed loans default almost immediately & the special liquidity all disappears into a black hole, none of which are realistic assumptions.

Loan guarantees aren’t spending, unless the loans are defaulted on, & een then, not until it actually happens. With half-decent luck they’ll cost us nothing, & even with appalling luck they’ll cost a few percent of that 250 billion. Ditto the special liquidity. Indeed, that can even be profitable, if it works.

I think even the bank recapitalisation isn’t actual spending. If I understand it right (someone correct me if I’m wrong), it works as a book-keeping exercise. The Bank of England puts n billion onto its books as liability for the shares of the banks, & the banks issue extra shares to that value to HMG. We only have to cough up cash if the banks can’t meet their liabilities. And they’re preference shares, so the poor suckers who own ordinary RBS, HBOS & Lloyds shares take the hit before the taxpayer. BTW, I expect those shares will be flogged off in a few years, giving a handy boost to Treasury receipts at the time.

Sounds like a damn good time to dump the ID card scheme, any idea what the cost projections for that one are currently running at?

This time last year it was estimated that cost for operating system for 10 years would be £5.6bn (the proposed Government database of all telephone calls and internet activity in the UK is not, so far as I know, costed). Which does make one think, rather, about opportunity costs and so on.

I agree with Mr Beedall’s analysis. The Navy is at the end of a long queue and the Government has just taken on a potentially collossal burden. Remember the total cost of the Bank bail out may be in the order of £600 billion (i.e. recapitalisation funding of c.£40bn, £250 bn of loan guarantees and £200bn of special liquidity). Our total public expenditure budget this year was expected to be c £585bn. So the bill just doubled. Whilst the defence budget at £38bn is not huge (pensions, welfare and healthcare are all about 3x larger) it is not a favourite of this Government. So perhaps my 15% assumption was optimistic?

Sounds like a damn good time to dump the ID card scheme, any idea what the cost projections for that one are currently running at?

I agree with Mr Beedall’s analysis. The Navy is at the end of a long queue and the Government has just taken on a potentially collossal burden. Remember the total cost of the Bank bail out may be in the order of £600 billion (i.e. recapitalisation funding of c.£40bn, £250 bn of loan guarantees and £200bn of special liquidity). Our total public expenditure budget this year was expected to be c £585bn. So the bill just doubled. Whilst the defence budget at £38bn is not huge (pensions, welfare and healthcare are all about 3x larger) it is not a favourite of this Government. So perhaps my 15% assumption was optimistic?

Funnily enough, cheerful reading on Beedall’s site from yesterday.

Five Words

Fitted For But Not With

If it is only a 15% cut that is needed, and only temporary:

There is such a thing?:dev2: Okay, maybe I got carried away,:o but one of the biggest funding holes is the upcoming replacements for, well most things, many of which have already been pushed back by a number of years.

Overall, nothing very dramatic would happen, just less ambitious procurement, and probably slightly fewer days at sea.

Isn’t this the story of the last 10 years? Its been a lot of odd-ships in extended readiness, fewer days at sea, and so forth adding up.

Which costs are we addressing here though?. Operations budget or Procurement?.

15% off the ops budget is easy….we are doing it now….get one of the newer European navies that are integrating with NATO like Romania or Poland to take over our slot in SNMG-2 with vague promises of picking up our obligations again if the need where ever to arise…..blah…..blah. There’s one deployment off the board and a hull or two that can be dropped to extended readiness state.

Regressing decisions on MASC back a few years would hurt very little in reality and, in fact, may open up a huge range of extra UAV options as systems reach operational maturity and manufacturers look to exploit existing air vehicles.

IF it looks like EMCAT is going to transpose into a deployable capability in the second half of the 2010’s there may be a half shout for pushing CVF back a couple of years and re-examining the Joint Force Harrier structure. Certainly 75-80 F-35C’s or Rafales would be a cheaper option than 130+ F-35B’s and switching the later batches of Typhoons in to replace GR9 in the RAF would seem to offer little real pain for them and streamline their support requirements. I’d be willing to bet money on a sudden large package of training assistance offered from the USN where we to start talking about taking on 80 -35C’s as well.

As to escort hulls we need to rationalise how and what we deploy anyway. If we use the T45 as a yardstick it seems to offer, as by product of IEP, considerable efficiencies in operation over preceeding COGAG vessels. Either way we go (a) with a hull derived from T45 for C1/C2 or (b) a T45-lite for C1 and a common C2/C3 we are going to end up with hulls that are cheaper to send out than T23’s and T22’s….very much so with the latter option I think a 15% reduction in the Ops budget is almost feasible with the switch to IEP alone (the reduction in AAW DDG’s by 50% not hurting there ofc!)

Off the shelf MARS also stands to reason and, for that type of vessel, we shouldnt be too shy about sending work overseas. UK shipbuilding is going to be fairly well catered for for a couple of decades. Good designs exist in a few places, buying one like BMT’s Aegir and sending it out to S.Korean and European yards on a straight commercial tender makes sense. BAE have in fact proposed something similar to this though I’m a little sceptical as to how much of a role they need to be having on what looks like a fairly simple process!.

Bottom line is that 15% would not really need to stetch us that far near-term or long-term. Mid-term is another issue though. There will have to be some expenditure to shift the current Cold War remenant force structure over to something, akin the the Marine National, that is set up for low-threat long-endurance patrols at extended range from home basing as much as it is for warfighting. Just needs a little vision and a bit of creativity in Whitehall…and landing space for the flying pigs!.

Now:
(Re)define what the Navy should be doing!
(Re)define what the Navy should be doing!
(Re)define what the Navy should be doing!

Scrap the CVF programme, with the probable knock-on of scrapping JSF for the RAF as well. Accept the lack of organic air-power and consequential affect on range of operations.
Withdraw CVL’s – JFH effectively becomes RAF only.
Cut frigate numbers (to 12?) – with the reduction in escort, downsize the amphib fleet?
Keep Astute programme to at least 7 hulls

Future:
Aim to have a a core of 18-20 surface (escort) warships = 6xT45 and 12x”C1″
C1 ASW-orientated version of T45 – no landattack, no mcm?.
Scrap C2/C3 and have a single class requirement of one of the following:

• C2 – light frigate with modular MCM/survey/relief options slated for C3. Try and keep the ability to operate independently and accept that some would have to take on the C3 postings.
• C3 – much as currently envisaged perhaps slightly enlarged/enhanced but cheaper than the alternative C2 option and more hulls.

Use Astute as basis for V-class replacement.

Off the shelf solution for MARS programme.
Scrap MASC

Its a 15% reduction, not an 80% reduction.

If it is only a 15% cut that is needed, and only temporary:

– Stick to six T-45s, and cut the frigate force to twelve T-23s (preferably put the remaining T-22B3s in extended readiness rather than immediate scrapping).
– Still buy the CVFs; they may be expensive, but they are a good ‘showpiece’ for the Navy, to attract more funding!
– Scrap the JSF procurement, and try to pick up a batch of either Hornets (ex-RCAF CBR’d ones?) or preferably Super Hornets. The RAF would also cut the JSF procurement, and just stick with its existing Typhoon order, and keep the Tornado GR-4s in service for longer.
– Keep a couple of the remaining ‘T’ class subs longer, and stick with six Astutes; life extend the Vanguards, hoping to postpone replacement for another few years.
– Future procurement would probably focus on cheap multi-role warships, i.e. something like a C-2/C-3 cross-breed. It would have most of the weapons and systems of the C-2, with the work deck of the C-3; not glamorous, but would be a cheaper replacement for the T-23s.

Overall, nothing very dramatic would happen, just less ambitious procurement, and probably slightly fewer days at sea.

Now:
(Re)define what the Navy should be doing!
(Re)define what the Navy should be doing!
(Re)define what the Navy should be doing!

Scrap the CVF programme, with the probable knock-on of scrapping JSF for the RAF as well. Accept the lack of organic air-power and consequential affect on range of operations.
Withdraw CVL’s – JFH effectively becomes RAF only.
Cut frigate numbers (to 12?) – with the reduction in escort, downsize the amphib fleet?
Keep Astute programme to at least 7 hulls

Future:
Aim to have a a core of 18-20 surface (escort) warships = 6xT45 and 12x”C1″
C1 ASW-orientated version of T45 – no landattack, no mcm?.
Scrap C2/C3 and have a single class requirement of one of the following:

Use Astute as basis for V-class replacement.

Off the shelf solution for MARS programme.
Scrap MASC