The Securonomics of UK Defence
How Britain is scrambling to keep up in a dangerous world...
Yesterday I helped launch Securonomics: The Contribution of a Defence Industrial Strategy - co-written by myself and William Freer of the Council on Geostrategy. Maria Eagle MP, the minister for defence procurement, spoke at the launch and there was a lively discussion about the priorities of the Government’s forthcoming Defence Industrial Strategy.
In this edition of Conflict & Democracy I will outline the key takeaways of our report, and how they fit with the wider UK and European scramble to adapt Defence structures to the US walk-away from European security. As always this newsletter is for a non-specialist, politically engaged audience. I will paywall this edition but new subscribers can always get a free preview.
The geopolitical background
The geopolitics of the current situation are terrifying. Trump may be in the process not just of walking away from European security but of trying to do a strategic deal with Russia allowing the carve up of Europe. Even if he isn’t, it is prudent to begin acting as if the risk is real.
Any idea that Russia can be prised away from China is a fantasy. The Russian economy and its corrupt, robber elite are now addicted to the war economy: 40% of state spending is going on defence - and with numerous soft loans being forced out of the Russian banking sector into funding defence, that is only set to grow.
If Russia forces Ukraine into a disadvantageous peace, then its next move could be to destabilise Europe - starting with the refusenik states Slovakia and Hungary, while working away on Austria - and at a certain point they will pick one of three axes of menace to make the next move: Svalbard and Finnmark in the Arctic, Moldova and Romania in the Black Sea region or the prime target the Suwalki gap, which links the Baltic States to Poland.
If any of those axes begins to hot up, then only strong deterrent actions are likely to prevent peer-on-peer conflict. Getting the wider population to understand this peril is one of the most important tasks of front-line politicians. The upside is, as we rearm, the economy will grow.
UK Defence: What’s happening?
The Labour government set three change processes under way in Defence: the Strategic Defence Review (SDR); Defence Reform (DR) and the Defence Industrial Strategy-Statement of Intent (DIS-SOI).
The SDR is about what: the external review team led by Lord Robertson were asked to assess the nature of the threats to the UK and propose the redesign of capabilities and force structure to meet it.
Defence Reform is about how:
it reverses the Levene Reforms of the 2010s, unifying control over procurement across all five domains of warfare, under the control of a new National Armaments Director (NAD), whose job ad went up this week - though an interim NAD will be appointed when the new structure goes live on 31/03/2025.
It also pulls the Military Strategic HQ function into the heart of MOD, producing a new wiring diagram aimed at turning the department into a warfighting leadership with a department of state attached, rather than the other way around.
Defence Industrial Strategy is about what with: its aim is to update the outdated (and scarcely executed) 2021 Security and Defence Industrial Strategy, with - in my analysis - a set of operating instructions for MOD as it stewards and grows the UK Defence Sector, as part of Labour’s Five Missions approach to growth. The DIS will, once designed and executed, slot into the government’s wider Industrial Strategy.
Of these three change processes, SDR is at its most advanced and is due to go live at the end of this month. It is said to be pretty complete, while DIS looks more at the design stage.
But the decision to go for 2.5%/GDP Defence spending, together with the USA’s decision to leave European countries to front up Ukriane’s security, and to likely draw down capabilities in Europe, has led Keir Starmer to initiate a fourth process: a Single National Security Strategy, to be presented to Parliament before the NATO summit in June.
There are no details about this process, but the logical content would be to relook at the UK’s “grand strategic” vision in light of Trump’s isolationist moves. This process therefore sits above, and has to synthesise the outcomes of SDR and DIS with - for example - the emerging new defence-industrial architecture of the European Union, and its associated funding vehicles.
When Labour came to power, they wanted to avoid doing a big, navel-gazing repeat of the Integrated Review (2021, refreshed in 2023), because the need to match capabilities to threats is urgent - and was never properly addressed by IR21/23.
The reason for that omission is clear: Boris Johnson didn’t have the money to match the capabilities to the threats, and didn’t have the political capital - after Dominic Cummings departure - to start making radical deletions of UK military capabilities that Cummings is said to have wanted. And then he was gone…
So Labour’s aim was to grasp the nettle: threat assessment first, capability mix second, make the case for increased funding out of that. But due to the dire fiscal position - Britain is currently spending more on debt interest than defence - the SDR was reportedly given a fixed spending envelope.
Stepping back, we could say that since 2020 the British state has been trying to grapple with the following problems:
It has the wrong capability mix for the threat it is facing
Its armed services jealously guard their sacred cows, which in a system-of-systems era is counterproductive
It doesn’t have the money to pay for the force needed to ensure national security
It left the EU, creating obstacles to integration and collaboration there
And now the USA has walked away, the UK has to lead a coalition of the willing in Ukraine, while fighting to maintain its place among any pan-European initiatives to produce collaboratively and at scale.
As I have suggested elsewhere, the fifth bullet point is:
The UK does not have a grand strategy.
Until February 2025 its grand strategy was to uphold the rules based global order, or to maintain islands of order amid the disintegration, by sticking as close as possible to the USA and exerting leadership in NATO. Now its main ally has embraced Great Power competition, and deprioritised European security, and is making gross concessions to Putinism in many theatres.
As a result, the nitty-gritty work done by Lord Robertson’s team in the SDR has to be folded into a wider National Security Strategy discussion that asks: where do Britain’s strategic interests now lie; how are they formulated; how does the deterrence of Russian aggression fit into this wider picture.
As they ponder all this, the Defence Industrial Strategy still has to be designed - and it is on that our Securonomics report was centred.
The Defence Industrial Strategy challenge
What we’ve tried to do in our Council on Geostrategy report is focus on a) what a defence industrial strategy looks like b) some of the main problems it has to solve c) why institutions – sometimes micro-institutions – are important levers.
If you ask economists what industrial strategy is – especially some of the people who designed and then critiqued Bidenomics – it’s basically sectoral reallocation. You use a mixture of rules, incentives and institutions, plus money from the state, to shift workers, capital and resources from low-value sectors to high value sectors.
But the problem is doing it. High value sectors are high value because they entail risk – and capital post 2008 is risk averse. It’s even charging HM Treasury >4.5 % to lend to the state.
Plus, the economy is always stickier than you think. Getting someone to train as a welder or electrical engineer, getting a pension fund to invest in combat air, or getting an engineering graduate to actually become an engineer, not a quant in the city, means breaking an existing pattern.
Our low value, low productivity biased economy exists not because of an absence of private money - the UK is still financial capital of Europe - but because the investment goes into the wrong things, above all into rent-seeking business models.
Example: In my district of London there is a cluster of Chinese and Gulf owned luxury apartment and hotel hi-rise complexes. Many of the apartments are owned by buy-to-let empires, and generate sky-high rents for their owners. But at street level they also generate low-skilled, low value employment. A small army of Deliveroo riders to feed people too busy to cook; an army of cleaners and concierges and security guards and even car parking guys; and then the inevitable chain restaurants.
Which is all part of everyday life in a metropolis, but it means productive investment is crowded out. It is much easier to become a Deliveroo rider than it is to become a welder; much easier to open a branch of Itsu than to open a factory making drones etc.
So defence industrial strategy has to be active. It has to wrench capital, labour and resources away from sectors where they are now focused and into R&D, manufacturing modernisation, the steel and energetics supply chain, critical minerals and - at the sharp end - new military capabilities.
It has to be like an OPORD given in the military: “we need to achieve this aim, with these quantifiable effects, and we’re giving you the following forces and force multipliers to make it happen”. The 2021 DSIS was, by contrast, like a New Year’s resolution: “here’s our collective declaration that we’re to do things better”. To move beyond this there have to be metrics, goals, new institutions and responsibility cascading through them.
Four big DIS issues
There are four big issues for UK Defence Industrial Strategy - which our report highlights, together with the solutions we’ve suggested…
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