Defence spend analysis: A look at the 2023 Spring Budget

The additional £5 billion allocated to Defence represents an attempt to match increased resources against policy priorities and security concerns within the Indo-Asia-Pacific region. Proxima’s Justin Reuter takes a look at what this means for commercial teams in the department

This year’s Spring Budget allocated an additional £5 billion to the Defence budget over the next two years, on top of the £560 million announced in the Autumn of last year.  Given the current global security context, there is much debate over whether these increases are enough. But rather than concentrating on that aspect, there are also considerations on how these resources are spent and Defence’s ability and capacity to deliver.

March 2021 saw the Integrated Review 21 published, articulating national security and international policy. The review, Global Britain in a Competitive Age, followed the 2015 Strategic Defence and Security Review in what is a five-yearly sequence broadly tied to the electoral cycle.

However, we live in a changing world, and Russia’s illegal war in Ukraine meant that a re-evaluation was required; the Government published the Integrated Review 23 ahead of the Spring Budget. The title, Responding to a More Contested and Volatile World, reflects the impact of war in Europe as well as further consideration of China as an epoch-defining challenge.

A re-focussed approach means more spend in certain areas and challenges in others. Proxima’s Justin Reuter takes a look at what this means for commercial teams in the department.

Integrated Review 23 and the Spring Budget

The 2023 Spring Budget brought alongside it the Integrated Review 23. This policy document reaffirmed security concerns within the Indo-Asia-Pacific region included in the 21 Review but has called for greater attention to the immediate threat posed by Russia, prioritising support to the self-defence of Ukraine and restoration of Ukrainian sovereignty and territorial integrity.

The additional £5 billion, over two years, allocated to Defence in the 2023 Spring Budget represents an attempt to match increased resource against policy priorities.  Since the February 2022 invasion of Ukraine, the UK has made considerable contributions to the Ukrainian military. As a result, UK stockpiles (already considered by many to be too low) have been further depleted. 

The Government has pledged to match the £2.3 billion pounds of military and humanitarian assistance given to Ukraine during the first year of the war; linked to this, £2 billion from the newly allocated £5 billion will be put towards replenishing conventional stockpiles. The remaining £3 billion will be dedicated to the UK’s nuclear enterprise.

The two specific areas where these new funds are being directed reflect some of the policy considerations outlined in Integrated Review 23, with a focus on the Indo-Asia-Pacific tilt and a recognition that Russia is a clear and present danger that calls for questions regarding stockpiles in the UK and across NATO.  Some of the detail of how Defence intends to meet the policy headmarks and use the resource is expected to be detailed in the Defence Command Paper Refresh due in June 2023.

What does this mean for commercial teams?

Whether or not the recently announced increases in spending adequately meet the challenges articulated in Integrated Reviews 21 and 23, additional resource is better than no uplift at all. However, with near-term increases focussed on two specific areas, there are challenges to address in other areas of the organisation. For those areas that did not receive additional funding, the task is finding a way to meet requirements and innovate using their existing budget.

Defence has set itself the task of getting more from the same with the recently commissioned Increasing Defence Outputs work. Amongst other things, this means that commercial teams will need to be laser focussed on becoming more efficient and delivering 'more with less'. Doing the same as Defence has done in the past will not deliver different outcomes — commercial transformation is as necessary as change across the rest of the enterprise.

Large and complicated Defence programmes often take a long time to deliver and are rarely used for what they were originally designed, such is the nature of a changing and volatile world.  The war in Ukraine has forced innovation in the face of an existential threat; UK Defence procurement should learn from this and ask the questions:

  • How can we contract differently and more effectively?
  • How do we seek out the innovation and expertise that resides within the SME community and leverage it within the defence supply chain?  
  • Is there a different approach that can be taken in terms of supply and support?

But should these questions be addressed with an emphasis on flexibility and innovation rather than on process and compliance?

For those areas where additional resources have been made available, the capacity in the procurement system remains the same; this also presents a challenge.  Answering these questions, and identifying ways to deliver the best value for the money being spent, is an important part of ensuring that the UK’s Defence industrial base is supporting the policy requirements and maintaining a competitive edge in the world.

How should commercial teams respond?

There are several strategies that Defence Commercial can implement to navigate these challenges. Firstly, to create the headroom to support additional requirements whilst delivering 'more for less', increasing organisational efficiency is a clear area of focus. A forensic lens needs to be applied to current working practices and processes to drive out inefficiencies (but also recognising and promoting areas of good practice), fully leveraging the benefits that data and technology can bring. Whilst recognising the unique context of Defence, this also includes embracing best practices and learnings from leading global enterprises across the world.

Looking forward, the department should actively embrace the opportunities for flexibility and innovation offered by the Procurement Bill legislation. This needs to include a real focus on harnessing ideas and innovation across the entire defence supply chain, especially within the SME community.

In these volatile times, doing nothing is not an option.

At Proxima, we believe that the best commercial strategies are informed by a broad range of perspectives. Combining specialist supply chain and procurement expertise with experience across both the public and private sectors, we can identify strategies to help teams make a purposeful impact and further deliver value across their organisations.

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