The Economics of military outsourcing

UK defence policy is facing major financial pressures. Defence budgets hav been falling in real terms and only recently received a small real terms increas This budget has to fund a major new equipment programme involving th acquisition of Typhoon, A400M airlifters, missiles, warships, submarines and aircraft carriers. New equipment is costly and costs are rising in real terms, typically by about 10 per cent per annum, which is greater than the increase i the defence budget. An all-volunteer force is also costly to recruit, train an retain, since military personnel require salaries which are higher than in the civilian sector to persuade them to accept the disadvantages of the military employment contract (e.g. discipline; unsocial hours and conditions; and risk of injury and death). The funding pressures mean that UK defence policy cannot avoid the nee for difficult choices: something has to go and the question is what goes? The are four broad policy options, namely, ‘equal misery’ or another major defe review or higher defence spending or increased efficiency. Typically, gover ments prefer the ‘easy’ options of equal misery (e.g. delays in the new equip ment programme; reduced training) and increased efficiency. Militar outsourcing provides opportunities for efficiency savings. It is not the onl option for efficiency improvements. Others include purchasing equipme more cheaply from overseas, especially high technology equipment which costly to develop and where the UK requires only small quantities (e.g nuclear-powered submarines); and opening-up all UK defence contracts competition (i.e. warships where there remains a commitment to build al Royal Navy warships in the UK).