The collapse in the value of the pound against the dollar has had only a minor impact on the British defense budget over the short-term and for the moment is not big a problem, according to the Ministry of Defence’s top civil servant.
“The hit on the near-term budget is in the small tens of millions of pounds…. It’s not a big issue,” Stephen Lovegrove, the permanent secretary at the MoD, told reporters during a briefing during a visit to Washington earlier this week.
The pound dropped in the wake of the vote to leave the European Union last June. It currently hovers at around $1.21 and has been weakening in the last few days. The MoD’s report and accounts for 2015-16, page 148, shows the Bank of England currency hedging on behalf of the defence department for this financial year at $1.56 to the pound and $1.59 the previous financial year.
Last year the Royal United Services Institute think tank reckoned a weak pound could cost an already stretched defense budget £700 million annually if the currency doesn’t recover against the dollar, and the Euro, against which Sterling has also weakened.
The MoD is a major buyer of US equipment, most notably the F-35 fighter. But the last nine months has also seen the exchange rate become even more crucial with significant purchases of additional US made kit being made by the British.
Boeing’s P-8 maritime patrol aircraft and Apache attack helicopters and General Atomics Certifiable Predator unmanned air vehicles have all been selected by the British and a deal is in the works to purchase Joint Tactical Light Vehicles from Oshkosh.
“We have a very prudent hedging program with the Bank of England and the Treasury and feel comfortable we’ve managed to mitigate most of the currency risk there. We certainly have thought about what might happen if the pound stays at its current low levels in three or four years time and clearly there would be some effect,”said Lovegrove.
“How that gets defrayed , whether or not that that activity will have to be undertaken through the Treasury, whether we seek to renegotiate [contracts] these things are a couple of years hence,” he said.
“We have no concrete plans to do anything, it’s three years off, we are hedged for three years…. There will no doubt be moments when we have to take decisions but when that is will be the subject to a set of crystal balls.,” said Lovegrove.
The principal goal at present is to fulfill the 2015 defence and security review, he said.
Lovegrove was making his first trip to Washington since being appointed defense permanent secretary last year. The official, who has day-to-day responsibility for running the MoD, including the £36 billion budget, said that one of the items on the agenda for his visit was to discuss potential global challenges from nations like Russia and North Korea.
The Deck has now been enlarged to simulate the aft end of a QEC. The 8 Sea Harrier FA2s are to be retained for the foreseeable future, as the provide a realistic noise level (which the GTA F-35Bs cannot) for trainee deck crew. The RN isn't the only carrier operator to do this, France has a similar facility with the outline of CdG, and even Argentina still has a deck simulation of 25 de Mayo, even though that ship went to the Breakers in 99:
Other carrier operators will of course have their on facilities. My point being it takes a lot more than hot shot pilots to fly from a carrier, and in answer to critics of the RNs efforts to regenerate carrier capability with the QECs, what counts is the people. The guys and girls who will sail in the new ships are not rookies, in addition to training they have received at shore based facilities like these, most will have served an exchange tour with our allies the USN and MN, as well as those currently still doing the relevant jobs aboard HMS Ocean. They have the necessary skills and experience because they are doing the job right now.
