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The Next Defense Crunch in Britain

Contracting out in defense is an important public and political issue in both the United States and Britain. When based on the proper principles, contracting out allows the government to draw on private-sector skills and resources to deliver services more efficiently. But in Britain, Labour’s sketchy accounting methods for the cost of these contracts has created another snare for Britain’s defenses.

These contracts, of course, commit the government to future costs. But because Labour has played accounting games that put these contracts on the department books but not the national ones, Britain’s total future obligations  will be larger than those shown on the country’s overall accounts.

Defense isn’t the only department that’s contracted out, of course. Health has done the same thing.  But all the major political parties in Britain are committed to ring-fencing expenditure on health. But the big future obligations certain to show up on defense departmental accounts ensure that when it comes time to examine which departments need to scale back their future spending, the weight will fall even more heavily on defense.

In essence, the Labour government has created another affordability crisis in defense – one that it can now use as yet one more reason to reduce defense spending even further.  Already, over the past few months, the case – a largely spurious one – has been made by Bernard Gray’s report on procurement for imposing more cuts on the Ministry of Defense, on the grounds that its future spending plans are unaffordable.

Even on its own merits, this is a painful confession of governmental incompetence: Labour has been in power since 1997, and yet it now argues that the Ministry has somehow, mysteriously, developed plans it cannot afford to fund.  It’s now setting itself up to play the same game all over again: use the contract spending to which it had once agreed to accuse the Ministry of unaffordable future profligacy.  That would be a bad move at any time, but it’s particularly unbearable when British forces are operating alongside U.S. ones in Afghanistan.

Could it happen here?  Well, not easily.  U.S. policy requires programs to be fully funded up front, so the costs are on the books. The purpose of the U.S.’s Military Housing Privatization Initiative – to improve military housing – is similar to some of Britain’s deals, but by and large the MHPI has been well-administered, successful, and properly accounted for.

Still, in an era of justified unhappiness about the size of the federal deficit, coupled with the administration’s desire to spend, the attraction of taking costs off the books is obvious.  If the Obama administration starts to question the “on the books” requirement in a major way, the British experience suggests we should start worrying.



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