The SNP’s ‘Growth Commission’ and defence: New numbers; same old story

Picture from UK Defence Journal

Yet another Growth Commission blog?

Since the publication of the SNP’s ‘Growth Commission’ report, many commentators have discussed the assertions, recommendations and inconsistencies in the 354-page document.

Experts, such as those at the Institute of Fiscal Studies, have noted the austerity which Scotland would experience if it were to follow the report’s recommendations [1]. Others have provided analyses of specific areas of the report, [2] including its apparent incompatibility with EU membership [3]. However, as far as I am aware nobody has yet looked in detail at the report’s claims and assertions about defence spending in a separate Scotland.

Of course, nobody who knows me would be surprised to hear that I think there are many reasons why Scotland, and the UK, would suffer if Scotland were to leave the UK: defence is only one of many area for consideration. However, I believe it is worth looking at what the SNP’s new flagship report says (or doesn’t say) about defence strategy, policy and costs. I don’t want to position this as anything other than a theoretical exercise, but if the SNP’s assertions are not reviewed and challenged, they could become orthodoxy. [4]

Defence matters

The basic contract between citizen and state is for people to provide support to the machinery of state (usually through taxes, but in some countries the support could include labour as conscripts) in exchange for the state’s guarantee of security [5]. In extremis, this means defending the country’s borders against invasion, but it can also extend to defence diplomacy; contributions to alliances; dealing with natural disasters at home or abroad; or specific military missions to support citizens, such as when UK armed forces rescued hundreds of oil workers from Libya in 2011 when civil war broke out.

At present, all of the UK benefits from the collective defence of our country, including our shared airspace and surrounding seas, thanks to capable and integrated armed forces and intelligence networks. These help to protect all of us from threats such as terrorism, cyber security and organised crime. Our UK defence policy and capability keeps Scotland safe, and enables us to exert influence and support peace, security and disaster relief in other parts of the world. Scottish units and individual Scots play important roles in the British armed forces, and have done so for hundreds of years [6]. As part of the UK, we are also leading members of NATO, influential players in allied intelligence networks and have a permanent seat on the United Nations Security Council.

The UK currently spends over £35 billion a year on defence, [7] including investing in ship-building in Scotland. There are currently about 18,000 Ministry of Defence personnel in Scotland, of whom about 14,000 are serving army, navy and air force personnel [8], and it is reasonable to assume that this will rise once the entire UK submarine fleet is based at Faslane. There are benefits to the local economies around these bases, as companies provide direct services to the bases, and as a result of economic activity by the forces personnel and their families. [9]

An independent Scotland would need to create its own military and security forces and infrastructure. So, can the ‘Growth Commission’ report convince us that we’d be more secure if Scotland were to separate from the UK? That is surely an important test for the report, and a significant challenge for the SNP when it comes to defence and security.

Random number generator

The Growth Commission report’s defence paragraphs are in Part B of the report, which is snappily entitled: ‘The Framework & Strategy for the Sustainable Finances of an Independent Scotland’. Some commentators have suggested that many of the Growth Commission’s recommendations could be followed with Scotland still in the UK. Part B of the report, though, is overtly an ‘if we were independent’ pitch, making it an attempt to replace the ‘White Paper’ of the 2014 campaign.

That ‘White Paper’ made some specific claims about troop and equipment numbers, but without much in the way of financial calculations to back them up, other than to claim a defence budget of £2.5bn would be adequate. Given that budget, the SNP’s claims that a separate Scotland would have 15,000 armed forces personnel, and equipment including two frigates and a squadron of Typhoons were at best optimistic [10]. The degree of accuracy was always suspect, and some comprehensive analyses at the time cast doubt on the realism of the SNP’s plans. [11]

The Growth Commission report takes a slightly different tack, effectively starting with the assertion that defence spending would be 1.6% of GDP. It also states that the armed forces would number 12,600. However, there is a disconnect between the two paragraphs in the report: one is based on a % share of GDP, and the other is based on a population share (see below). This chopping and changing could be called trying to have one’s ration pack and eat it. Whether this is due to sloppy drafting, or deliberate obfuscation, only Andrew Wilson and his team can answer.

The next question should be: where does 1.6%, or indeed 12,600, come from anyway? On what threat assessment is it based? What assumptions about the land, air, sea (surface/ subsurface) and space capabilities a separate Scotland would need to counter a range of threats? What assumptions on the proportion of reserves to regulars? What assumptions about whether Scotland would be a member of NATO? I’m not sure the Growth Commission report really needs more padding – it’s already a 50-page report squeezed into 354 pages – but shouldn’t there be some strategic basis for the numbers articulated?

Absent any strategic statements in the report, let’s consider from where the 1.6% figure might come. My guess is that it’s a number which is simply (1) less than currently the case, so that some notional savings can be banked (2) not very far from 2%, so that people who think we should be in NATO might imagine a separate Scotland could join the alliance.

There’s even a possibility that it’s in there to imply, for those that want to read it that way, that there’s a dividend from not having nuclear weapons – even though cutting Scotland’s ‘share’ of Trident would save less than c£200m a year, [12] and thus isn’t that relevant to overall budgetary considerations. If anyone has some better insights into the origins of the figures, by the way, I’d be delighted to hear from them.

Moving target range

There are some other defence-related lines in the report which appear to have been drafted by a PR agency rather than a defence economist. For example, there is a suggestion that there would be benefits at the point of separation because defence activities to which Scotland contributes currently take place outside Scotland [13]. Is the implication of this really that soldiers shouldn’t go on defence missions outside their home country, or that the putative (Royal?) Scottish Navy would only patrol within coastal waters? Perhaps the SNP don’t value our current garrisons in Cyprus, Gibraltar, the Falklands and elsewhere; but are they really suggesting that we wouldn’t have strategic bases and multinational exercises outside Scotland, and that this would be a sensible way to make savings, or to afford home-based forces?

Similarly, there is a broad assertion that in general a separate Scotland could save money by doing less, because it would be small [14]. There might be some merit to this, if we are prepared to accept less influence (e.g. in the UN) as part of the cost of doing less. Indeed, we could even take this to conclusions such as: ‘if we don’t have any early warning aircraft or surveillance satellites, we won’t need any intelligence analysis of their output, so we can save money on analysis’. However, I am unconvinced by the ‘smallness’ argument, mainly because there will be a huge loss of economies of scale. If we needed to train one squadron of fighter pilots, we would still need pretty much the same training operation as if we had six squadrons; or if we needed a forces postal service, it wouldn’t be a tenth of the cost if our forces are a tenth of the size; specialist and senior levels of training would need to be contracted out, unless a top heavy training structure was established, and the bill would add up.

In another section of the report, there is an estimate that average pay for armed forces personnel would be just over that of a private soldier, at about £20,000 a year [15]. In this section, which is in itself interesting for the way it claims the tax benefits of public sector employees (perhaps assuming that otherwise these people wouldn’t be employed at all), it is actually prudent to low-ball the average. However, this assumption about average pay shows a lack of research and insight: the fully loaded ‘capitation’ rate for a private soldier is actually about £35,400 a year,[6] and the average UK armed forces person costs well over £50,000 a year. Even reverse engineering from this estimate makes the average base salary over £30,000 a year [17].

For the Growth Commission report to float the £20,000 figure at all implies a disregard for the value of military personnel; a misunderstanding of the real world of defence budgets; and a blindness to the need to recruit high calibre people into the armed forces. Perhaps, of course, the SNP really are saying that the Scottish armed forces are simply going to pay their people less. If so, it seems optimistic to expect people to transfer from the UK armed forces to the new Scottish Defence Force, with fewer opportunities, for less money; particularly if the option of remaining in the UK forces was open to them.

The report also makes a nod to some kind of ‘buy local’ policy for defence, with the assertion that spending, ‘likely to be heavily focused on procurement’, would have ‘potentially very significant positive effect on domestic growth and jobs’ [18]. Many countries support their domestic defence industries, including in the awarding of armed forces equipment contracts (for example, the policy of Royal Navy warships being built in the UK), but we should bear in mind the likely impact of separation on Scotland’s defence industry. For advanced weapons, an independent Scotland would be unlikely to benefit from the technology transfer partnerships which the UK has with the US, for example. Buying materiel locally in Scotland is unlikely to provide the kind of technologically advanced equipment that is currently available to the UK armed forces.

My final point on the origin and details of the defence numbers in the report is that budget allocations are a political choice. The report asserts that there savings possible following a budget review. In defence, these could be hard to make without cutting capability further. Given the need to reduce Scotland’s deficit (a need which the report acknowledges, even if there are flaws in how it calculates the reduction) [19], I suspect even the 1.6% assumption might come under pressure if a populist government sought to provide more immediately popular hand-outs for its citizens. Of course, we could simply say that we won’t support UN operations, or come to the aid of allies, or rescue our citizens stuck in war zones.

“But those rules wouldn’t apply to us”

During the 2014 campaign, the SNP said that Scotland would be in NATO, but at the same time the Yes campaign repudiated nuclear weapons. However, NATO relies on nuclear deterrence, provided by some of its members for the benefit of all, as the ultimate guarantee of security against a potential nuclear-armed foe. A separate Scotland might choose not to operate nuclear weapons (indeed, it would almost certainly lack the money, facilities and expertise, given other assumptions around spending), but it would need to be open to hosting other countries’ nuclear weapons and it would need to commit to a nuclear alliance [20] if it wanted to benefit from NATO’s collective defence.

The language used in the report suggests that Scotland would be in NATO (for example, in comparing defence spending relative to GDP to that of other NATO countries [21]), but without actually saying Scotland would join. This is similar to the report’s sections on the EU, which imply but never say directly that somehow a separate Scotland would get a special deal and might be able to join the EU without committing to joining the Euro. In both cases, this is probably wishful thinking.

My guess is that the report is deliberately unclear because it wants to appease the Scottish Green Party (on whom the SNP currently rely in Holyrood), just as it’s unclear on the EU because many Scottish nationalists are anti-EU [22] – and also because it’s obvious that 1.6% of GDP is below the 2% expected threshold for NATO members.

With regard to NATO, I suppose the SNP might claim that we’d get a special deal. I would merely ask why they think that would be the case – not based on existing members as examples, but based on the circumstances which would prevail at the time of separation. Is it really likely that the alliance would make a special exception for a Scotland which has just weakened one of its most significant members? Specifically and locally, NATO is unlikely to look kindly at separatists who have managed to undermine the alliance’s ability to project force into the strategically important ‘Greenland-Iceland-UK Gap’ area.

I know I’m not the only person who is sceptical about NATO receiving an independent Scotland with open arms, just because we’re Scottish, or something like that.

Wha’s like us? Damn few (or actually: nobody)

Given my scepticism about the origins of the Growth Commission report’s assumptions and presumptions about defence, I’m a bit wary of going further into the detail to analyse them, as it might imply I think there are some realistic scenarios presented. However, I think it is still perhaps instructive to consider what the figures could mean if we did take them at face value. Let us do that by indulging in the Growth Commission report’s favourite tactic of comparisons with other countries. (Spoiler: no other country is really that much like an independent Scotland would be, particularly when it comes to defence).

Because of the way the Growth Commission report flits between % of GDP, population share, and absolute numbers (and also leaps forward to 2021), it’s a bit of a challenge to decide which factor to pick as a comparator. Given that the report is mainly about the economy, let’s use the 1.6% of GDP figure as our starting point. Obviously picking countries with similar % of GDP defence budgets is pretty useless, as the total sizes of their economies are very different, but just for the record: Nepal, Bulgaria, Norway, Honduras and the Seychelles all spend 1.6% of GDP on defence [23].

Let’s be a bit more realistic, and consider what 1.6% of GDP would mean in monetary terms, today (remember, this is still a theoretical exercise – obviously Scotland isn’t independent today, but if we’re to do a comparison we will need to compare with other countries today). The Scottish Government’s National Accounts publication gives Scotland’s estimated GDP as £152.1bn to £165.4bn, so we’ll take the highest number and start from there. 1.6% of £165.4bn [24] is £2.65bn (rounding up, again).

If we’re going to compare with other countries, we need to deal with currency conversion. We could do that simply by converting to a common currency (say US dollars) at current exchange rate, giving the notional independent Scotland a defence budget of $3.49bn [25]. This would put it close to Morocco ($3.46bn), South Africa ($3.6bn), Bangladesh ($3.6bn), Ukraine ($3.6bn) and Finland ($3.6bn).