Category Archives: Defence

Underfunded & Underprepared: Is Britain’s Defence Broken?

GK Adviser Felix Griffin dives into the challenges facing the MoD, from funding shortfalls to sluggish decision-making, and explores potential paths forward.

Incoherent strategy and a lack of funding is hampering progress

The UK’s Ministry of Defence finds itself grappling with a yawning funding gap, a rapidly evolving global landscape demanding a more responsive military, and an uncertain political landscape.

The biggest hurdle? Money – not just the lack of it but also how its spent.

Having fallen down the pecking order in the Chancellor’s recent budget, defence spending is set to receive no additional funding under the current government’s remaining tenure.

Meanwhile rising costs, particularly in nuclear deterrence and ambitious naval programmes, have created a staggering £16.9 billion hole in the MoD’s Equipment Plan – a shortfall which effectively handcuffs the MoD’s ability to modernise its equipment and carry out crucial projects necessary to maintain a robust defence posture.

There’s more to this than just money. Recent warnings highlight long-standing and systemic inventory failures in all three categories of inventory across the UK armed forces: Capital Spares, Raw Material and Consumables, and Guided Weapons, Missiles and Bombs. This raises a critical question: even with increased funding, would the UK be able to effectively equip its armed forces? The current evidence suggests not, presenting a deeper problem that needs addressing.

These issues point not only to a lack of innovation in procurement and strategic thinking, but also to sluggish decision-making processes that hinder the MoD’s ability to react swiftly to emerging threats.

Defence Secretary Grant Shapps’s stark assessment of the current situation – a transition from a “post-war world into a pre-war world” – rings all too true. The war in Ukraine serves as a stark reminder of the impact of large-scale conflict in Europe, while regional instability in the Middle East and the ever-growing tensions in the Asia-Pacific all demand a more agile and capable military from the UK. These diverse threats, which are by no means an exhaustive list, require a comprehensive and adaptable defence strategy from the MoD; something which the most recent Integrated Review (2021) failed to deliver, even after it was refreshed in 2023.

With the possibility of a new Labour government becoming increasingly likely, the party’s stance on defence policy and spending adds another layer of uncertainty.

I attended a Policy Exchange event on 28 February, which saw Labour’s Shadow Secretary of State for Defence, John Healey, articulate his party’s vision for national defence. While recognising outdated practices and the imperative to modernise, Labour’s defence plans appear largely underdeveloped, or at least under-communicated.

Despite outlining some interesting plans, including a new national armaments director and the enhancement of the Chief of Defence Staff’s role, Healey’s speech fell victim to his party’s commitment to fiscal prudence, lacking significant substance and ambition. Though highlighting the state of defence when Labour left in 2010, with comparatively higher levels of defence spending (2.5% of GDP), as well as better troop numbers and satisfaction (over 100,000 soldiers and 60% approval), Healey emphasised the need to streamline existing processes before making financial commitments, underscoring a cautious approach. Nevertheless, Labour’s emphasis on reform and strategic preparedness offers a glimpse into their aspirations for bolstering the nation’s security in an increasingly uncertain world.

Artificial Intelligence: ‘The Future of Defence Capability’

GK Senior Adviser Robert Blackmore assesses how world leaders will increasingly need to consider the implications of incorporating AI as part of their defensive capabilities, and looks ahead to this week’s summit on the governance of artificial intelligence.

This week Bletchley Park will host a global summit on safety and Artificial Intelligence. For the first time, world leaders, AI companies and researchers will come together to discuss the opportunities and risks surrounding the development of the most revolutionary technology since the discovery of nuclear fusion. The summit aims to initiate the development of a global consensus on AI governance.

Whereas much of the initial focus on the purpose of nuclear technology had military connotations, experts today highlight the impact AI may have on every aspect of our lives. Bletchley Park will therefore host discussions on a wide range of potential over-arching implications of AI. However, with an historic rise in global deaths by conflict reported by the Institute for Economics and Peace, not least following Russia’s second invasion of Ukraine in 2022, and the latest outbreak of violence in the Middle East, it is important to consider the role of AI and defence in isolation.

Earlier this year, Lord Sedwill, the former National Security Adviser, suggested to the House of Lords Select Committee on AI in Weapons Systems that AI was “the future of defence capability”. While he assured Peers that such a development would not equate to “Terminator” or “Matrix” style killer robots – a view that is not universal – the implication was clear: developments in AI have the potential to have dramatic ramifications for the defence sector, and in turn, the future of warfare.

This has not been lost on the world leaders. In 2018, rather ominously, the United States warned: ‘Our adversaries and competitors are aggressively working to define the future of these powerful technologies according to their interests, values, and societal models. Their investments threaten to erode U.S. military advantage, destabilize the free and open international order, and challenge our values and traditions with respect to human rights and individual liberties.’

In response, the Pentagon published an AI Strategy that sought to transform the ‘speed and agility’ of US military operations and identified several potential benefits of AI, including improving situational awareness and reduce collateral damage. Meanwhile, in 2022, the UK Ministry of Defence outlined its ‘Defence Artificial Intelligence Strategy’, highlighting its ambition for the UK Armed Forces to be the world’s most ‘effective, efficient, trusted and influential Defence organisation’ for its size.

Nor has the potential of AI been lost on the defence industry. This year defence contractor Leidos formed a strategic partnership with tech giant Microsoft, while Lockhead Martin has invested multi millions in AI technology and established and ‘AI factory’, as reported by Forbes, to ‘streamline access of its software writers to the resources they need for generating AI applications’.

AI already plays a crucial role in military operations. For example, it is being used by the Ukrainian military to rapidly review satellite images and video feeds from drones. Crucially, in this scenario AI acts a vital supporting tool for military operators to make decisions. Ultimately, final output remains the preserve of human, as opposed to artificial, intelligence.

This is the crux of the matter. As AI’s capabilities increase, how much agency should it be given to act according to the set of instructions established by its human handler? Can we trust a weapon acting autonomously not to make catastrophic errors in the context of life and death scenarios? Once you remove human oversight from weaponry, you are left with Automated Weapons Systems (AWS), loosely defined as systems that can select and attack a target without human intervention.

The closest such weapon in existence is believed to be STM’s Kargu-2 drone. It has been deployed by the Turkish, and reportedly Azerbaijan, armed forces. Unsurprisingly, there are significant ethical concerns about the further development of such weapons. The International Committee of the Red Cross (ICRC) has argued AWS risk escalating conflicts in an unpredictable manner and thus potentially aggravating humanitarian needs, while Amnesty International claim such machines would automate killing, treat it as a technical undertaking, and refrain from making life and death decisions with any empathy or compassion.

As it stands, there are no formal international rules governing the use of AI in a military context. United Nations Secretary-General António Guterres has called for a legally binding instrument to prohibit lethal autonomous weapon systems without human oversight by 2026. While in February, 33 Latin American and Caribbean States called for the urgent negotiation of a legally binding international treaty on autonomy in weapons systems that will guarantee human oversight. As recently as October, Pakistan’s representative to the United Nations’ First Committee on Disarmament and International Security stated that “We are at the verge of a monumental step in human technological history, heralded by the advent of artificial intelligence”, warning that there were insufficient guardrails governing the ‘design, development and deployment’ of AWS.

However, the obstacles that the creation of an international agreement would face are stern. Professor Sir Lawrence Freedman, during a hearing of the House of Lords AI in Weapons Systems Select Committee in May, told Peers that the speed at which AWS technology is developing would inevitably outpace any negotiation of such treaty. Furthermore, for it to have purpose, it would require agreement in good faith between adversaries. Negotiations over nuclear disarmament between the Cold War between the United States and the Soviet Union, culminating in the much-heralded 1987 Intermediate-Range Nuclear Forces Treaty (INF Treaty), has shown that this is possible. However, the necessary geopolitical conditions must be in place, as they where in the late 1980’s between the two global superpowers. It is for this reason, this week’s AI Safety Summit could be so crucial, even if it is not directly dealing with the use of artificial intelligence in a combat setting. For China, despite its soaring tensions with several countries present, not least the United States, will reportedly play a key role at the summit. A delegation from the Chinese Ministry of Science and Technology will be in attendance. While, the Telegraph suggests that Professor Yi Zeng, a leading academic at the CCP-controlled Chinese Academy of Sciences, will chair a behind-closed-doors session focusing on the risk that AI mechanisms may “unexpectedly develop dangerous capabilities”. It would be a great surprise if AI in the context of warfare was left unmentioned.

Therefore, at a time when the geopolitical stakes are so high, the AI Safety Summit has the potential to establish a common cause in relation to the governance of AI. This could perhaps lay the foundations for a pathway, however embryonic, towards an international guardrail in relation to Automated Weapons Systems.

What does the ongoing conflict in Ukraine mean for private equity investment in UK defence?

GK Senior Adviser Hugo Tuckett analyses the historical challenges for private equity investment into the defence sector, and takes a look at investment landscape in the years ahead.

Defence has historically been a challenging area for private equity. The nature of contracts, cash flow models and high barriers to entry have often been cited as reasons for a lack of investment. This is alongside the perception that the industry is dominated by a relatively closed shop of actors.

However, has the Russian invasion of Ukraine changed the outlook for private equity in this space? Does an on-going war in the Europe open the door to investment in technologies with an offensive application?

ESG considerations have certainly softened. While private equity houses have traditionally steered away from investing in defence due to ethical considerations, public attitudes in the UK indicate a continued desire to provide military support to Ukraine. YouGov polling, conducted in February 2023 on the one-year anniversary of the Russian invasion, found that 65% of Britons supported sending additional weaponry and supplies to the country. There was also more support (45%) than opposition (25%) for cyber-attacks against Russian military capabilities.

Furthermore, the Government’s continued desire to financially back UK defence points to a healthy procurement environment in the years ahead. The Defence Secretary’s very public lobbying efforts to secure additional funding on top of the multi-year settlement agreed in 2020 have certainly been fruitful. At the recent Budget, the Chancellor, Jeremy Hunt, announced that the Government will commit an extra £11bn to the defence budget over the next five years and confirmed the decision to increase investment by £5bn over the next two.

Where, therefore, does private equity most stand to gain in the industry? KPMG analysis from 2021 highlights two possible areas private equity houses might look to explore. Firstly, supply chain consolidation. Liquidity issues amongst the supply base lends itself to lower-tier suppliers joining together to create economies of scale and gain access to more capital. Secondly, in innovation. For growth-orientated investors, cutting-edge assets that become available to the market via divestments from parent companies presents an opportunity for private equity houses to bring their expertise to assets that could go onto become extremely successful businesses.

While, of course, some parts of the defence industry remain outside the scope of private equity, shifting public attitudes to offensive military technology and growing Government financial backing certainly point to a welcoming investment landscape in the years ahead.

GK consultants are on hand to offer investment professionals our expertise helping to assess the UK’s political and regulatory outlook. Please get in touch at hugo@gkstrategy.com for more information.

IR23: The Government’s renewed approach to Defence

The UK Government has now published its long awaited ‘2023 Integrated Review Refresh (IR23)’, which updates the UK’s approach to defence. Please download a summary of the measures that will be set out, by GK Adviser Felix Griffin.