Afghanistan Eating Into British Investment In Defense And U.S. May Follow

(MoneyWatch)  It is being reported that the Royal Air Force (RAF) is creating a package of cuts and restructuring for the next defense budget in England. The idea is that if the service itself proposes these ahead of the preparation of the budget by the Ministry's leadership they will get to pick and choose where they occur rather then having them dictated.

It is assumed that no matter if their is a new Conservative or Labor government the cost of continuing operations in Afghanistan will eat into the support of existing forces as well as future investments. This is why in the past the U.S. military has relied on supplemental spending for its operations in Iraq and Afghanistan preventing the base budget from being raided to pay for them. This still happens in small amounts but not enough to seriously effect investment in new equipment.

The RAF proposal is to eliminate older aircraft and close some bases through consolidation. This will then hopefully keep enough money available to continue development and production of the new aircraft such as the Eurofighter Typhoon and EADS' A400M transport. The worse case scenario would be that the costs of operations continue to increase while the money available for defense spending goes down to the point that even the new systems need to be canceled. This would lead to shrinkage of the total force and its capabilities.

Obviously this trend will have a serious effect on the contractors who sell equipment and services to the core British military. This would include BAE Systems, Eurofighter and EADS as well as myriad smaller companies who provide components to the manufacturers and equipment like radios, weapons and support equipment. Closing bases and eliminating older systems also ends maintenance and service contracts for those facilities and aircraft. There would also be a reduction in the demand for training as there would be fewer personnel required.

That is why any decision like this cannot be made lightly. The economic effects on parts of the British countryside would be harsh and widespread. For the same reason canceling or further delaying the new British aircraft carriers would devastate Scotland's economy. Unfortunately the world economic downturn is already affecting how much money is available for defense spending in England and the United States.

The modest cuts to programs made in the 2010 budget by Obama and Gates have already started to have some effect on jobs. This is when the U.S. has over ten percent unemployment already. The decision to end F-22 production will probably cause the most job losses over the next five years as it was the one program cut that was in steady state production. The other big programs were still in development and employed a great deal less workers.

The problem faced by both England and the U.S. is that they cannot continue the pace of deficit spending and that will lead to overall reductions in spending including defense spending. At the same time they are committing more rather then less to Afghanistan increasing those costs. Something has to give and it may be cuts to existing forces not necessary to those operations as well as not starting new investment programs. Either way this is bad for the defense industry in both countries.