According to Mark Stoker, a defence economist at the International Institute for Strategic Studies, UK defence spending has fallen to 2.5 per cent of gross domestic product compared with about 6 per cent towards the end of the cold war.
"Spending has increased by 1.5 per cent over inflation annually during the last three years," he says. But the value-for-money that spend achieves is probably falling, because of the soaring cost of new technology, fuel and wages.
By JONATHAN GUTHRIE
Business leaders in the South-West were dismayed by the US president's recent call for Congress to cancel a Dollars 2.4bn (Pounds 1.4bn) warplane engine contract.
The South-West is more dependent on defence spending than any other European Union region.
And Rolls-Royce, whose military engine business is based at Patchway near Bristol, is a 40 per cent partner in the programme with General Electric of the US.
"It was a major blow," says Howard Chesterton, chief executive of the South West of England Aerospace Forum, an industry body.
Mr Chesterton takes comfort from the fact that "the cancellation is not yet a done deal". It is up to congressmen to approve the move later this year.
But hopes of reviving the programme look slim, even though its lobbyists include Sir Digby Jones, director- general of the CBI, and Rolls-Royce itself.
The UK has committed to buying 150 of the Joint Strike Fighters, for which GE and Rolls-Royce would have created an alternative engine. But Tony Blair, George W. Bush's closest foreign ally, has already failed to win a reprieve for the project.
The fuss tellingly highlights shifts in defence strategy that have big implications for a defence industry centred on the South-West, but which spills over into Wales. Good news is in short supply.
The recommendation against the F-136 engine project followed MoD confirmation that the Pounds 50m St Athan warplane maintenance facility in south Wales would close.
Then, last week, Devonport Management, which runs Plymouth's historic naval dockyard, announced falling orders would trigger job losses. The T&G union, meanwhile, stepped up its campaign against the closure of the Royal Ordnance factory in Bridgwater, Somerset, describing plans to source more explosives abroad as "exporting the defence of the realm".
The run of bad news reflects the determination of the US and UK governments to make the most of the post-cold war peace dividend. The fact both countries are occupying chunks of the Middle East does not alter this.
According to Mark Stoker, a defence economist at the International Institute for Strategic Studies, UK defence spending has fallen to 2.5 per cent of gross domestic product compared with about 6 per cent towards the end of the cold war.
"Spending has increased by 1.5 per cent over inflation annually during the last three years," he says. But the value-for-money that spend achieves is probably falling, because of the soaring cost of new technology, fuel and wages.
This increases pressure on the Ministry of Defence to chivvy contractors into consolidating their activities. Participating as a junior partner in US programmes is another way for the UK to reduce overheads.
Defence company executives worry privately that British forces are accordingly becoming an offshoot of the US military. They argue that British independence depends on a diverse defence industry, a view whose merit was endorsed last year by the government's Defence Industrial Strategy document.
In practice, that means South-West defence companies have to shift into areas of growing strategic importance for the region to hold onto its 30 per cent share of the UK's defence budget.
Businesses whose activities smack most of old-fashioned superpower confrontation are most exposed to decline. Devonport Management, for example, specialises in maintaining nuclear submarines. These vessels are of distinctly limited use in combating insurgents in the streets of Baghdad. The business, tipped for sale by its ultimate owner, Halliburton of the US, expects to cut 900 jobs by 2008, reducing its once huge workforce to just 3,800.
The closure of St Athan is the result of a push for efficiency rather than a response to changing threats. It was built with a large public subsidy, even as the RAF and BAe were working out how to shift maintenance to bases where warplanes are stationed.
About 500 jobs are expected to disappear. Another 130 posts are under threat at the Royal Ordnance, Bridgwater, whose products have included the "bouncing bomb" deployed by the Dambuster squadron.
Francis Tusa, editor of Defence Analysis newsletter, says bulk sourcing of continental explosives and propellants by the MoD made the plant irrelevant years ago.
More positively, Rolls-Royce believes it can redeploy the 170 staff currently working full time on the F-136 defence jet engine if that project folds. A total of 1,800 people work on defence jet engines at Patchway, which puts the political fuss over the proposed programme cancellation into useful economic context.
Besides, there are doubts whether the interminable project to create the Joint Strike Fighter will ever result in production airframes taking to the skies. "No hostile power is developing comparable aircraft for the JSF to fight," said one commentator, who wished to remain anonymous, "the biggest threat to the JSF is a guerilla with a shoulder-mounted missile launcher".
That, he said, was an argument for dropping the entire programme in favour of building unmanned aircraft that cost less and do not expose human pilots to risk.
Defence contractors who feel, as Mr Tusa does, that the US president's blow to the F-136 engine programme was "a smack in the face" should take comfort from the growing military importance of unmanned aircraft. The UK has declined to participate in rival US and continental projects and plans to develop its own capacity. If British defence businesses do not exploit that, they will have themselves, rather than George Bush, to blame.
