The budget last week saw tax rises of over £40 Billion, falling predominantly on businesses through the hike in employer’s national insurance (NI) contributions. Also, the Chancellor’s intention towards borrowing, with a further £75 Billion required from the money markets above current debt levels, will also prove challenging for the private sector as described below. For us who work in defence, the unintended consequences of a high tax, high borrowing, high spend budget might prove profound, posing a risk to national security.
First, organisations such as Make UK are predicting that the NI tax raise represents on average an additional £100k per company per annum in payroll costs. For the defence primes, in contrast, the payroll hit annually will be in the millions. Already, I have witnessed a number of job offers across the spectrum of roles in defence being withdrawn. This will mean less people recruited, the potential wastage of key national skills and competencies and a rush towards evermore corporate automation. There is a causal link between a high-skilled, high volume defence industrial base and resilience and strategic responsiveness. With less people populating this key sector in the future with a smaller spread of skills, our resilience will inevitably diminish.
Second, there are strong indicators that the cost of capital and short-term borrowing is going up for businesses as markets respond to the budget. Consequently, if the trend continues and becomes baked-in, defence programmes will become more expensive as costs grow corresponding with the workforce shrinking and becoming less flexible.
Third, overseas’ investment in UK start-ups is predicted to diminish. This will impact upon the niche technology business, rich in ideas but poor in capital, that out of necessity seek funds from investors uninhibited by borders. With the UK being seen as an expensive place to do business, international capital will not land here as it once did. This is a disaster for young and emerging companies innovating in the defence sector at the early stages of their technological development.
Defence was considered in the budget with new money for the military pay rise, a recapitalisation of stocks gifted to Ukraine and a shopping list of nominal one-off payments. But it was not considered strategically, with the fiscal decisions taken having a detrimental effect on the defence industrial sector. Just how disastrous this is for the UK, I suspect we shall witness in the years ahead.
