All is not well with the British armed services. The head of the army, Richard Dannatt, said publicly last year that a long-term Iraq commitment is a bad idea and that the army is “running hot,” with “only one spare battalion.” There has been misery for the other services too, with warships decommissioned and jet squadrons disbanded. Further painful economies are forecast for the next decade. And yet the defence budget has grown in real terms over the last few years. British defence spending is £32bn a year—2.5 per cent of GDP. That is about half the proportion of the early 1980s, but in gross terms the fifth highest figure in the world. That should be enough to maintain quite substantial forces—but in fact we struggle to cover costs, despite the never-ending economies. And even if the ministry of defence (MoD) can fulfil its current commitments up to 2020 and remain solvent, the Trident replacement costs will then plunge it back into the red.

A popular perception exists that this is a consequence of the wars in Afghanistan and Iraq. In fact, however, the financial black hole was being foretold—within the services—many years before the twin towers fell. Since then there has been a procession of cutbacks, falling mainly on frontline combat units, making the commitments in Afghanistan and Iraq more painful as a result; but the overseas deployments are not the underlying problem.

So what is the real cause of the trouble at the MoD? Put simply, the armed services have long been compelled to pay wildly excessive prices for equipment in order to preserve jobs in the British arms sector. We must pay double or triple the price, often for inferior products, in order to preserve “sovereignty”: we must buy British to have control over our own weaponry. If an American or Spanish factory produces the spare parts for a helicopter, it is argued, we cannot use that helicopter without the acquiescence of that foreign government. If the Americans or Spanish were to disapprove of a future British military action—which is possible, even among close allies—they might cut off vital supplies. Thus we should buy from British factories, regardless of cost.

But there is a problem here. As modern weapons—especially aircraft and missiles—have gained in cost and complexity, the British arms industry has become incapable of making…

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