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 advanced systems without help. One cannot buy a fully British jet fighter, or helicopter, or missile. British companies may be involved—even significantly involved—but they will need overseas partners to complete any big project. British sovereignty in weapons manufacture is gone. The only relevant question today seems to be which country or countries to cede the veto to. In general, the choice is seen as being between America or continental Europe.

Actually, even this choice is largely illusory. A piece of equipment manufactured in Europe will still usually contain critical American subsystems. A European helicopter will be fitted with American missile countermeasures at the very least. The Eurofighter jet is armed with American weapons and must co-operate with US-built AWACS planes to work. So the choice is not between dependency on America or Europe, it is whether or not to give European nations veto power over our military in addition to America. As US-made equipment is usually cheaper, better and delivered quicker—in part because the MoD is so poor at managing procurement—it would be sensible to buy more of it “off the shelf.” Not always, and perhaps not for ever—the US is eliminating competition in its domestic arms market, which will probably affect price and quality in the long run—but at least in the short run.

Despite this, European consortiums are often chosen by the MoD because they usually involve more British factories—and because Britain’s arms industry, now united into one giant company, BAE Systems, has an unhealthy influence over governments.

We can see evidence of this in the government’s Defence Industrial Strategy (DIS), published in December 2005. The DIS is 145 pages long, but can be summarised in three words: business as usual. It might as well have been dictated by the board of BAE Systems. Indeed, in the run-up to the DIS’s publication, BAE threatened to shift its base of operations to America unless it was guaranteed a permanent income stream from the British taxpayer. The taxpayers’ representatives gave in without a fight. Nothing was heard of the famous “golden share,” which supposedly gives the government control over BAE. Nor did the government point out that BAE’s colossal market worth, its many acquisitions overseas, its huge portfolio of assets, were all bought or created with taxpayers’ money. Even the tens of billions the company has gouged from the Saudis cannot match its huge tally of giveaways from the British government. No, if the management of BAE wishes to snatch that huge pile of British cash and move it overseas, nobody dares stop it. Indeed, it has more or less done so already—barely a third of BAE’s 100,000 employees are employed in Britain.

BAE welcomed the publication of the DIS, as well it might. Indeed, one could have expected the company to throw the government a bone or two, for rubber-stamping its demands. But it didn’t. The ink was barely dry when BAE sold off its stake in Airbus—the last of the British civil aircraft industry. The Airbus shares were sold to the continental giant EADS, winning BAE another £1.9bn to spend in the US. Job losses at Airbus’s British plants are only a matter of time. Airbus is now a creature of the French and German governments: they will not preserve British jobs at the expense of continental ones.

Moreover, the Airbus sell-off makes the government’s decision in 2000 to spend £2.5bn on Airbus A400M transport planes for our forces, instead of better American ones, look very foolish. By the time the A400Ms are finally delivered, in 2011 at the earliest, their purchase will almost certainly no longer be guaranteeing many British jobs. We might as well have bought some more Hercules or C-17s from the US; they’d have been cheaper, better and in service already. And we could really use the aircraft: our lack of military air transport is a source of great weakness, as we struggle to sustain large overseas deployments in Afghanistan and Iraq.

The DIS, boiled down, says that most of Britain’s remaining defence-industrial base, which directly employs fewer than 100,000 people—the largest chunk in BAE, the second largest in French-owned Thales—will continue to be sustained by a guaranteed flow of money from the government. In some cases the factories will be required to produce only the expertise to maintain and repair what they have already made. The idea is that this will give us control, or “appropriate sovereignty,” over our own parts and support chain. But the list of equipment it applies to is not impressive. It includes Merlin and Lynx helicopters; nuclear submarines, but not with missiles; surface warships, without effective weapons; some old-fashioned jets but without advanced or smart weapons; some kinds of basic armoured vehicles and artillery.

There are many items for which we don’t even pretend to control production: rifles, machine guns and grenade launchers; intercontinental ballistic missiles; cruise missiles; modern combat jets and smart or guided weapons for them; modern warships and seagoing missiles; Chinook and Apache helicopters (the useful ones); transport, tanker and radar aircraft; satellites, communications and navigation. “Appropriate sovereignty” would seem to be much the same as “very little sovereignty”—at a very high price.

A particularly blatant case of this is the AgustaWestland helicopter factory in Yeovil, now owned by the Italian company Finmeccanica. (This factory was at the heart of the 1986 Westland row, which saw Michael Heseltine’s resignation from Margaret Thatcher’s cabinet.) In accordance with DIS thinking, the MoD was required to guarantee employment at Westland last June, by placing a £1bn order for 70 upgraded “Future Lynx” helicopters. Forty of these are to be small, nine-seater utility helicopters for the army, and 30 are to be navy weapon-carrying aircraft. The new Lynxes will cost an average of £14m each, and we will start receiving them from 2011. By way of comparison, five months later the US navy ordered a dozen Seahawks from Sikorsky, almost twice as large as Future Lynxes and at least as sophisticated, at $11.6m each, roughly £6m at today’s exchange rates. Delivery will be complete by the end of this year.

The British/Italian product purchased in line with DIS principles of “appropriate sovereignty” will cost twice as much as the American option, will arrive years later and won’t be as good. Future Lynx won’t even reduce our dependence on the US: its engines come from there. Future Lynx will support 800 jobs in Britain. But we could give the 800 workers in question redundancy payoffs of half a million each, buy an equal number of rather better Seahawks instead, get them sooner, and still save £180m. And then we could go to war without needing Italian consent as well as American. I just hope those helicopter people at Yeovil really like their jobs.

If the sovereignty case for our defence industry no longer works, no matter, say defence industry advocates—the real point is to earn large sums of money abroad. According to the DIS, Britain has been earning an average of £5bn a year from arms exports for the past few years, or just 2 per cent of total exports. But those figures are from the defence export services organisation (Deso), a 450-strong group of MoD staff that helps our arms industry to sell abroad. Deso measures its own success by the magnitude of British weapons exports. The defence analytical services agency, a rather more neutral MoD bureau, specifies that only £1.4bn of defence manufactures were exported in 2004. All other overseas defence earnings were paid-for services, such as “aerospace training and consultancy.” Whoever is bringing the money in, it isn’t factory workers in Britain. In defence as in everything else, Britain is a service economy, not a manufacturing one.

So our vaunted arms industry—the last remaining British engineering success story, according to the business press—accounts for a paltry £1.4bn in export earnings, less than 1 per cent of our overseas business. We are compelled to waste several times this sum from our annual defence budget to prop up the factories that bring us these pitiful sums. This is bad enough, but we aren’t just wasting money; we are wasting blood, lives and morale among our fighting troops, and potentially losing wars we could win.

Even as AgustaWestland won the Future Lynx contract in June 2006, we were getting into another big combat deployment overseas. Afghanistan, as far as the British public were concerned, had been quiet since the 2001 invasion. However, the invasion had not been completed. The warlords of the north—friends of ours, compared to the Taliban—had control over their half of the country, and the Karzai government (backed by Nato) ruled in Kabul. But the southern provinces remained largely unvisited.

After endless fiddling, it was finally settled that Nato would take over the southern provinces. Britain was one of the few countries to commit troops, agreeing to send 3,300 to Helmand province. It was initially hoped that the soldiers would be building roads and schools. Instead they found themselves fighting hard almost at once—in part because they were there to destroy the biggest local industry, narcotics farming. Extra infantry had to be rushed in and supporting troops—gunners, supply people, even military police—were pressed into combat. Some units were continually engaged for weeks on end, as a few thousand troops tried to dominate the vast, rebellious Helmand region.

The death toll among British troops in Afghanistan (and Iraq) began to rise. In many cases, the dead soldiers had been killed while riding in light vehicles, hit by roadside bombs. The newspapers got hold of this trend and ran with it—just as they had in 2003 with the story about soldiers dying for lack of body armour. Our troops, it seemed, were being callously sent out in flimsy vehicles, risking their lives unnecessarily. The lightly bullet-proof “Snatch” Land Rover was particularly vilified, even though it had done many years’ service without complaint on the dangerous roads of Northern Ireland. Claims were advanced for all kinds of affordable miracle vehicles which would save our soldiers.

In fact, such vehicles don’t exist and probably never will. Given enough explosives, it is fairly simple to kill the occupants of even a 60-tonne Challenger battle tank, let alone any lesser conveyance. Moreover, you can’t set up a checkpoint or search a building driving about in Challenger tanks. Their only use in counter-insurgency is as a weapon of naked terror and indiscriminate slaughter, Tiananmen Square style. That isn’t the British army way.

The heaviest vehicle that is much use in modern warfare is the Warrior infantry combat vehicle. It can transport people other than its crew and it weighs less than half a Challenger. But even the Warrior is far from invulnerable. The Victoria Cross citation of Private Johnson Beharry, a Warrior driver, gives an insight into the violence these

vehicles have suffered during the Iraq insurgency. And everyone remembers the harrowing footage of burning soldiers leaping from their blazing Warriors during the Basra police station raid of 2005.

Indeed, plenty of our troops prefer the reviled Snatch; others make the case for Pinzgauer six-wheelers or the marines’ Viking. Quite a few don’t like armour on their vehicles at all, preferring the mobility and firepower of the “Wolf” Land Rover.

This disagreement among the soldiery has confused journalists, who wanted a simple story of wrong equipment. The anti-Snatch crusade seems to be fizzling out as a result, and we may be beginning to accept that even if our people moved outside their bases entirely by Warrior or Challenger they would still get wounded or killed. If we can’t accept that, we shouldn’t send them there; if they can’t accept that, they shouldn’t have joined up. The Snatch brouhaha was just another poorly informed media tizzy.

There are serious equipment problems, nonetheless. The politicians and mandarins have been attacked by the fourth estate from the wrong direction. Of course, soldiers need to patrol and fight on the ground. But there is no reason for supply convoys, or routine personnel moves, to travel through combat zones. And when our soldiers get into a serious fight, it is often critical to reinforce or resupply them in a hurry, without having to bulldoze through half a dozen ambushes on the way like the heroic Beharry and his armoured comrades.

The answer very often is helicopters. In places like Iraq and Afghanistan, transport helicopters save lives, just as they did for 25 years in south Armagh. Every extra serviceable helicopter means so many fewer road journeys, so many fewer targets for the bombers and snipers. The need for utility helicopters is more urgent than ever. Unfortunately, thanks largely to our relationship with AgustaWestland, we simply don’t have enough of them, and the ones we do have often don’t work. For example, the RAF has 22 Westland-made Merlin HC3 helicopters. Just five are in active use; the other 17 remain in Britain. The Yeovil-built Merlin HC3 can carry four tonnes, and each helicopter costs £34m. By contrast, the trusty American-built Chinook HC2, the real workhorse of the British forces, can lift ten tonnes and costs £20m. It is much more reliable, too: a Chinook is almost twice as likely to be in a useable condition, meaning it is about six times better value for money than a Merlin. By sticking with Merlins we risk soldiers’ lives, to save civilian jobs.

At this point I should enter a caveat. The word “European” in this article is mainly associated with waste of money. This is not, however, an attack on the European Union. Eurofighter, despite its name, is nothing to do with the EU and is not something that pro-Europeans should automatically favour. It does not seriously enhance European collective military potential and France is not part of it. Similarly, the Airbus A400M consortium includes non-EU nations and doesn’t include some big EU ones.

There is no such thing as Europe when it comes to weapons projects, just groups of governments whose perceived interests align for a particular project. And one should never say, “Europe bad, America good.” British soldiers have often been happy to carry Belgian or German weapons. British torpedoes are sometimes the best in the world. Many French, Spanish and Italian products are excellent.

Nonetheless, it is correct to say that the Future Lynx, the Merlin, the Airbus A400M and the Eurofighter—all primarily British/continental collaborations, so “European” in a sense—were all very bad choices. It is just as correct to say that Seahawk, Chinook and other American products like the C-17 and Hercules airlifters, the Paveway smart bomb and the Tomahawk cruise missile are all good systems, reasonably priced. Better still, they require consent from just one foreign government to be used.

One can’t round off a survey of British defence in 2007 without revisiting the relationship between the Saudi regime, BAE and the British government. In the first part of 2006, the joint serious fraud office (SFO)/MoD investigation into kickbacks during the original al-Yamamah deal of 1985 was grinding on, with little sign of getting anywhere.

Then, last summer, it was announced that BAE and its state-funded sales team at Deso had landed a further deal to supply the Saudis with 72 Eurofighters. The price was secret, but the figure of £6bn circulated in the press; a nice piece of business for BAE, though a fraction of the £20bn that Eurofighter is expected to earn from the British taxpayer.

But the Eurofighter deal is interesting in other ways. The idea is to “Saudi-ise” the project as much as possible—in other words, the Saudis want to be less dependent on the legions of expatriates who currently keep most of their advanced weaponry operational. BAE will train Saudis to maintain Eurofighters, and indeed perhaps to upgrade or modify them. Many of the engineering techniques behind the Eurofighter will pass into Saudi hands.

For ordinary western citizens who don’t work for BAE, this is a bad thing. At the moment, the west has a big technical lead over the rest of the world in air-to-air combat. No country—not even Russia or China—can challenge the rich liberal democracies for control of the skies, which means that you and I cannot easily be attacked at home. It is also one of the prerequisites for imposing our will on other parts of the world if we wish to do so.

We probably could have maintained that superiority with medium-priced aircraft and perhaps some new missiles, but we have gone much further. The west has sunk colossal sums into new superfighters such as the Eurofighter, the American F-22 Raptor, and the French Rafale. The lead is now even bigger.

This is not a particularly good thing for companies like BAE. They make their money from developing high-end weapon systems, and air-to-air fighters are the ultimate high-end weapon. Now that the last wave of cold war procurements are finally starting to deliver useable aircraft, the future looks rather bleak for BAE and the other aerospace giants. The Russians no longer put serious money into fighter development. The Chinese are decades behind the Russians. Americans and Europeans are unlikely to perceive any threat which might require the purchase of a new generation of aerial weaponry for some time.

Unless, of course, we start selling off our know-how. The Saudis themselves probably can’t use that information, despite their aspirations. But others could. The Russian military-industrial complex is still ticking over. The Chinese are desperate to build a serious capability. And the Saudis have no reason to keep our secrets and preserve the western edge.

I am not suggesting BAE intends to hand out secret blueprints to the Saudis, who will then pass them on to the Russians. There is no set of drawings that will show you how to make an all-composite airframe, for example, if you aren’t set up for composite materials. But other things are quite transferable. A modern military aircraft is a computer system. High-agility aeroplanes like the Eurofighter cannot fly at all without constant computer control. The software-makers keep the programming source code to themselves. Source code is a big issue in aerospace sales, as it represents a major part of any given project’s development cost. Like the miracle blueprints of spy fiction, you can copy source code and sell it to people, who will then be able to achieve a lot with their new knowledge. Giving the Saudis all the Eurofighter source code would be very unwise.

Without access to source code, however, the Saudis are unlikely to accept that they have in fact purchased a Saudi-ised Eurofighter. So perhaps a deal in which BAE and its partners get £6bn from the Saudis (for the painfully acquired technology that cost us £20bn) isn’t in our national interest.

And yet the deal is seen as critical to Britain’s welfare. The Saudis, we are told, merely had to hint that they might buy the Rafale from the French instead, and the long-running al-Yamamah corruption investigation was dropped on 14th December 2006.

It is true that there were other factors behind the decision. The head of the SFO, acting on instructions from the highest levels of government, said: “The decision has been taken following representations that have been made… concerning the need to safeguard national and international security. It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests.”

This is supposed to mean that MI6 has said that it would lose vital sources of information if the corruption probe was not ended. That is credible. Many of the world’s Islamic extremists are funded by Saudi money. Saudi Arabia is officially a Wahhabist Muslim state. The extended royal family themselves do not, generally, live a lifestyle in accordance with their ostensible beliefs but Osama bin Laden is a Saudi and most of the jihadis’ money moves through the country. Al Qaeda enjoys strong support there, and indeed the Saudi security forces are fighting a little-publicised but bloody war against it to maintain their despotic control.

But apparently the Saudi royals are still secretly on our side. They are, it seems, passing valuable information to our spies, which helps enormously in the struggle against international terrorism. And they will stop doing that if British policemen continue to probe their arms-dealing contacts. So we have told the police to desist. Many reputable analysts of Saudi Arabia have confirmed that the Saudis were serious about the threat to withdraw co-operation over terrorism. But is the small extra risk of a terrorist bomb in London worth abandoning the rule of law for? Isn’t the rule of law, after all, a pillar of the system we are fighting to defend?

In any case, the idea that commercial interests had no influence is not believable. BAE and its friends in the unions, parliament and Whitehall were at least as important in making this decision as the spies or the Saudis. The Saudis don’t care much whether British detectives root about in Lebanese businessmen’s bank statements. (They might get worried if we discovered that Saudi royals were funding terrorists, which isn’t that unlikely. But in that case, we should surely press on.) No, the people who stood to lose most by the corruption probe, the only people who could be jailed or heavily fined by a British court, were the senior employees of BAE Systems.

So the price of British justice has been set. It is somewhere between £1bn and £3bn, Britain’s share of BAE’s take from the Saudi Eurofighter deal. It is true that if we don’t sell the Saudis Eurofighter, the French will sell them Rafale. But just because the French are willing to act like traitors—to themselves and the wider west—doesn’t mean we should aspire to beat them at it. Why not let them prostitute themselves for peanuts? And £6bn or less over many years is peanuts; we win £200bn of export business every year, and the French even more.

All in all, it’s hard to see why the British forces should continue to buy overpriced, inferior equipment simply because British companies have been involved in making it. Sovereignty is a sham. A billion or two in arms exports cannot possibly justify several billion every year in subsidies, the more so as the waste of these funds often endangers our service people’s lives. Not to mention that we have been shorting their pay and conditions shamefully in order to keep up the flow of cash to the arms makers.

Shamefully? Consider the starting pay of a combat arms soldier (£14,000) a police officer (£22,000) and a firefighter (£25,000). For a soldier the training is longer and harder. Police officers and firefighters live at home, while soldiers have to put up with dormitory barracks or field conditions. The risk of death on duty for a police officer is 2 per cent that of a combat soldier, and for a firefighter it is 9 per cent. No wonder that the army struggles to fill vacancies, while there are five applicants for every police officer post and 12 for each firefighter job. This makes me ashamed, as someone who relies on those servicemen and women to fight our battles overseas; then to come home and save me when well-paid firefighters go on strike, or the police overtime budget runs out.

No wonder we have to recruit overseas. We pay enormous premiums for supposedly British equipment, but this means that we can’t afford British soldiers. Maybe we should stop worrying so much about a marginal defence industry and start worrying about the people who matter. We could pay them more than a pittance; and buy them some cheap helicopters that work. Brigadier Ed Butler, arriving home last October with his battle-weary paratroopers after months of savage combat in Helmand, was asked what he had most needed. Helicopters, he said. Specifically, American-built RAF Chinooks. Then in December, Paul Drayson, the defence procurement minister, said he would give BAE £124m to develop a new prototype pilotless drone, though perfectly good ones are available off the shelf. That money could have bought six new Chinooks, doubling the number of British lift helicopters in Afghanistan.

It is hard to see how all this will change, given the political and business consensus. Outside a few specialists in the defence press, few people in the media care or understand. There are a number of MPs who ask questions in the house and sometimes elicit embarrassing answers from the MoD, but the blushes are usually brief. There are also some unsung civil servants—such as those in the defence analytical services agency—carefully writing everything down and publishing it. Old Blighty is far from ruined yet, but the outlook is poor.