In the City
Looking ahead
Tony Rudd
When the Falkland Islands episode began and the task force sailed from Portsmouth the City was not particularly worried about the likely cost of the expedi- tion. This was because it wasn't expected to cost more than a few hundred millions of pounds, which, though a slightly disagree- ably large sum, was perfectly containable within the contingency margin of this year's budget. After all, the Chancellor has his fiscal situation well in hand; everybody knows that there is quite a comfortable margin which could absorb increased ex- penditure without the Government having to resort to the printing presses and there seemed little to worry about. Since then there has been some revision to this comfor- table theory. We've had Mr Biffen say that the costs could mean that extra revenue has to be raised by way of increased taxation or by heavier than expected cuts in social welfare; one or the other, or, it is to be presumed, in extreme circumstances, both. This new caution is itself probably the result of the margin for contingencies looking slightly less large than it had and, secondly, because the possibility of the expenditure being quite considerably larger than had originally been planned now looks ominously likely.
Indeed it is time to look further ahead than just the cost of the present expedition. The failure of the Argentinians to show any inclination whatsoever to treat means that the British have willy-nilly been forced into a total commitment on the military side. In turn this means (as Cecil Parkinson, the chairman of the Conservative Pary, has so forthrightly pointed out) that we shall find it very difficult to leave the Falklands. This is particularly the case if the junta continue, as they are doing at the moment, to insist that the conflict will go on even after they are pushed off the Islands. This all presages a continuing commitment by the UK of some importance, both military and finan- cial.
The City is already expecting an increase in military expenditure, hence the rise in the so-called 'defence stocks' like GEC, Plessey, Racal, Flight Refuelling and the rest. But this was perceived over a month ago before these latest developments began to affect the issue. Now it looks as though it's not just going to be a matter of a tem- porary bulge in defence expenditure, to raise what has been lost and to update in the light of experience, but that we could be in for a new and sustained level of higher ex- penditure. That could have profound ef- fects both on equities relevant to the areas concerned and to government stocks as a whole; bullish for the former and distinctly bearish for the latter.
For serious issues are involved. If the United Kingdom is to go in for a military capability of the kind which had it foreseen the present circumstances would have been ideal for dealing with the Argentinians, then the fleet that we sent to the South Atlantic would have been considerably dif- ferent to that which actually sailed. The most important feature would have been that such a fleet would have had with it its own airborne early warning system. If we are to have a fleet which in the future is capable of this kind of action this is a technology that has to be incorporated. The object of such a capability is quite simply to give early warning against all forms of air- borne attack, including that which has done most damage in the South Atlantic to our force, namely the very low-level attacks
Spectator 19 June 1982 carried well aloft looking out some two The only counter is to see it coming, and that has to be done from an airborne system coming in below the range of conventional was always the most effective system of at- tack. The threat is exactly the same todaY. radar. Going right back to the last war this hundred miles.
This is the kind of cover carried by the American AWAC Boeings, the sale of which to the Saudi Arabians recently cans' ed such a furore. It is also the system in the new Nimrod AEW 3s which are about to come into service. But an ocean-going fleet needs its own system. The Americans have one called °Hawk Eye' (specificallY, the Grumman E-2C Hawk Eye). It is based on the same principle. The only trouble is that it is built into a supersonic aircraft which: cannot get airborne from a carrier except with the help of a steam catapult. The I% invested in a vertical take-off aircraft, the Harrier, which has done so well in ttif, South Atlantic, but it is not an aircralL which can be adapted to the 'Hawk Eye role. The fact that it doesn't need a scale modern carrier is a great advantage 11/ terms of cost, and is probably the main t reason the British Government opted WI in the first place. But if the fleet is to be properly protected it must have a full-scale carrier potential, complete with angle decks and steam catapults. Had it had suelL: potential very few of the attacks by Argentinians which have actually sun, British ships would have been successfUl. It's as simple as that. The fact was that set,l‘ ,..ianne ding the task force to the South /AL without a 'Hawk Eye' or similar system represented a very grave risk. In the ell.; cumstance there was no alternative, but there should have been. Certainly this is not a risk which any British government can take again — not in the light of what bast"- tually happened in the South Atlantic. title the question will be whether or not title country is going back to having a full-SS surface fleet with proper carriers, a se,, contained airborne early warning sySte'''s and all the attendant defence mechanist which the experience of the last two Monti; has taught us are necessary. If we are, thete the fiscal implications are bound W d substantial, for the costs will be large an not just the initial cost, but also those „f subsequent maintenance of such a force e Cutting corners in other parts of defene._ will probably not do the trick nor will tr be a course which will commend itself to this Government. There will probably be a consideraholer amount of wriggling before such a inala, commitment is accepted, but it seems a."' ficult to see how keeping the Falklands ale definitely and maintaining a reasonau,,e state of readiness against any riposte done without such a commitment. Cerra it ly from an investment point of view would seem to be a wise precaution .11`"g assume that government borrowing is Pi d to be higher than is presently expected an its expenditure on defence larger.
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