We know the cost of everything but the value of nothing

There was a discussion recently about increasing resilience measures in the UK, specifically regarding national security preparedness, and equipping follow-on forces (both reserves and enforced second-army formations). I was keen to point out that the UK’s Treasury department is very good at deterrence: it is just a shame that what is deterred are measures and actions that would aid national security and increase resilience. [Comment from military analyst at a conference in Berlin]

Any measures to improve the ability of the UK to equip and sustain forces in a conflict (as predicted by both UK military chiefs, NATO leaders, and a number of key futurology studies), are constrained more by equipment rather than people or technology. Those liable to be recalled (ie those who have previous served in the military), have a deep and instinctive understanding of the equipment they operated with – whether this involved warships and their systems, aircraft (including helicopters), tanks, artillery, logistics and sustainment systems, engineering systems, weapon stockpiles or small arms. It would make sense to retain – in deep storage – that equipment which they were familiar with in order to obviate the requirement for training from scratch. Many European states continue to do this; notably those Scandinavian and Baltic states who are highly regarded (even by those in the UK government) for their readiness, preparedness, and resilience.

Yet the UK, and the UK Ministry of Defence in particular, sells anything as soon as it an announcement has been announced – and usually many years before replacement equipment is delivered. This leads to both ‘capability holidays’ (ie, the loss of that capability for a period of time), the atrophy of the skills needed to make that capability real, the decimation of morale within the forces, and the erosion of deterrence of the state in the eyes of adversaries. This was not how the UK has operated historically: prior to the 1990s, the UK was actually quite renowned as a hoarder to older military equipment understanding that it provided an additional consideration for adversaries about the depth of the UK’s military capability – even if that depth was not made up of next-generation systems.

In the 1990s, the Treasury department of the UK government instituted something called Resource Account Budgeting. This accounting system split budgets into cash (operating costs known as RDEL) and investments (capital assets known as CDEL). Departments were made to account for everything they owned and operated, paying an ownership fee to the Treasury for anything that was regarded as an asset (not an operating cost). Whether pieces of land, weapons, ships, tanks, aircraft, or ammunition, each of the services as thus ‘encouraged’ to get rid of anything it was saving for a rainy day (albeit that such an eventuality in military terms was about deterring others, fighting, or defending according to instructions from the government): any retention of such assets was taxed and the Ministry of Defence had to make a payment (from its budget) back to the Treasury. The Treasury thus made it financially nonsensical for national security resilience to be a fiscally responsible consideration in force design. Over generations, military leaders have been inculcated with a deep aversion to retaining latent capability: the belief came to a head between June 2019 and early 2025. Chiefs, starting in the Royal Navy, then adopted a philosophy about utilising every aspect of military capability as much as possible and selling off anything that could not demonstrate immediate and public value. Not only did this undermine readiness, availability, morale, and preparedness for contingencies, but it also skewed investment decisions towards taking longer and more radical bets on what could be provided in the future.

Of course, RAB has applied to all government departments – not simply defence. There is considerable evidence to suggest that this additional cost for departments has had impacts on shrinking sizes of grounds held by schools (a key consideration in the sale of sports fields by education institutions), and in the reduction in the number of hospitals in the National Health Service (hence the drive to create single super hospitals rather than having a number of smaller, more local and regional healthcare locations, but reducing the overall capacity of the NHS). RAB has allowed for better accounting and enforcing government rules about borrowing for capital (national) assets instead of operating costs. Economists are definitely in favour of this tool.

The decision to implement RAB was not pernicious or vindictive but the impacts are far reaching. The short-term gain from RAB to the Treasury has resulted in a leaner set of public services but these same services now have less resilience to shocks. They have weakened the state’s ability to respond and react to contingencies. Moreover, as RAB continues to operate across Whitehall and government departments, there are no financial incentives to rebuild resilience for national emergencies.

For more on RAB see an article in The Wavell Room by Harry Fullerton from 2023. The headline for this piece is taken directly from that article. https://wavellroom.com/2023/03/01/resource-account-budgeting/