Why defence inflation is sky high
"The MoD faces a higher rate of inflation than other organisations because the prices of the goods and services it buys increase very quickly" writes James Kirkup in the Telegraph. That might superficially tell us why the defence budget is under pressure, but it explains very little.
Why is it that "the prices of the goods and services MoD buys" increases so quickly?
Inflation happens, it is often said, when too much money is chasing too few goods and services. However, we know that there's certainly not too much money in the defence budget. On the contrary, there's way too little.
So what about there being too few goods and services?
"Defence inflation" is caused by deliberate constraints on the supply of goods and services. It's government policy to favour certain contractors, and to prevent other businesses being able to supply goods and services more cheaply.
And guess what? Without competition, some contractors are able to bump up prices. Worse, the budget is poorly allocated. For example, it has been suggested by some that helicopters that could be bought for less than £10 million are purchased for over £20 million.
There'd be far less "defence inflation" if we spent the defence budget more wisely. Incidentally, our armed forces might then be able to get the kit they need, rather than what politicians and big business decide they should have.
Posted on 9 March 2010 by Douglas Carswell