UK: Regional Focus - Seeking the spoils of peace - SOUTHERN DEFENCE FIRMS SUFFER from CUTBACKS.

UK: Regional Focus - Seeking the spoils of peace - SOUTHERN DEFENCE FIRMS SUFFER from CUTBACKS. - Southern counties which have a high dependency on defence are feeling the strains of the latest government cuts. By Nick Hasell.

Last Updated: 31 Aug 2010

Southern counties which have a high dependency on defence are feeling the strains of the latest government cuts. By Nick Hasell.

There is no such thing, it is said, as a good war or a bad peace. The 125,000 employees in Hampshire dependent on defence might disagree; so far peace has brought much uncertainty and few dividends. A study by Portsmouth Polytechnic's Local Economy Research Group estimates their number to have fallen by 11,000 over the last four years. More worringly it suggests that, given the continued rundown in defence expenditure, a further 9,000 jobs could be lost over the next two years.

With almost 20% of Hampshire's workforce directly or indirectly employed in defence - a figure five times the national average - its stake in MoD policy is higher than most. Nevertheless, it is typical of many southern counties, Wiltshire and Dorset among them, whose prosperity is based largely on a web of military and industrial interests. Indeed such is the extent of the region's dependency that some talk of a hidden "defence subsidy", with the MoD's expenditure having up to now provided shelter from the extremes of recession.

Much attention has inevitably focused on last year's Options for Change review, not least in its proposal of a 19% reduction in manpower across the three armed services. Details of the cut's regional impact have been slow to emerge, yet, with the burden expected to fall on army units currently serving abroad, fears for the South's principal bases would seem to be groundless. The regional consensus points instead to a pattern of retrenchment at the larger bases. Accordingly, Aldershot is projected to absorb soldiers returning from the Rhine while Portsmouth's naval base is to take on four destroyers and 1,100 staff from Rosyth. Assurances have also been given that the naval facilities at Portland, long thought a candidate for closure, are not immediately at risk.

For the South's defence manufacturers and myriad sub-contractors the bleak equation is that fewer personnel will inevitably require less hardware. The fact that these cuts will fall more heavily on manpower than on procurement offers little reassurance of firms confronted by dwindling demand and few alternative markets. "Companies facing contracting order books have the choice of only one or two routes," explains brigadier Brian Lowe, director-general of the Defence Manufacturers' Association. "Put simply, downsizing or diversification." Those who opt for the latter are confronted with numerous unhappy precedents - abortive programmes to beat tanks into tractors, aircraft bodies into aluminium coffins, missile components into teapots. Lowe is suitably sceptical of those who prescribe a swift transition to civilian production: "The idea that defence companies can suddenly start making heart-lung machines and artificial limbs is really a bit puerile," he warns. "We are undoubtedly facing a painful period of transition."

Southampton-based shipbuilders Vosper Thorneycroft is in many ways typical of the niche low-volume contractor that has traditionally been most susceptible to shifts in defence policy. One major order lost, won or deferred can often prove critical. Last year, for example, when the company had built three Sandown class mine-hunters for the Royal Navy and was near completing a fourth, the MoD delayed its order for a further seven. In this case any adverse short-term effects have been countered by Vosper's £350-million order book of vessels for the Middle East and Far East. Indeed, over the last few years exports have risen from around 50% to 63% of sales.

Nonetheless the fragility of domestic demand has led Vospers to gradually diversify. Chairman Peter Usher points to the changing structure of their output: "Ten years ago we had no non-defence work. Now it accounts for around 10% of our business." Usher hopes to at least double this figure over the next few years through acquisitions in related growth industries.

Among its civilian successes Vospers so far numbers a yacht stabilisation system and blast containment modules for use on North Sea rigs. Both are direct spin-offs of defence expertise. Portsmouth-based Marconi Defence Systems is similarly to be found adapting military technology to civilian ends - a move eased by the closing gap between defence and consumer electronics. Hence microwave technology originally conceived for early warning systems is now applied to domestic alarms, and that used for missile detection is now incorporated in TV satellite dishes.

Efforts to conquer the satellite receiver market have centred on production of a signal gathering device, the low noise converter - output currently stands at some 40,000 per month. Indeed, boasts Marconi, such is the success of its foray into low-cost manufacturing that the Taiwanese have made charges of dumping. Non-defence activities at its Broad Oak site outside Portsmouth now account for around 10% of turnover; not bad, considers production director Ralph Williams, from a standing start two years ago.

While the larger contractors draw on their manufacturing and technological resources to seek out new markets, the region's smaller firms and sub-contractors face a more uncertain future. The extent of their number in the South is difficult to gauge, yet it is here that the casualties are likely to be highest.

To many the Gulf War offered a reprieve, providing months of overtime production. At the same time, observes diversification consultant Keith Chittenden, the surge in demand drew management attention away from long-term planning. In many ways, says Chittenden, the conflict encouraged a dubious optimism: "this depressing Mr Micawber attitude, where companies just carry on trusting that something will turn up."

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