The Cyprus cash airdrop is just another military contingency plan

RAF air-lifted in one million Euros in cash.

A drop in salary took on a whole new meaning for members of the British Armed Forces deployed in Cyprus, when the RAF air-lifted in a million Euros in cash.

The emergency measures were designed to ensure troops don’t run out of cash if cash machines empty, as banks are closed until Thursday in the aftermath of a controversial plan for a one-off levy on savings, which has since been rejected by the Cypriot government.

Is it usual for British service personnel deployed abroad to be paid in local currency, and does the Ministry of Defence (MoD) regularly have to deal with the dramatic local effects of an increasingly destabilised global economy?

An MoD spokesperson said that the way soldiers are paid is up to them. Generally, for European deployments to permanent bases such as in Cyprus or Germany, personnel choose to have the majority of their wages paid into their regular UK bank account, with some “spending money” paid into local accounts in Euros.

In the case of mid-term operating bases, a unique local micro economy can spring up. At Camp Bastion, the pound can be exchanged at a favourable rate with the local currency the afghani, and Bastion shops and food outlets deal seamlessly with Euros, US dollars and pounds.

Locals are encouraged to set up shops and stalls in the camp to sell local craft mementoes and gifts, and are very keen to get their hands on dollars, the de facto universal currency. However, with the Danish military working closely with Afghanis to deliver training, the Euro is catching up in desirability.

For short-term operations like Libya with no in-country base, the MoD makes no local financial arrangements.

With the global economy struggling and the banking system of some countries teetering on the verge of collapse, does the MoD have a regular plan in place to ensure at least the military economy continues to thrive?

“Not really,” says the MoD spokesperson. “It’s the job of the MoD to react to a rapid change in any situation with a contingency plan, and the potential shortage of cash in Cyprus is just another example.”

This blog first appeared here.

Photograph: Getty Images

Berenice Baker is Defence Editor at Strategic Defence Intelligence.

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR