Let us be clear from the outset: the AUKUS submarine deal, a multibillion-pound pact that was meant to cement Anglo-Australian defence ties, is now facing an unexpected headwind. A former Australian defence minister, Peter Dutton? No, it is someone more troubling for the deal's proponents. A crowdfunded inquiry. The very phrase is an oxymoron in a Westminster system where parliamentary committees and public accounts are meant to hold the executive to account. But here we are.
The man behind this is Rex Patrick? Actually, it is Andrew Hastie? No, let's stick to the facts: a former Australian minister, reportedly from the Liberal Party, has launched a crowdfunded investigation into the AUKUS agreement. The optics are dreadful. For a deal that was marketed as a strategic masterstroke, now facing scrutiny from a ragtag collection of online donors? It reeks of a credibility gap.
The submarine deal, as readers of this column will know, involves Australia acquiring nuclear-powered submarines from the UK and the US. The price tag is staggering: somewhere north of £100 billion over the life of the programme. That is a lot of taxpayer money, both here and Down Under. And the British taxpayer is on the hook for a significant slice, given the Royal Navy's own ambitions under the 2021 Integrated Review.
Now, the market's reaction has been muted so far. Gilt yields have barely twitched. But this is a story about trust. The UK government has bet heavily on AUKUS as a cornerstone of its post-Brexit foreign policy. If a crowdfunded inquiry gains traction, it will embolden critics who argue the deal is a white elephant. We have seen this before with major defence projects: cost overruns, delays, and eventual cancellations. The F-35 programme is a case in point. The Type 45 destroyers another.
The mechanics of this inquiry are worth examining. Crowdfunding implies a lack of official support. If the Australian government were confident in the deal, they would not need to resort to this. The fact that a former minister is leading the charge suggests deep unease within the political establishment. And where there is political unease, there is usually a financial liability lurking beneath the surface.
For investors, the immediate concern is capital flight. If Australian sentiment turns against the deal, British defence contractors with exposure to AUKUS could face headwinds. BAE Systems, Rolls-Royce, Babcock: these are the obvious candidates. Their share prices have been buoyed by the promise of long-term submarine contracts. Any whiff of cancellation could trigger a sell-off.
But let us not get carried away. The crowdfunded inquiry is, for now, a sideshow. The real test will come when the first bills come due. Inflation is already eating into defence budgets. The BoE's rate hikes have increased the cost of borrowing. The Treasury will be watching the pound's performance against the Australian dollar. A sustained depreciation would make the deal more expensive for Canberra, further increasing the risk of a renegotiation.
In the end, this is a story about fiscal discipline. Or rather, the lack thereof. The City of London hates uncertainty. A crowdfunded inquiry into a major government contract screams of uncertainty. The prudent investor will hedge their bets. The prudent taxpayer? They will be watching the next Budget for any signs of a contingency fund.
The bottom line: AUKUS is not yet in crisis, but the foundations are shaking. If the ex-minister's initiative gathers enough donations, it could turn into a full-blown parliamentary inquiry. And then, the real trouble begins. Markets hate surprises, and a submarine-shaped surprise is the most expensive kind.
