Who will pay the price for the boost in defence spending?

Rishi Sunak’s announcement that the government will increase defence spending to 2.5 per cent of GDP has been warmly welcomed, but how much is it really going to transform the UK’s military? Former armed services minister James Heappey was quick to scotch expectations this morning when he said it wouldn’t necessarily be enough to reverse falls in the size of the Army, Navy or Royal Air Force – the money could quite easily disappear simply in upgrading equipment. Nor is there anything particularly novel about the Prime Minister’s announcement: Boris Johnson made the same promise – to raise defence spending to 2.5 per cent of GDP by by 2030 – at the Nato summit in Madrid in 2022, shortly before his defenestration by cabinet colleagues. 

A good dollop of the extra spending will be required simply to replace weapons and other military equipment which has been given to Ukraine over the past couple of years. In 2023, the UK government spent £52.8 billion on defence – equivalent to 2.3 per cent of GDP, which stood at £2.273 trillion. If the government had spent 2.5 per cent of GDP on defence this would have come to £56.8 billion – an extra £4 billion. It is hard to square this with the Number 10 press release which promised an extra £75 billion on defence spending over the next six years, with the defence budget reaching £87 billion in 2030 – until, that is, you read the annex of the document the government has put out today, Defending Britain, and realise that the £87 billion figure assumes that the economy will continue to grow in line with OBR (Office for Budget Responsibility) forecasts, and that it includes not just core MoD (Ministry of Defence) spending but also forces’ pensions.

The extra spending, at least in the short term, will struggle even to make up for what the UK has spent defending Ukraine over the past couple of years. Since February 2022 the UK has either spent or pledged £12 billion on defending Ukraine. A further £500 million was announced yesterday. Nor would spending 2.5 per cent of GDP on defence come close to what the UK was spending during the Cold War. In 1990, the government was spending 4 per cent of GDP on defence, itself a long way down on the 7 per cent that was spent in 1960.

There is also a question mark over where the extra money will be coming from. Sunak suggested that it would not be raised from extra borrowing. So does that mean tax rises, or spending cuts? As for tax rises, it is being reported that the Chancellor is considering cutting another two per cent from National Insurance in a second ‘fiscal event’ of the year, most probably in the early autumn ahead of a November election – so it doesn’t seem as if tax rises are on the table, at least not before the election.  

Downing Street has suggested that the extra money from defence would come from shrinking the civil service back to its pre-pandemic size and by reallocating money which has already been earmarked for research – which will inevitably mean less money for research, a blow for universities.

There is, obviously, a very high probability that Rishi Sunak will not be around as Prime Minister long enough to have to worry about funding the extra defence spending. Like much else, it will become Labour’s problem. Labour has announced it has an aspiration to raise defence spending to 2.5 per cent of GDP, but it has not out a date on this, suggesting only that it will happen when finances allow. Whoever wins the election it doesn’t look as if it will much change Putin’s assessment of Britain’s ability to defend itself.