It has been a month since the Prime Minister committed the government to raising UK defence spending to 2.5% of GDP by April 2027. Sir Keir Starmer’s announcement, particularly the decision to fund the increase through cuts to overseas aid, reflected a strategic shift and a recognition of a new geopolitical reality where hard power has returned to the fore. This has been followed by a raft of measures to support the UK defence industry and last week’s Spring Statement, which cemented defence as a top government priority.
However, the government’s ambitious rhetoric on defence has not yet been matched by equally ambitious resources. The Prime Minister and Chancellor’s most difficult decisions on defence spending may still be to come.
The announcement was widely welcomed across Parliament, by the UK’s international allies, and by industry. It marks an end to the era of defence cuts, offers protection to programmes already committed to, and provides industry with a signal of long-term demand.
But the £6bn a year of additional funding can only be seen as a modest first step in delivering the government’s stated ambitions of building a military force that can take a lead on European security, and to turn the UK into a “defence industrial superpower.”
Acknowledging that ensuring 2.5% of GDP is spent on defence by 2027 is only a first step, the Prime Minister announced a longer-term ambition to reach 3% in the next Parliament. More sceptical observers will note that this longer-term ambition is qualified with the same “when economic conditions allow” caveat coined by the previous Conservative administration.
Events beyond the government’s control may lead to an acceleration of progress towards this 3% of GDP target. This could be a response to decisions taken in Washington or the outcome of negotiations to end the war in Ukraine. Any UK contribution to a military deployment to Ukraine as part of a peace deal would come at a considerable cost to an already stretched budget. It is also possible the NATO summit in June may overwrite the government’s timeline entirely, with the alliance’s Secretary General Mark Rutte suggesting a new NATO baseline of over 3% of GDP may be on the cards.
And with each new NATO ally that commits to more ambitious defence plans – NATO’s newest members Sweden and Finland have just announced plans to reach 3.5% and 3% of GDP respectively by 2030; Germany has voted to disapply a previously sacrosanct constitutional debt brake, paving the way for potentially hundreds of billions in additional spending – pressure grows on the UK to go further and faster. But that presents significant challenges for the Government.
Reaching 3% of GDP is estimated to cost well over £15bn extra per year. That is more than the savings made through the government’s recent overseas aid cut, welfare reforms and civil service reductions combined. Given even these measures have generated their fair share of controversy, it puts into perspective just how politically sensitive the decisions the Prime Minister would have to take to reach 3% of GDP are. There are no pain-free options.
The alternative to raiding the budgets of other departments is to change the fiscal rules to allow for increased borrowing or to raise taxes. Both options come with considerable economic and political pitfalls, which the Chancellor opted to avoid at the Spring Statement.
These political and fiscal constraints to increasing defence spending further intensify the pressure for the existing budget to be spent efficiently. John Healey, the Defence Secretary, has highlighted the challenges within the procurement system he inherited, with only two out of 49 major Ministry of Defence (MoD) programmes being delivered on time and on budget. That is why procurement reform is central to the government’s defence plans, not just as a routine aspect of military investment, but as a necessary measure to ensure taxpayers get maximum value for money and that the Armed Forces are given the capabilities they need without delays or cost overruns.
Ministers will be hoping their reforms succeed where previous administrations have fallen short. The recently advertised post of National Armaments Director will be a key figure. That the eventual postholder will become one of the highest paid civil servants demonstrates the importance the government is placing on the role.
Despite these challenges, the signals from the Spring Statement bode well. The announcement of a new Defence Growth Board – jointly chaired by the Chancellor and Defence Secretary – is the clearest sign yet that the longstanding tension between MoD and Treasury over the merits of defence investment have abated. Similarly, the new 10% budget target for investment in novel technologies and £400m fund for British defence innovation indicate that MoD has recognised the need to streamline procurement and be bolder if the UK is to take advantage the new technologies transforming warfare.
The Prime Minister has been praised for his response to the recent geopolitical turmoil. If the government is to sustain its commitment to defence and build a military force with the resources this new era demands, then it may have only just started making the difficult decisions required.
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