Defence cash boost a step change, but MOD may have problem in spending it
Prime Minister Sir Keir Starmer has announced the biggest rise in UK defence spending since the end of the Cold War.
Following weeks of international instability and amid concerns around the stability of the Nato alliance and demands from the United States that members pay more on defence, this announcement marks a significant shift in Government policy towards prioritising guns over butter.
The speech overall was notable for its emphasis not just on finance but also setting out the UK's wider strategic position in these challenging times.
The PM made clear that Nato was the bedrock of UK defences, and that the vast bulk of our military capability was committed to it.
This marks a step change from previous years where the UK balanced off engagement with Nato while also pushing for a "global Britain" narrative.
Also of note was the PM's view that the UK not only wanted to remain incredibly close to America in defence terms, but also enhance its defence relationship with Europe too.
This was a potentially significant move to more closely align the UK with European defence initiatives at a time when US support for European defence can no longer be treated with complete certainty.
The message that the UK is committed to Europe and will play a full part in its defence will land well in capitals currently concerned around what future security may look like.
The Prime Minister chose to fund the MOD growth through cutting the aid budget, a move previously called for by several political parties.
While in the short term this move makes sense to fund defence, it may come at a cost of reduced "soft power" for the UK, potentially reducing influence and access in countries across the world.
Effective delivery of aid has often proven to be a vital and cost-effective means of helping ensure long-term stability and reducing security risks to the UK.
The risk is that in making these cuts to fund short-term defence budget growth, the UK risks losing soft power and influence, which nations like China may exploit.
In the short-term though, the cuts to aid will ensure that the headline growth figures for the MOD are impressive, with the UK intending to hit the target of spending 2.5% of GDP in 2027, boosted to 2.6% when the UK Intelligence Community is added to the total.
The longer-term intention is to boost this even further, towards 3% of GDP by the 2030s.
Doing the maths
But do the figures add up, or is this not quite as good a deal as some believe?
The planned MOD budget for 2025-2026 was £59.8bn – representing some 2.3% of UK GDP. Moving to 2.5% in 2027 would mean adding about £3bn per year to the budget on top of the previous likely spending plans.
It is useful extra money, but it is not a huge lump sum.
We don't yet know how the money is intended to be spent – is it on new equipment or personnel costs like pay and pensions?
Will the Treasury allow the MOD to use the additional money to handle cost growth in existing equipment plans, or will it only be spent on entirely new projects?
In addition, what has the MOD agreed to deliver in return back to the Treasury – will it have to make in-year "efficiency measures" to reduce waste and cut spending on non-essential areas?
Does this money include more contingency funding to absorb cost growth of the Dreadnought programme, building the next generation of ballistic missile submarines?
There are many unanswered questions about the money, how it will be spent and what difference it will really make.
Assuming there is new money for equipment, the MOD will need to be clear on how to spend it carefully.
There will not be a vast pile of cash for the MOD to spend in purchasing lots of new equipment quickly.
Defence procurement is complex, with spending plans for each project not all being spent in a predictable manner each year.
Instead, the spend profile will vary each year for each project, so even if the MOD may get more money up front, due to the way the budget must be planned to be spent over many years, it may not add up to very much additional money overall for new equipment.
This may sound downbeat, but it's worth remembering that other Nato members boosted their defence spending after the illegal and unprovoked Russian invasion of Ukraine in 2022, yet they struggled to spend it in year due to a lack of capacity in the system to manage the acquisition of so much new capability in a short time frame.
Planning ahead
By setting the stage now for more money in two years' time, the MOD is getting the chance to properly plan how to spend it, putting the right budgetary plans in place, along with the teams of people needed to turn aspiration into reality.
The biggest problem facing this move though is understanding what happens in the short term between now and 2027.
Media reports suggest that there is insufficient funding in the defence budget right now, and that very substantial defence cuts are likely over the next 12 to 24 months to meet the shortfall in defence funding.
If the intention is not to increase funding beyond currently agreed levels, then even though more money will be available in due course, in the short term the scale of defence cuts likely to be made to make the finances add up will be significant.
In the worst case, the military of 2027, even with a budget increase, will be far less capable than it is today as a result.
While this announcement is a strong step in the right direction for defence funding, it will not remove the challenges in the system, nor is it necessarily clear how the money will be spent, and if it really produces "new" money for the MOD that wasn't previously planned.
There is an old adage in gambling: "The house always wins."
A similar saying is true of Whitehall spending battles.
No matter how good a deal a department thinks it has achieved, many civil servants would say: "The Treasury always wins."
@PinstripedLine is an esteemed defence and security blogger, providing expert insight and analysis.
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