WIREDGOV

A new RUSI paper highlights the real possibility of further reductions in defence spending and personnel numbers in the forthcoming Strategic Defence and Security Review, which is due to start after the General Election. 

The briefing, by RUSI Research Director Professor Malcolm Chalmers, projects that the UK will spend 1.95 per cent of its GDP on defence in 2015/16 (£37.3 billion), excluding spending on operations – just short of the NATO 2 per cent target to which it agreed at the Wales summit.

Entitled ‘Mind the Gap: The MoD’s Emerging Budgetary Challenge’, this briefing provides the most up-to-date assessment of UK defence spending and projections. It is the latest in a series of briefings from RUSI ahead of the next Strategic Defence and Security Review, which is to take place after the General Election.

The paper highlights recent analysis of the spending plans of all three of the major political parties. It suggests that, on a pessimistic scenario based on this analysis, ‘the MoD would face a 10 per cent real-terms cut over the next four years’. ‘Neither of the two largest parties appears to be willing to exempt defence from wider austerity. None of the smaller political parties (with the possible exception of UKIP) favour more generous treatment for defence.’

Professor Chalmers writes: ‘The final budgetary settlement will be one of the most strongly contested elements of this year’s Spending Review. In contrast to the health, schools and international development budgets, none of the major parties has committed to protect the defence budget. Yet the MoD could face a substantial funding gap even on its own planning assumptions of 1 per cent real annual growth in equipment spending and the protection of non-equipment spending at baseline levels.’

On the current MoD planning assumption of modest real growth, and with the removal of one-off 2015/16 allocations, ‘spending for 2016/17 is due to fall to £36.0 billion, equivalent to 1.85% of GDP’. In order to meet the 2% commitment in 2016/17, therefore, the ‘MoD would need an additional £3 billion’. Further increases would be required in subsequent years in order to keep pace with GDP growth.  ‘By 2019/20, an extension of the commitment to the NATO target would require the MoD to be provided with an additional £5.9 billion in annual spending’, compared with current plans.

In a context of wider austerity in public spending, ‘such an increase is not plausible’. Instead, this paper suggests two scenarios. On a pessimistic scenario, based on analysis of the overall spending plans of all three of the major political parties, the MoD would face a 10% real-terms cut over the next four years. In its optimistic scenario, defence is given the same level of funding protection as health and schools., sending a powerful signal of increased priority for defence. The extra funds - around £4 billion per annum by 2019/20, compared with the pessimistic scenario – would probably have to be found from increased taxation and/or borrowing.

Since 2010, the bulk of real-terms cuts in spending have been felt in the personnel budget, with numbers of service and civilian personnel being cut by 17% and 28% respectively. This concentration of cuts on the personnel budget will be harder to achieve in a further round of cuts. Planned increases in pension and national insurance contributions, together with growing salary costs, will increase the pressure on personnel numbers. Even on the optimistic scenario, numbers of service personnel could fall from 145,000 to 130,000 by the end of the decade. Under the pessimistic scenario, they could fall to 115,000.

Plans for equipment spending are also likely to be affected, especially on the pessimistic scenario.  Planned spending on a successor submarine, designed to carry the Trident nuclear missile, is due to take the largest share of the forward procurement programme, and will be hard to change. If economies have to be made, air, maritime and land systems could all be affected. 

In either scenario, the result will be a remarkably sharp reduction in the footprint of defence in UK society over a decade. Even in the optimistic scenario, defence’s share of GDP will have fallen by a third: from 2.6 per cent of GDP in 2010 to around 1.75 per cent by 2019; and the MoD workforce (service and civilian) will have fallen by around 30 per cent, from 265,740 to 184,000 by 2019.

Professor Chalmers concludes that while the trend to reduce defence spending ‘has been accelerated by the ending of the Afghanistan commitment, its primary driver has been the sharp reduction in the share of national income spent on government services. Once the process of deficit reduction is completed, therefore, the MoD can reasonably hope that it will be able to share in the fruits of increasing public spending. Admittedly, this was also the expectation in 2010, when it had been anticipated that spending could rise again after 2015. In reality, the prospects for the defence budget remain closely tied to wider economic growth. The government is not yet convinced that strategic security risks are high enough to justify an exemption for defence from austerity.’

Download report at: https://www.rusi.org/MindtheGap2015

Notes to Editors

1. ‘Mind the Gap: The MoD’s Emerging Budgetary Challenge’ is a RUSI briefing paper published by the Royal United Services Institute as part of its SDSR 2015: Hard Choices Ahead series.
2. The paper’s author is Professor Malcolm Chalmers, Research Director and Director UK Defence Policy at RUSI.
3. More information and analysis around the Strategic Defence and Security Review can be found at www.rusi.org/SDSR2015
4. RUSI is an independent think-tank for defence and security. RUSI is a unique institution; founded in 1831 by the Duke of Wellington, it embodies nearly two centuries of forward thinking, free discussion and careful reflection on defence and security matters.