UK Defence Budget: Still a balancing act

On the opening day of DSEI 2021, taking place at London’s ExCeL centre, Ana Popescu, lead analyst for European budgets at Janes explores the current status of Europe’s largest defence spender….

The UK is Europe’s largest defence market, with the country’s defence industrial base featuring world-class capabilities across most domains. It continues to be a major force in global export markets, with UK government figures indicating that orders of GBP80 billion were achieved between 2011 and 2019.  Its defence and security strategy is underpinned by a government commitment to maintain defence spending at 2% of GDP or higher.  

Out with the old, in with the new: UK government expresses support for defence but cuts still on the horizon for older capabilities 

After the 2008 crisis, the UK defence budget was cut in real terms for five consecutive years. As a result, Janes interconnected industry intelligence highlights that the UK’s defence budget fell from 2.5% of GDP in 2010 to 2% by 2015. Increases following that were relatively small, 2-4% in nominal terms. This means the real value in 2020, when accounting for inflation, was less than 0.5% higher than the 2016 one. Moreover, the Ministry of Defence’s annual Equipment Plan which is the Department’s forecast budget to cover the costs of procurement and support of military equipment for the next decade had been running with a deficit for years. The UK MoD entered 2020 with a shortfall between GBP2.9 and GBP13 billion over 2019-2029, according to its own estimates. 

That said, in November 2020 Prime Minister Boris Johnson announced additional funds for military expenditure, with UK defence spending seeing a significant nominal increase of around 12% in 2021, bringing the budget up to GPB50.6 billion, or USD68 billion in real terms according to Janes data. This is followed by much smaller nominal increases averaging 0.7% for the following three years, which translates to real cuts of 1.5% over the same time.

Johnson’s announcement was also notable as Defence was one of the few cabinet departments given the certainty of a multi-year spending package. This marks a difference from the previous decades, throughout which successive governments announced their support for defence, but other political and economic issues, particularly UK’s exit from the European Union, took precedence.

Nonetheless, the boost in spending may prove less impactful than initially hoped. At the same time as the budget increase, Prime Minister Boris Johnson also announced the creation of a new National Cyber Force, a new Autonomy Development Centre and  RAF Space Command, making it clear that the new funds would not be allocated just to funding the existing gap in the MoD’s budget.

Indeed, the UK’s Defence Command Paper released 22 March this year made it clear that cuts are to be made, as the MoD looks to reconcile shifting strategic priorities with new technologies and the ever-present need to balance its books. Nonetheless, the defence increase announced in November last year marks an important and much needed step in UK’s journey to establishing its role outside the European Union and cementing its position as the second biggest spender in NATO.

 

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https://www.janes.com/defence-news/news-detail/uk-defence-budget-still-a-balancing-act

On the opening day of DSEI 2021, taking place at London’s ExCeL centre, Ana Popescu, lead analyst fo...

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