Following the announcement from the UK's Prime Minister on 19 November 2020, Ana Popescu, senior analyst from our budgets team explores....

Prime Minister Boris Johnson announced plans to boost defence spending by £16.5 billion over the next four years, and create several new entities meant to counter increasingly sophisticated threats, including a new agency dedicated to Artificial Intelligence, a National Cyber Force and a new 'Space Command'.  This increase would come in addition to the 2019 Conservative manifesto commitment of increasing defence spending by 0.5% more than inflation every year of the parliament.

We do not yet have detail as to how those £16.5bn will be spread across the coming four years, the release of the Integrated Review in early in 2021 should provide more clarity over that. Assuming they're spread evenly, we'd see a 10% nominal increase in 2021, followed by much smaller increases of around 2% to 2024. In effect, this would bring defence spending, as calculated by Janes to include pensions and UN peacekeeping contributions, to just under £54 billion in 2024, from its 2020 value of £46.2 billion (all nominal). Before this latest announcement, and depending on the inflation figures used, we were expecting a budget of around £50 billion in 2024 so as you can see, the increase, while considerable, is not necessarily a watershed moment. It is in line, if more ambitious, with other European countries' decision to support defence spending, despite the financial pressure exercised by the Covid-19 crisis.   

One of the main issues going forward is the existing overall budget shortfall, which the MoD estimates at around £7.7 billion between 2020-21 and 2024-25. The Department is already taking steps to address this gap. This additional allocation of £16.5bn cannot be used exclusively to balance that as new capabilities and new agencies are also to make use of that funding. As such, difficult decisions with older capabilities and platforms will still need to be taken. The silver lining is that those calls will be made with more information available than what only a one-year funding deal would have provided.