Rishi Sunak’s higher defence spending announcement does not add up

In the face of growing global threats, Rishi Sunak has committed that a Conservative government would raise defence spending to 2.5% of GDP, higher than the 2% NATO target that the UK has so far adhered to. While the decision to prioritise defence is understandable, without increasing planned public spending or committing to further tax rises then this prioritisation of defence implies cutting back ambition somewhere else. However, Sunak has been notably more silent on the politically contentious question of where he now plans to spend less.  

Spending plans for the next five years are already a work of fiction

In his March budget speech, chancellor Jeremy Hunt proudly said that his plans would ensure that “we can start to reduce our debt”, despite announcing large new tax cuts.  ¹⁰ https://www.gov.uk/government/speeches/spring-budget-2024-speech  But that was only true because the government pencilled in some implausibly tight spending plans for the next parliament.

The plan is for day-to-day departmental spending to grow by 1% a year in real terms between 2024/25 and 2028/29. But after accounting for commitments that had already been made to fund the NHS workforce plan, to maintain defence and overseas aid spending as a share of GDP, and to fund an expansion of free childcare, other departments were left facing cuts of 2.3% a year  ¹¹ https://obr.uk/efo/economic-and-fiscal-outlook-march-2024/  over the four years to 2028/29 – or 3.0% per person per year, after accounting for expected population growth.

As the IfG/CIPFA Performance Tracker shows, there are already significant performance problems across main public services – for example, the backlog of cases in the courts remains very high and several local authorities have already been forced to issue section 114 bankruptcy notices with more potentially to come, necessitating further painful cuts to services. Even before Sunak’s latest announcement on defence, it seemed implausible that the government could deliver the scale of spending cuts required to meet its current fiscal targets without being clear about what aspects of the scope or quality of the state it was willing to scale back.

Spending more on defence will deepen the cuts required elsewhere

Sunak’s announcement of extra money for defence merely intensifies this question. Government figures suggest that defence spending needs to be increased by a further 0.2% of GDP, or £6bn in today’s terms. That would imply that cuts to day-to-day spending on unprotected departments would need to be 2.6% a year in real terms between 2024/25 and 2028/29 (or £15bn a year by 2028/29) – equivalent to a cut of 3.3% per person per year.  ¹² These figures assume that spending on day-to-day and capital defence spending increase at the same rate between 2024/25 and 2028/29 and in line with the profile laid out in the ‘Defending Britain’ policy paper, https://www.gov.uk/government/publications/defending-britain/defending-britain-html.

As we argued in a recent report, predicating plans on these kinds of fictitious spending numbers worsens the quality of fiscal debate and threatens fiscal sustainability when those policies are inevitably changed.

While cutting civil service numbers may make sense, it will not deliver sufficient savings

Sunak has said that savings can be made by cutting 70,000 (out of the just over 500,000) civil service staff. As the Institute has previously argued, there is a case for making savings from the civil service, though it would be better to focus on how best to save money instead of setting arbitrary headcount targets. But with the total civil service pay bill only amounting to around £20bn, this scale of staff cuts will make only a small dent in the much larger cuts that will be required to adhere to the government’s fiscal rules. Claiming savings from civil service efficiencies is a ‘line to take’ for ministers in interviews and not a serious plan.

Some of the wording around the new commitment suggests that the apparent largesse of this new pledge may not be all that it seems. For example, the government has suggested that more of the budget for research and development should be allocated to defence: that implies less will be available for other research priorities. However, even factoring that in leaves questions about how the rest will be paid for.

It is easy as a prime minister to announce new spending commitments. The harder task of government, which Sunak should not be allowed to abdicate, is to make decisions about what to cut instead. As the saying goes, “to govern is to choose”. If Sunak wants to convince voters that he deserves to remain in office, then he has a responsibility to govern – and choose.