Britain must completely overhaul ‘the state’ to find an additional tens of billions of pounds every year to meet NATO spending targets, a watchdog has warned.
The UK is committed to raising defence spending from 2.3 per cent to 3.5 per cent of GDP by 2035 – an increase of £36 billion a year.
The extra money is necessary to meet the increasing threat posed by Russia and the UK’s commitments to Ukraine, including a possible peace stabilisation force.
But Britain has not spend that much on defence since 1988, according to the Institute for Fiscal Studies, and since then health spending, as a percentage of GDP, has more than doubled.
Today, the IFS is warning wider public expenditure will have to be reduced to ensure defence spending targets are met.
According to the IFS, cuts required represent the entire budgets of the Ministry of Justice and the Home Office, including police, prisons and border officials.
The warning from the thinktank echoes the claim by outgoing Chief of the Defence Staff, Admiral Sir Tony Radakin, who said ‘the state is not working’.
The retiring former Royal Navy chief said earlier this month that inefficiencies in public departments, including the Ministry of Defence, were holding back this country.
The IFS warned the shape or the size of the state must be overhauled because alternatives such as borrowing more money are not feasible in the long-term.
As a leading member of NATO, the UK is under additional pressure to make spending targets agreed by states to appease US President Donald Trump.
To maintain influence, Britain must remain one of the alliance’s highest spenders. For decades the UK was the second highest spender behind the US but it has recently fallen behind Germany.
While Poland has doubled its defence spending to approaching 4 per cent of GDP, although this is a smaller amount in real terms than the UK’s level of military investment.
Last night, Bee Boileau, Research Economist at the IFS and author of its report, said: ‘Increasing defence spending to 3.5 per cent of GDP will be a major fiscal challenge.
‘It is, of course, not certain that we will reach this level of spending: the world could look very different in a decade and future governments might decide to change tack.
‘But other countries have signed up to the same commitment – and, indeed, countries such as Germany and Poland are moving further and faster.
‘Just the increase to 3.5 per cent of GDP is equivalent to the combined amount we currently spend on the Home Office and Ministry of Justice – not a sum that can be found painlessly.’
The IFS also signalled that defence spending will benefit the UK economy and manufacturing due to high percentage of capital expenditure within the departmental spend.
Relatively speaking, more money is being spent on military equipment and less on personnel. Capital expenditure, on equipment such as warships and stealth jets is almost twice what it was in 2000.
This is mainly due to all three services, the Army, the Royal Navy and the Royal Air Force shrinking in size, and the growth in high-tech weaponry.
Where additional defence revenues are spent will also affect which areas of the UK see increasing levels of economic growth. Areas such as the South West are expected to benefit most.
Mark Franks, Director of Welfare at the Nuffield Foundation added: ‘A large proportion of the rise towards 3.5 will not come until the 2030s.
‘This delay will limit the immediate pressure on the public finances. But it may also reduce the chances of securing good value for money, it if results in spending being ramped up over a short space of time as the commitment date approaches.’
On top of the 3.5 per cent spending commitment on ‘core’ defence spending, the UK must also find an additional 1.5 per cent of GDP on defence and security related projects, such as national infrastructure.
While the UK is giving itself a decade to reach the 3.5 figure, Germany has set itself the target of doing so by 2029, however much of this additional investment is expected to be met by borrowing.
Germany has relaxed the ‘debt brake’, which is part of its constitution, to ensure it gets ahead.
