Osborne's Summer Surprise for Defence: Guaranteed Real-Terms Spending Increases

It was widely expected that the Ministry of Defence’s future budget would not be known until around November of this year, when the Spending Review is due to be completed. It was therefore a welcome surprise for the MoD when Chancellor George Osborne, in his Summer Budget on 8 July, announced that defence would receive annual real-terms increases in its budget of 0.5 per cent a year up to 2020/21, to around £38.9 billion that year.

Given the Treasury’s longstanding commitment to further cuts in overall departmental spending, this settlement is at the very upper end of previous expectations. For the first time since 2010, the MoD has become a ‘protected’ department, a privileged status (also enjoyed by health, schools and international development) that fixes its budget in advance of the Spending Review, leaving other ‘unprotected’ departments to fight it out for the resources that remain.

The increased commitment to defence has been made possible by the Budget’s relaxation of previous plans for cuts in total departmental spending, amounting to some £83.3 billion of additional resources over the current Parliament. Even so, the Institute for Fiscal Studies still projects an average reduction in spending by unprotected departments (now excluding defence) of 12.6 per cent in real terms (or around £19 billion) between 2015/16 and 2019/20.

About the Author

Professor Malcolm Chalmers is Research Director and Director, UK Defence Policy at RUSI.