Increasing the defence budget to 3% of GDP would boost the UK's military capabilities, but there has been little discussion on how this would be financed.
To deliver on its commitment to spend 3% of GDP on defence by 2030, Liz Truss’s government will need to increase defence spending by about 60% in real terms. This is equivalent to about £157 billion in additional spending over the next eight years, compared with current planning assumptions. By comparison, the 2020 Spending Review, and the associated Integrated Review, allocated an extra £16.5 billion over four years. This would be the biggest increase since the early 1950s, when concern that the Korean War might escalate to a wider war with the Soviet Union led to UK defence spending increasing from 6.6% of GDP in 1950 to 9.6% in 1952, before falling back to 5.9% by 1960.
The first indication of whether the new government is serious about the 3% target will come in the next Spending Review, likely to take place by November 2022. For the 3% commitment to be credible, the Ministry of Defence (MoD) would expect to be compensated for the extra inflation since the 2021 Spending Review, and for planned real-terms cuts in the resource budget for the next two years to be reversed. To ensure that the 60% increase in real-terms spending leads to a commensurate rise in military capability – and is not eaten up by increased inefficiencies – careful planning and preparation will be essential. This means investing in new industrial capacities capable of increasing production volumes, putting in place the process for building a larger service personnel workforce, and agreeing the additional physical infrastructure that a bigger force structure would require. Given the immediate capacity constraints, the pace of spending growth is likely to be slower in the early years, before accelerating towards 2030. This could mean that defence spending rises from 2.2% of GDP in 2022/23 to 2.5% in 2026/27, before increasing to a full 3% over the following four years.
These extra funds would allow the MoD to pay for capabilities that are not fully funded under current planning assumptions. To spend 3% effectively, the defence budget will require a significant increase in the size of the frontline – numbers of formations and platforms. An increase in service personnel numbers of 25–30% is likely to be needed to support an overall 60% increase of defence spending. This would increase total numbers of regular personnel from 148,000 today to around 190,000 in 2030, returning to the level last seen in 2010.
If the government is to raise defence spending to 3% of GDP, it will need to argue the case for doing so in the context of wider fiscal priorities. In contrast to the funding of spending increases for the NHS and social care under the last government, there has been very little attempt to ready the British public for the sacrifices that will be needed for a similar level of increase for defence. If it were to be entirely funded from taxation, the plan would require a 5p in the pound increase in the standard and higher rates of income tax by the end of the decade, or an increase in the standard VAT rate from 20% to 25%. Alternatively, it would require a significant cut in the GDP percentage spent on other public services and/or other international spending commitments. The credibility of the new government’s commitment to spending 3% of GDP on defence by 2030 will depend on whether the Spending Review sets out a plan for financing this increase.