How ‘real’ is the CSR increase in UK defence expenditure?

On 9 October the UK government’s Comprehensive Spending Review (CSR) announced an increase in annual defence expenditure from £32.6 billion in 2007-08 to £36.9B in 2010-11, and presented this as an increase of 1.5 per cent per year ‘in real terms’, i.e., an increase of that percentage above the general level of price inflation in the UK economy.

This presentation indicates that the UK taxpayer will over the next three years have to forgo some goods and services (such as potatoes, pizzas and package holidays) in order to fund the additional defence expenditure. However an annual increase of 1.5 per cent ‘in real terms’ does not imply that the UK’s defence forces will get larger nor that they will necessarily become more effective against potential threats.

In presenting such financial information the Government relates its planned expenditure to its forecast of general monetary inflation in the UK economy, since that figure affects the welfare of the population as a whole. It is widely recognised that some specific groups within the population (such as the elderly) have spending patterns which differ significantly from the average; consequently they can experience higher-than-average inflation and their benefits should be adjusted accordingly. It is less widely recognized that some Departments of State also experience inflation in their costs which is consistently higher than general monetary inflation.

Inflation in the prices of some components of the defence budget (such as food and fuel) is the same as that affecting the general population. However inflation of Service remuneration must match that of civilian salaries and wages, which is (because of rising productivity) about 2 per cent higher than the general level of price inflation. Furthermore, the unit costs of most classes of increasingly-sophisticated defence equipment are growing at 5-10 per cent per year faster than general inflation. It follows that a UK defence budget rising at 1.5 per cent per year ‘in real terms’ cannot in the long term sustain the present numbers of Service personnel and the associated fleets of armoured fighting vehicles, warships and combat aircraft. UK forces will therefore shrink over the next few years covered by the CSR.

The future military capability of the UK’s armed forces depends not only on the UK defence budget but also on the budgets of their potential enemies and on how efficiently all of those budgets are allocated to personnel, equipment and other defence lines of development. The 1.5 per cent increases in the UK defence budget will help to fund new and improved weapon systems, but their effectiveness on a future battlefield will depend on their performance relative to the systems being deployed concurrently by rival nations and non-state groups.

David Kirkpatrick
Associate Fellow
RUSI

The views expressed above are the author's own and do not necessarily reflect those of RUSI.