How can Britain fill a £28bn defence black hole?

The Ministry of Defence is facing a shortfall of £28bn over the next four years, according to reports. A warning to this effect was delivered personally by the chief of the defence staff, Air Chief Marshal Richard Knighton, to the prime minister, the chancellor and the defence secretary at a meeting before Christmas.

At a time of acute international instability and increasing signs of US disengagement from Nato as it veers towards a new unilateral policy of imperialism, this is rather disturbing...

Whitehall simply cannot keep up with the rising costs of defending the realm and fulfilling its existing international commitments – let alone new challenges in the coming years. The result is cuts to certain defence projects even as budgets are rising nominally, and in real terms against general inflation, because defence is getting even costlier, especially advanced kit. New considerations such as the potential need for troop bases in Ukraine, and a fresh focus on the Arctic, add to the demands.

Part of the answer is the traditional mismatch between what the armed forces are asked to do and the money they are given to do it. Like many in Westminster, Keir Starmer had assumed that the most recent Strategic Defence Review, published last June, was fully costed and that money had been found for what was needed. He has now told defence secretary John Healey, and ACM Knighton, to produce a revised defence investment plan (DIP) to make the numbers add up. Much delayed, the DIP is now due in March.

Yes and no. This shortfall is across four years, so around £7bn per annum. For perspective, this can be set against a current total defence budget of £62bn – a small slice of Britain’s £1.3 trillion of total public spending, or the national income of £2.8 trillion. On the other hand, the chancellor’s fiscal headroom is only about £20bn, and every day seems to bring a new costly U-turn.

Obviously not, and recent conflicts, especially the war in Ukraine, show the speed at which new technologies – drones, AI and “hybrid” cyber warfare – are altering the rules of the game and making planning and procurement even more hazardous. Another issue is whether to rely on US weaponry or cooperate more with Europe.

Britain also faces a revanchist Russia and a retreating America, with no new formal defence framework to replace Nato.

That’s outside all these figures and comes from the Treasury Reserve. UK military aid has amounted to about £11bn since the Russian invasion began in February 2022, and Starmer has pledged £3bn a year in military support to Ukraine until 2030. If the Ukrainian men and women really are fighting “our” war against Putin, it’s also a bargain in financial terms.

At least what Nato is asking, and arguably more. At the last Nato summit, the government committed to increase spending from about 2 per cent of national income to 2.5 per cent by 2027, and then 3.5 per cent by 2035 – in addition to another 1.5 per cent on security-related investments such as industrial capacity. At 5 per cent, that’s more than doubling the current spend without a clear plan for how it will be paid – especially given the unpromising outlook for economic growth.

If war with Russia really is a risk, the case for setting an absolute figure – rather than a proportion of fluctuating national income – grows stronger. But what spending cuts should be made to balance the books?

Donald Trump just declared that he’s boosting the US defence budget from $1 trillion to $1.5 trillion (over 5 per cent of GDP), though it is not known what the extra $500bn is for. In Europe, Poland leads at almost 5 per cent this year, and Germany is aiming for 3.5 per cent by 2029. Spain, by contrast, is a notable laggard – barely at 2 per cent.

It may be of interest to note that Russia’s economy is on a war footing, devoting about 7.5 cent of GDP to the conflict in Ukraine, including some new drones and very-long-range missiles – but that’s only about £130bn, given Russia’s disproportionately small economy. Europe, in other words, can easily outspend the Kremlin if the industrial capacity, political willpower and recruits are available.