Posted on October 27, 2018
ANALYSIS: What Will The Budget Mean For Defence?
When the Chancellor reveals the contents of his red box on Monday, he needs to show that austerity is over.
By Forces News Defence correspondent, James Hirst
The Chancellor has been given a mission by the Prime Minister.
When he reveals the contents of his red box on Monday 29 October, he needs to show that austerity is over.
But that’s not going to mean a great spending spree by the Government – Philip Hammond’s buzz phrase is ‘balanced approach’.
He says that means continuing to cut the deficit, while ‘keeping taxes low’, ‘supporting public services’, and ‘investing in Britain’s future’.
He has some room for manoeuvre in this budget, but it doesn’t look like a huge amount.
What does defence want from this budget?
More money. Of course. The Defence Secretary is reported to have asked the Prime Minister for an extra £4bn per year. That would be an increase of more than 10%.
Does defence need more money?
Yes, very much so, according to the Commons Public Accounts Committee. It estimates an ‘affordability gap’ (also known as a ‘black hole’) somewhere between £5bn and £20bn for the 10-year equipment plan.
In short, they’re saying a budget increase of £0.5bn to £2bn is needed just to deliver the current plans.
Gavin Williamson is thought to have argued that the plans for the forces need to go further… which is why he has asked for even more money.
What’s defence really expecting to get from this budget?
I honestly don’t know, but it’s almost certainly not expecting to actually get an extra £4bn a year. They know the chancellor is still trying to cut the budget deficit and has other priorities for any extra spending that he can afford.
Theresa May has already promised an extra £20bn a year for the NHS – which tends to be more popular with voters than military hardware – and some expert observers say that’s left Mr Hammond with little other money to spend.
The other thing to remember is there will be a wholesale public spending review next year, so this will probably be more of a ‘steady as she goes’ budget.
Could defence see its budget cut?
In theory, but politically that seems very unlikely. There is a ‘double lock’ on defence that promises to keep meeting the NATO ‘2%’ pledge and also to increase defence spending in real terms at least 0.5% a year.
That double lock was a manifesto pledge, so breaking it would look bad to voters and would cause an uproar among Conservative MPs (and the Democratic Unionists who Theresa May also has to rely on in Parliament).
Does that mean defence spending is basically safe?
It depends what you mean by safe. There will be an important number in the Chancellor’s budget – the ‘growth forecast’.
That NATO 2% commitment is tied to GDP – basically national income.
So if growth forecasts were revised downwards, it might leave defence with less money to spend than it previously expected. Equally, if it’s revised upwards, more money is available.
Inflation also matters, because the other half of the double lock is tied to inflation.
But there’s another variable that won’t really get mentioned in the budget. Exchange rates.
Much of what defence buys is priced in US Dollars, so if the pound gets weaker, things like F-35s get more expensive. If the pound gets stronger they get cheaper.
The biggest influence on the horizon for exchange rates is what happens with Brexit, which no one can confidently predict.
Anything else we should know?
It’s worth noting that part of the pot that makes up the NATO 2% can be spent on the intelligence services.
That means defence and intelligence are competing for some cash.
Depending on government priorities that could mean a bit more or a bit less for defence, but it’s a relatively small proportion.