Is the UK spending enough on defence?

Paul Johnson

Hello, and welcome to this edition of the IFS Zooms which we’re bringing to you ten days into the Russian invasion of Ukraine, and it seemed appropriate to us on this occasion, therefore, to be talking about defence spending. We are delighted to be joined today by Professor Malcolm Chalmers who’s Deputy Director-General of the Royal United Services Institute, RUSI, and an expert on defence spending; and I’m also joined today by my colleague Ben Zaranko who does most of our work here on public spending as a whole and will be putting, hopefully, some of the defence spending issues into a bit of context.

There’s a lot of talk about, but Malcolm, can we start just by just saying where, where were we, where are we today in terms of defence spending and what it can buy us as a nation? We know that defence spending is obviously a lot less as a fraction of national income than it was thirty, forty, fifty years ago, but we still spend more than most other, or indeed all other European countries. Can you just give us a sense of where that has taken us in terms of our capabilities?

Malcolm Chalmers

Indeed, I can and as you say the UK is the biggest defence spender in NATO Europe. The margin has declined a little bit, Germany is beginning to catch up, but the UK is still ahead. The UK for the budget it has for defence it allows us to maintain a nuclear deterrent which is now a big priority in terms of modernising that deterrent. It’s also got by far the most capable surface fleet and navy of the major European powers, and a significant air force, maybe more comparable with those in France and Germany. Probably the area in which the UK is relatively smaller is in relation to our ground forces, and that’s partly for geographical and historical reasons. We are a bit further from the likely places where the army might be used. And partly historical experience actually going back a very long time, is traditionally the army was often used to help police empire. And the wars of intervention we’ve been involved in in Iraq and Afghanistan were a natural return to that. But in terms of the army’s commitment to Europe traditionally, the UK only built up a large army when a major continental war took place, the Napoleonic wars, the two world wars, but in between it went back to becoming more of an expeditionary army.

So that sort of sets the tone of what we spend our money on, it’s quite a lot of different things. And actually, the reason why we can do a lot of different things, often with wealth being limited, volumes, quantities of capabilities is because our whole grand strategy, certainly since the 1960s arguably since 1945, has been based on alliances. So, we won’t structure our forces primarily around the UK fighting by itself, we structure our forces primarily around UK fighting with others and most of all, with the United States and our European neighbours. And again, the Ukraine crisis of course, the response is a NATO one rather than a primarily national one. And so that means the alliance provides the mass and we provide the quality, but not necessarily the mass which others can provide.

Paul Johnson

And those others really are the United States, aren’t they? I mean can you just give us a sense of scale here and how big UK spending and UK forces are relative to the US? And indeed, what role what – it’s such a small fraction of that actually plays in something like Ukraine or more broadly in the NATO strategy?

Malcolm Chalmers

That’s a really good question. I think the UK defence budget is around 8% of the US defence budget, that proportion has gone down a little bit but actually it’s been more or less there since the late 1960s, this is nothing new. But France and Germany spend a bit less than us, so maybe they’re down at 6 or 7% of the American defence budget. I think the UK in some cases, punches above the weight which those numbers might suggest. And I think it punches above its weight in European security because the United States spends actually more now on Asian security than European security, their forces of course are flexible between the two to some extent, so specifically in relation to NATO and Europe, the UK is more important and we’ve seen this in this crisis where UK forces are actually quite an important element of the European response, albeit dwarfed by the American response.

And I think the UK also plays perhaps a rather more disproportionate role because we are one of only three nuclear weapons states in the alliance, and when you get into a situation where nuclear weapons are more relevant and clearly they were less relevant in the war on terror but more relevant when you’re dealing with deterrent of a nuclear state like Russia or indeed China perhaps, then you know we are one of only three. And again, then it’s not really additive, because our nuclear arsenal is a fraction of that of the United States, its more as a, another centre of decision making that would complicate the calculations of an adversary power. And maybe then nuclear forces is the best example of the hedging element in British defence strategy, defence capabilities, some other capabilities are there, just in case the American’s aren’t committed in a particular scenario, and then I think the UK capabilities are really important. And that’s obviously true of the nuclear deterrent, which is entirely irrelevant in a situation in which the American deterrent works. But you can imagine a scenario in which the United States might not be prepared to risk you know New York for Berlin or wherever it might be.

Paul Johnson

Well that’s a cheery scenario. Let’s put this in a bit of broader context, I’ll just bring Ben Zaranko in for a minute, as Malcolm has said, our spending is about 2%, on defence about 2% on national income and that’s come down a lot over time, how does that fit in to the overall picture of UK public spending?

Ben Zaranko

One of the big stories of the past seventy years or so if we look at the size and the shape of the UK’s state, has been defence falling, not just as a share of national income but as a share of what government does. So, in the mid 1950s, defence was 7.5%, 8% of national income, about one in every five pounds the government spent went on defence, and that’s fallen steadily over time for a number of big reasons, and that’s fallen to, as Malcolm says, about 2% of national income today, it’s been hovering at that point since 2015.

But the overall size of the British state hasn’t fallen by the same amount, and the primary reason for that is because falling spending on defence has allowed successive Prime Ministers and successive chancellors to increase how much we spend on the welfare state, and in particular, how much we spend on the NHS, without having to increase the overall size of government and without having to increase taxes. So, that shift away from defence and towards health is a big story of what’s happened over the past 60/70 years or so. And the fact now defence spending has, if you like, hit its floor, we’re at about the 2% pledge that we make as a NATO member, can’t really fall any further unless we we’re to break that pledge, is part of the reason why chancellor and Prime Ministers have had to start looking elsewhere for funds to pay for a growing health service, namely increases in National Insurance and the new Health and Social Care Levy from next year. I think that’s a big story of what’s happened that we perhaps need to take stock off as we look ahead.

Paul Johnson

And Malcolm that fall as a fraction of national income, as Ben was saying, has pretty much bottomed out. What were the pressures even before Ukraine, what were the pressures on that budget? Was the general view among those analysing this that it was adequate or was there some really strong pressure in any case to increase spending? And if so, where were those pinch points?

Malcolm Chalmers

Well, there’s always pressure from every one of the arms forces to spend more on defence. Defence is not unique as a public service, those involved in each public service wants to spend more, understandably from their own point of view. I think that the key turning point was the integrated review which the government published last year and indeed the spending review that set the scene for that. And if you go back to 2015 and the big review then, essentially there was an increase in defence spending, a relatively modest one under the Cameron conservative government, but as part of that, the government committed to a range of new projects which meant that the budget was basically unbalanced, the commitments were greater than the spending allocated. And really the period between 2015 and 2020, saw the MOD increasingly frustrated at having to manage an investment plan which was incompatible with the money available.

But when you came to the integrated review, in 2020, 2021, essentially the treasury and Number 10 agreed a significant cash injection into the Ministry of Defence’s capital programme, which is essentially addressed the budgetary gap there was on the capital programme. So actually, the integrated review didn’t commit to many new commitment programmes, there were some but not very many. Most of the extra money was put into paying for commitments that had already been made both nuclear and conventional in all three services; it was an increase in capital spending over two years of around 40% in real terms, this is a very big injection of extra cash. By comparison, the operating budget in the integrated review and the associated spending review was more or less stagnant depending on the inflation numbers that you’re using when you do the calculation, there’s maybe a couple of percent down over five years of real terms. But essentially its static and that involved some cuts in personnel numbers and quite a number of other spendings in defence operations. So, privileging the long term, the capital programme over the operating budget is the latest twist in the defence budgets story.

Paul Johnson

And the impact on that stagnation on operating cost and indeed I mean one of the things, even ignoring whether there’s additional pressure on what the defence forces actually do over the next few years, of course inflation’s a lot higher than the chancellor expected back in October, there’ll presumably be pressure on pay in the armed forces and the MOD uses an awful lot of fuel which will also increase pressure. What are the likely consequences if there’s no top up?

Malcolm Chalmers

I think if there is no top up to the operating budget, then there’ll be very severe problems, particularly if there’s a pay increase which is well above the projected level, I mean which is again a problem common to the whole public sector, at least those parts of the public sector which are personnel intensive; so, there’s a real issue there and I suspect there will have to be a treasury wide solution if pay settlements come in well above levels. And the fuel, hopefully is a rather more short-term issue, but that will have a very significant impact if there is a sustained increase in fuel costs. I think there’s something quite unusual with the defence budget, that the defence budget has a core element, and then an operations element. So, the MOD gets paid its core budget for when it’s not really getting involved and doing anything exceptional, it’s not involved in any operations, but when something comes along, when a war comes along or more limited involved in a conflict comes along, and there are extra costs involved, then there is a government commitment to pay for those extra costs over and above the core budget. So for example, when they were supplying extra arms to the Ukraine armed forces, they have to be replaced in UK stock piles; or when we’re increasing the alert levels of our forces or deploying an extra battalion to Estonia or more air patrols, all these sorts of things that are happening right now, the extra cost of that activity, it should be picked up by the treasury - they haven’t conformed that yet, but that will be the normal practice. But in so far as extra fuel, personnel costs are about – things you have to do day-to-day whether or not there’s a conflict somewhere, then that’s going to hit the MOD pretty hard.

Paul Johnson

And Ben maybe you can put that into a bit of the broader context, because of course whilst the MOD is particularly affected directly by what’s happening in Ukraine, there are pressures right across the public budget, whether that be in terms of helping households further with fuel bills or whether that be with meeting the real terms intention of October’s spending review.

Ben Zaranko

Absolutely, a lot of the pressures that Malcolm’s talked about are definitely going to be those felt by schools, by hospitals, by prisons, by court, they’ll all be looking at the budgets they were given last October, which were predicated on inflation in what we call, quote unquote the normal sort of range, perhaps 2 maybe 3%. Now we’re expecting CPI inflation to peak perhaps more than 8% this April, the shock in just the space of five or six months has been really quite remarkable and the question for the chancellor over the next few weeks will be whether those public spending plans still stand up to scrutiny and perhaps he’ll have to revisit, make top ups in places. But of course, that’s not the only pressure, there’s lots of pressure for him to support households in the face of extremely high inflation by recent standards by extremely large increases in particularly gas and energy bills and so he’s going to have to make some very difficult decisions. He won’t be able to do everything, he won’t be able to please everyone.

I’d like to just pick up on something Malcolm said about the sort of shift towards capital spending at the same time as quizzing the sort of say-to-day resource budget, cutting back on personnel count and that sort of thing, clearly that’s going to be exacerbated if pay awards are anything close to what inflation is looking like, yet the budget is predicated on more like 2 or 3% pay awards if you start doing pay awards in the region of 5, 6, 7%, something’s going to have to give, that may well be headcount. But it’s also interesting that this, this shift towards capital spending and this shift towards equipment happened, I’m sure there are very good arguments for it from people within the MOD and people within the defence community, I mean it basically happened because the government relaxed it’s fiscal rules and it decided it was willing to borrow to pay for investment spending, not just in defence but across the board in transport, research and development, all sorts of things. So, I guess defence has been one beneficiary of that, for sure. But whether it was driven by that, or whether it was driven by the fact the treasury was suddenly willing and able to spend more on capital I think is an interesting question.

Malcolm Chalmers

Yes, I’m not sure whether that was an important consideration, I think from my point of view, there were two important considerations, one was that the MOD it had a number of equipment commitments already, which they judged were necessary in order to make the UK armed forces fit for the warfare that was anticipated for the 2030s and beyond. And without a big increase in capital spending, some really difficult decisions would have had to be taken to cut some big projects. It wouldn’t have been enough to whittle it down a few less frigates or a few less nuclear warheads, you’d actually have to cut out some big chunk which would have been very difficult politically, and quite risky militarily. So that was one explanation.

I think another aspect however is that the big increase in capital spending does fit well with the government’s prosperity agenda, and it’s levelling up agenda, because it is about investing in what are in most cases pretty high technology industries, very often defence industry are located outside the South East of England, the ship building and aerospace, most obviously, but also defence electronics and indeed there are export opportunities associated with that defence industry as we’re seeing now with the Aukus deal with Australia and a possibility of selling nuclear submarines there. The prosperity agenda I think is a key element in explaining that focus on equipment. But I think the Ukraine crisis in a way provides an opposite set of incentives because the Ukraine crisis, the most urgent area for spending, is spending that can deliver military effect quickly, rather than over ten or fifteen years, the Russia threat is most acute now, in the next couple of years, not for the 2030s. And the economies on the operation side are creating risks in regards to our ability to provide a strong UK contribution to the NATO response.

Paul Johnson

So, that raises the obvious question as to what your projections are, what your views are as to the short- and medium-term effects of what’s happening now in the Ukraine. We’ve seen a number of other European countries say that they will finally meet the 2% NATO target, there’s clearly immediate pressure on the UK defence budget, do you see this as a period where we’re going to almost be forced, as it were, to increase defence spending over the next decade or so? Or is this something that we’re likely to be able to ride out with our current level of spending as a fraction of national income?

Malcolm Chalmers

At present the MOD is programming for an annual increase over the decade of around 1.5 or 2% per annum in real terms which is more or less will keep us as stable as a proportion of GDP in defence spending, if the economy doesn’t do too badly at least. So, there will be a question as to whether that’s enough, and whether that should be at a greater ratio of growth. I think the UKs in a rather different position from some other European counties. So, essentially, the small NATO states, Eastern NATO states have all increased their defence budget from a very low base to 2% and in some cases higher, I think Poland will probably go quite a bit higher, because they’re the most exposed to Russia. The southern European states like Spain and Italy have not done that and their defence budgets are pretty low. France is around 2%, are pretty comparable with us, maybe a bit less than us, but they’re up at 2% and really are in many ways our main comparator I think in this. And in the biggest change we’ve seen in the last two weeks, is the German announcement of a massive increase in German spending, and the headline number from the chancellor is extra €100 billion on defence, which looks as if that’s going to be over a period of several years that’s not a one-year increase. And from the limited information we’ve got available from the German Ministry of Defence, most of that money is going to be going into capital programmes to fill the unfinanced capital ambitions of the German armed forces. They did add new ambitions, its not going to go into increasing the size of the German armed forces. So, the way Germany’s going through the process which the UK went through in the integrated review, or recapitalising its programme and responding to the capital aspirations which were no longer there. So, if that interpretation of what Germany is doing is right, it will build more capable German armed forces without making them bigger. And Germany has said, I will believe it when I see it, but German has said it will increase its defence budget to 2% GDP. If it does so, then, because Germany’s economy is much later than ours, it will mean Germany will become the biggest defence spender in NATO Europe for the first time since World War Two. So, that will be a big shift and displace the UK from that position.

The question for the UK will then be, and I think it’s clear in the short term there are some real operational needs which will require extra spending and reversing some of those cuts and operation spending I think probably will be a political imperative in that regard and paying fully for any pay increases and so on but also paying of the actual expenses of the Ukraine related operations. But I think beyond that I think will the UK, as some parliamentarians argue, increase its defence budget to 2.5% GDP or 2.7 or 3%, these numbers are all thrown about rather arbitrarily, but there’s a lot of money involved and I think the decision makers in Whitehall will be quite cautious not to rush into such a commitment until they’ve properly digested what is happening in relation to Ukraine and that we’ve got so many different scenarios, geopolitical scenarios coming up with the Ukraine. A scenario in which Russia essentially loses a crisis has very different implications for our defence budget from one in which they essentially win and pose an enhanced threat to NATO as a result. So, I think it’s rather too early to say.

Paul Johnson

And Ben, if we do end up increasing defence spending as a fraction of national income over the next several years, that will be a remarkable turnaround from what you were describing just over the last sixty or seventy years and no doubt will have consequences for the rest of the chancellor’s budget.

Ben Zaranko

Absolutely, but I think clearly there’s something major has happened in the last few weeks, we are potentially at something resembling a turning point, one of those dates that when we look back in the history books might be the end of one year and the start of another, and I think it’s not unreasonable to think this couldn’t mark a breaking point. Thinking about the comparison with Germany, and of course it’s a bit arbitrary if the UK is desperate to remain number two spender within NATO, but let’s just say, if it did, a reasonable rule of thumb is the German economy is about 20% bigger than the UK economy, so if the Germans do succeed in reaching 2% of GDP, the UK would have to be hitting something like 2.4% as a minimum, so you’re looking at something like an extra £8-10 billion every year on defence. And the MOD will not be the only department coming to the chancellor, cap in hand, asking for more money, NHS is the obvious example, but given the rate of information and the pressures on the public sector, it will be departments right across the piece asking for more cash. And if we go in the medium term, decide as a nation we need to spend more on defence, that will ultimately mean less to spend on everything else, or it will mean higher taxes in order to pay or that. We might be able to borrow in the medium term, especially for you know an exceptional conflict and the associated cost, but eventually that will have to be treated like every other item of spending, and that will potentially mean less to spend on other things that we value, like healthcare, like schools another public services. So, it is going to be a tricky decision, it might be something, one of the longer-term outcomes of this conflict that of course we’re not focusing on right now, but for the chancellor at least, that could be something that he needs to consider. Perhaps not this year, perhaps not next, but in some future big spending review, when we revisit the size and shape of the state, this will of course be something that enters that calculation.

Paul Johnson

Malcolm, I get the sense in what you’re saying that, correct me if I’m wrong, that if you were to spend additional money on our defence, that you might be looking at the operational budget increasing rather than then another upward shift in the capital equipment budget. Is that fair and would that mean, for example, reversing cuts to the size of the army? Would that be where your expectation of priorities would be?

Malcolm Chalmers

I think there will be quite a lot of political pressure to increase the size of the number of people in the regular army, but there are good reasons why the integrated review decided to make cuts there. Partly in order to be able to better equip the army, so numbers of personnel, as the Russians are finding to their cost, really don’t necessarily translate into success if you don’t have the logistics and all the less visible elements for defence capabilities, the ability to do electronic warfare and cyber warfare, the ability to have effective coordination of your capability, air, ground, coordination and so on, and there are areas there where more investment is needed and one of the things that I think that the MOD hasn’t quite got right is there’s quite a lot of investment in platforms, ships and aircraft and tanks without necessarily the stocks of missile and munitions that allow you to operate those capabilities for a longer period of time. And as we’re seeing in the war in Ukraine right now, those stocks can be run down, it’s one of the Russians big weaknesses actually, they don’t have enough precision guided munitions for their air force. So, you know there may be a choice between reinstating some cuts in army numbers and restocking the missile and armaments capabilities that we have across the services. In the short term, I think, making the force we have more effective, I think is going to be a strong priority, making it more responsive, able to get places quickly if something happens.

But I think as the dust clears, there may be pressure, if there’s more money available, to increase the size of the armed forces as well, to have more aircraft in the RAF for example, more frigates in the navy, the numbers there have been coming down for some time, and maybe some more battalions in the army, although the army I think may be a less strong case there, in my view, the army I think it’s more about qualitative improvement. How long is a piece of string, the nature of being part of an alliance, is that unlike domestic public services where the need is domestic and the response is domestic and you get what you pay for as it were in terms of what you provide to the British public, here, we’re essentially providing a capability to an alliance and the burden sharing issue is actually essential to determining the appropriate level of defence spending, which of course comes back to that question of the comparison with Germany. If our political leaders decided its vital that if Germany tries to catch up with us, we try to stay ahead of them, then as Ben suggests, that means we would have to increase our spending in so far as they do. But we could also argue that the Germans are at last doing their bit for NATO.

Paul Johnson

Yes.

Malcolm Chalmers

And therefore, we’ll do just what we were planning to do, we won’t cut, but it means we can relax a bit more because at last, the three big European powers are playing their bit. And the American reaction might also be thank goodness the Europeans are at last pulling their weight a bit more, and this plays into the, there is a wider discussion because the Americans of course are by far the biggest military power in NATO, there is a European concern that in the long term they’re going to pivot in the pacific to contain China, and the Europeans are going to be left more on their own. And that will be a big pressure. I mean it’s the debate about defence spending level from the UK of course right now is being driven by what Russia does, but its also driven by concern about what the Americans will do in the medium term, once the immediate crisis is over, and the Americans are very engaged in this crisis, once this immediate crisis is over, will Europeans have to do more for ourselves in defence terms, which I suspect we will, which is why what the Germans are doing is very welcome.

But maybe the final point here, is that it does tie into the UKs relationship with the EU and with our European neighbours more generally, defence is one of the stronger cards we can play, because its an area in where we bare a comparative advantage. So, its sometimes quite elusive but I think there is a sense in which the UK can strengthen its diplomatic and maybe it’s economic relationship with European countries by being there, being a key player in contributing to European security. And certainly, the Prime Minister is one of the European leaders who is most welcome in conversation with Zelensky - the UK matters there, the UKs not isolated in this crisis, in defence terms, quite the contrary. And that maybe a diplomatic card, it’s one of the few areas in which the UK has a comparative advantage in terms of strengthening our wider relationships with European allies and friends.

Paul Johnson

And that advantage comes from the greater size of our spending and armed forces, presumably. I was actually going to ask you exactly that because you talked about Europe quite a lot. This is essentially all via NATO so has leaving the European Union made a significant difference to our needs or perhaps you’re suggesting it makes the additional diplomatic muscle we might get through additional defence spending more important than it otherwise may have been.

Malcolm Chalmers

I think in strict military terms it hasn’t because our main involvement in collective defence is through NATO, not the European Union and that’s true of European Union members as well, France and Germany look to NATO more than the European Union, even France does in terms of organising the response to threats like that from Russia. But I think the EU plays an important role, is playing a crucial role in this crisis, in orchestrating the non-military aspects of the response to Russia. Everything that comes under sanctions which is a very wide remit, and all the things about securing supply chains and so on and so forth. And there, I think, the UK has been to some extent, marginalised in relation to sanctions but also actually in relation to dealing with refugees from Ukraine, it feels like the UKs running to catch-up agreements that have been made in the United States and the European Union. So, there is a sense in which for defence specifically it’s not directly affected, but there’s an area in which we are at the top table, at NATO, amongst Europeans in a way we’re not on economics on sanctions on migration, all the other things, we’re not, we’re there, we’re important but we’re not that important. Financial aspects of sanctions we should be at the top table, but we’ve been marginalised for something that the government I think has felt uncomfortable about for the reasons which, apart from a different conversation, to be more central in that area.

The whole post war settlement, really from 1945, the formation of NATO 1949 onwards, has been predicted on a recessed chairman military role, for very obvious reasons, self-imposed for most of the period, and this changing then, so much changes about European security, the NATO settlement was designed partly to contain Germany, and now we’re in a situation where Germany can become the most powerful military power in Europe, but having the capability, having the military capability is not the same as being willing to use it. So, that the British and indeed French comparative advantage on the military front isn’t only about spending, it’s about our willingness to use those forces, sometimes in ways which we may in retrospect think were foolish, but nevertheless the UK forces have been involved in conflicts, one place or another, almost every year since World War Two, there’s not been many years in which they’ve been not fighting somewhere. The Germans have almost never fought during that period, anywhere, like the Italians or the Japanese. And if that’s changing that really is a big change in geo-politics and if course once you start using your forces more that of course creates pressure to spend more.

Paul Johnson

We’re running out of time but I’m desperate to ask you a final question which is about the value for money that we get in defence spending, and I suppose there are two huge questions here, one is the national audit office is continually complaining about the capacity of the Ministry of Defence to purchase and manage big equipment projects, indicating that they feel a lot of money is being wasted. And then they second big question is that urm, you know there were certainly some questions about the efficacy of British troops in Iraq and Afghanistan and whether actually the quality of what we had was as good as we thought it is. So, I mean just some final thoughts really on your views on whether we’re getting food value for money, which is still fifty billion a year that were spending on defence.

Malcolm Chalmers

It’s a chronic problem, people have been talking about this you know for the whole cold war and the whole post cold war period, in partial mitigation the biggest problems are in those areas in which you’re trying to put in place unexplored technologies, and you’re at the cutting edge in the civilian area that’s also a problem. But I think its also the way in which requirements are set, there’s so many different actors, that I think the military is not necessarily that well placed in terms of managing very long-term projects for all sorts of reasons. And in a way everybody understands what their problems are, but there never seems to be a way through it, unfortunately. So, yes, there does continue to be waste, some of the waste is because, because its so hard to build and deploy new generations of equipment, old generations of equipment are stretched well beyond their natural lifetime and that’s inefficient in military terms and often very costly. So, I don’t think that problems going to get much better. Sometimes it feels like it gets better for a couple of years and then it goes back into old habits, I’m quite a pessimist on that really.

In relation to your question about Iraq and Afghanistan, clearly in both cases there were in the end strategic failures, you can argue about how big the failures were, there were shared failures, we’ve shared them with United States and other participating countries there weren’t any especially British failures. And I think in both cases it illustrated how hard it is in the modern world, and the modern post-colonial world to change the trajectory of foreign counties through military occupation, which is essentially what we were trying in both cases, and I think Russia’s going to learn that lesson the hard way in the weeks to come in Ukraine.  

Paul Johnson

Any last word from you on the immediate pressures facing the chancellor in the result of likely additional request from the MOD?

Malcolm Chalmers

I think it’s going to be very hard for the chancellor, and of course the Ukraine crisis is creating a whole multitude of other spending pressures, and revenue pressures because of the rise in energy prices and everything else, so it really is a perfect storm for the chancellor, and I don’t envy him at all. I suspect he will try and give the MOD something but not make long term commitments until its clearer what the crisis really means. And if there’s one glimmer of hope for the chancellor in that discussion with the ministry of defence it’s a really pretty poor performance of Russian conventional forces in Ukraine. Sometimes we’ve been designing our equipment especially for the medium and long term around a picture of Russian capability which I just don’t recognise in the way they’re behaving in Ukraine. So, the worst Russian forces preform in Ukraine, the happier we will all be and the happier I suspect the chancellor will be.

Paul Johnson

Ben any last words from you on that particular issue?

Ben Zaranko

I think the big thing for the chancellor really is this is another shock and another pressure that will just make it even harder for him to be the tax cutting chancellor that he perhaps wanted to be or certainly that lots of his back benchers would like him to be. And this is just another spending pressure that will put more upwards pressure on the size of the state, make it even harder for him to perhaps be in a position to reverse any of these tax rises or enact a tax cuts before the next election, and will mean that this is going to be a bigger state even more interventionist government that we thought a few weeks ago, which was already a break with the past. And I think that on top of the COVID shock, this will have long lasting implications for the government and for fiscal policy that this chancellor will have to grapple with.

Paul Johnson

On that note I think it’s time to end this, I mean it really is the case that we seem to be having these huge shocks one after the other, all very different, whether it be the financial crisis, and then Brexit, and then COVID and now, well we’ll wait and see how long lasting this shock is. But a we live through it, it feels like this is going to be another shock to the financial and economic system as well as to the strategic and defence situation for the UK and the first time in a long while that the strategic and defence situations taken such centre stage when thinking about the economics and finances. Obviously Iraq and Afghanistan cost a lot, but in the sense of the economy they were pretty much isolated from everything else, whereas this feels like it’s having an impact across the piece. Mr Sunak’s only been in office now for two years, it must feel like a lifetime for him as he’s lived through more problems than many of his predecessors put together.

But thank you very much to Malcolm Chalmers for that fantastic insight into the pressures on the Ministry of Defence and the issues that are arising from the current crisis in the Ukraine, and to Ben Zaranko for putting all of that into the context of the wider public finances.

Thank you for listening to the IFS Zooms In, if you did enjoy this, please do rate it, recommend it and tune in next time in a couple of weeks, thank you very much.