Government spending on defence

After adjustment for inflation, government spending on defence is expected to increase at a compound annual rate of 7.8% over the five-year period through 2025-26, to reach circa £60.2 billion. Following the 2010 general election, post-financial crisis austerity measures imposed by the government to cut public expenditure, and ultimately assist with stabilising a flagging economy, resulted in a sustained pressure on Ministry of Defence (MoD) finances - that is, from 2010-11 through 2014-15 inclusive, government spending on defence declined year-on-year in real terms. Published in October 2010, the government's Strategic Defence and Security Review restructured the UK's national security policy, focussing on the reduction of MoD expenditure.

Along with recovering economic conditions from early-2013 onwards, political pressure on MoD finances eased somewhat and the rate of contraction in defence spending, in real terms, slowed - in 2013-14, government spending on defence declined by 1%, which was comparatively modest relative to the 9.6% decline over 2012-13. In the 2015 Budget, the UK government reaffirmed its intention to meet a NATO target of maintaining defence spending at 2% of GDP until 2020 - this was initially agreed by NATO allies in 2006 - and committed to an increase in defence expenditure above inflation. This translated into growth of 1.3% in defence spending in real terms in 2015-16. However, these gains were effectively wiped off in 2016-17 as resource expenditure (i.e. money that is spent on day-to-day defence and military resources and administration costs) was slashed by 2.7% in real terms, contributing towards a reduction in overall defence spending of 1.9%.

In 2017-18, government spending on defence recorded a real term increase of 2% - this represented 2.1% of GDP, exceeding the NATO 2% target and achieving the target for the eight-consecutive year. The largest single factor in explaining an inflation in the MoD's expenditure budget in 2017-18 was an increase in the cost of constructing the Dreadnought submarines, designed to carry the UK's Trident nuclear missiles and due to begin entering service from the early 2030s - the total budget for procurement of Dreadnought alone is circa £31 billion, with an additional £10 billion of contingency held by HM Treasury.

In real terms, government expenditure on defence increased 1.5% in 2018-19. However, despite planned growth (3.3%) in resource expenditure, through the agency of additional funding committed by the Chancellor of the Exchequer for investment in cyber capabilities and anti-submarine warfare technologies, planned capital expenditure limits, in real terms, were stated to decline by 11.1%, resulting in growth limitation in the government's overall defence budget. The MoD had been urged to "scale back" defence spending to plug an affordability gap of up to £15 billion in the department's multi-year equipment and capital budget. Nevertheless, the government's spending on defence increased by 2.1% in 2019-20, largely driven by additional funding committed by the government to pay for exceptional Dreadnought costs running above previously budgeted levels, in addition to funding being committed to reshape and or defer defence projects. In 2020-21, government spending on defence was largely been pre-determined, somewhat mitigating the potential budgetary implications of an exogeneous economic shock spurred by the COVID-19 (coronavirus) pandemic, and increased by 3.8% year-on-year.

In November 2020, the British government approved the largest rise in its defence budget since the end of the Cold War, with £16.5 billion in additional funding made available for spending on shipbuilding, space, cyber, research and other sectors over the next four years. The government said military modernisation will be underpinned by a record investment of at least £1.5 billion extra and £5.8 billion in total on military research and development, including a commitment to further invest in the future combat air system. In large part, additional funding to support the ongoing military modernisation programme is presumed to support current year defence spend.

In addition to this, on the morning of 24 February 2022, President Vladimir Putin announced that Russia was initiating a "special military operation" in the Donbas region, and proceeded to launch a full-scale invasion into Ukraine. With war having returned to European soil, many Western economies have announced heightened defence budgets as a response to the Russian invasion of Ukraine. Hence, the UK government's expenditure on defence is forecast to increase by 2.8% 2022-23. This trend is representative of a 2.4% compound annual growth of defence expenditure over the five years through 2022-23, to reach £43.3 billion.