The government has hit the NATO-mandated two per cent spend on defence this year by “cooking the books”, but will have to find further fudges to keep their promises to the end of this parliament, finds a new report.
Interested parties were shocked by George Osborne’s surprise commitment to the NATO two per cent of GDP on defence minimum spend in the second 2015 Budget, but it does not appear the change will be accompanied by any significant increase in spending. As defence budgets continue to fall in real terms, other areas of spending are now being drawn in to give the illusion of growth, and crucially hitting the defence spending target.
Prime Minister David Cameron had stood up before the leaders of the free world at the annual NATO conference in Cardiff last year to pledge that Britain would continue to meet the target, calling upon other leaders to up their game and match it too. After that, government figures had been remarkably shy about making any sort of commitment about the spending level, which made the chancellor’s announcement all the more surprising. Now it seems Cameron’s words to the leaders of NATO and the voters of Britain were hollow after all.
To ensure spending targets were hit for 2014-15, a raft of spending areas that had never before been counted as defence by Britain but were technically admissible under NATO rules are now on the balance sheet. Most significant is proceeds from privatising areas of the defence estate – one time windfalls amounting to £1.5 billion which the government will struggle to replicate. The Royal United Service Institute’s (RUSI) new independent report on the spend also finds war pensions, British contributions to United Nations peacekeeping missions, and civilian Ministry of Defence pensions are now being counted too – adding approximately £1.4 billion to the spend.
But these colossal inclusions alone, which put Britain’s defence spend at 2.1 per cent of GDP, are not enough to see the parliament through. Despite Osborne’s promise to increase spending by 0.5 per cent a year over the parliament, the British economy is estimated to grow by a more significant 2.4 per cent, which will leave the defence budget slipping. Without further spending increases, the budget will stand at 1.85 per cent by 2020.
As these spending increases are extremely unlikely to come, the government must again resort to creative accounting, but it may not be so easy this time.
The inclusions of 2015 were permitted by NATO rules and so have been accepted by the alliance, however the proposed addition of intelligence spending may not be accepted, and the UK could be caught with its metaphorical trousers down. Regardless, the addition of the £2.2 billion ‘Single Intelligence Account’, covering the cost of MI5, MI6, and GCHQ will only cover the two per cent level until 2018-19.
The RUSI report suggests a further ‘fudge’ in 2020 will be needed to leave the government in the black as it fights the next general election.
UKIP warned immediately after the budget that the proposed spending levels would be impossible to attain without a significant real-term boost in defence spending, and that it could only be obtained with accountancy tricks. UKIP’s member of parliament Douglas Carswell hit out at the con, accusing the government of “cooking the books”.
The much spoken of NATO target was conceived during the Cold War by the North Atlantic Treaty Organisation military alliance, and requires all members to spend two per cent of the gross domestic product on maintaining defence. In reality, very few nations in the alliance have actually maintained the spending commitment, leaving the United States and United Kingdom to make up the shortfall.
That the UK could fall behind has been met with horror in the United States, which is not keen to be the sole net provider of Western security. In many respects Osborne’s defence accounting illusion is just as much about pleasing America – who in the past held out the UK as an exemplar to other NATO members – as it is his own voters.
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