Daily Newsletter

27 March 2024

Daily Newsletter

27 March 2024

UK Defence Committee discerns MoD budget reduction in real terms

The UK Defence Committee maintained that the UK Defence Secretary Grant Shapps “suffered massive defeat at the hands of the Treasury” in 2024/25 budget.

John Hill

In a UK House of Commons Defence Committee hearing on 26 March 2024, the Secretary of State for Defence, Grant Shapps, was grilled over the seeming lack of funds allocated to the Ministry of Defence (MoD) in the recent budget announced earlier this month.

Scrutinising the year-on-year figures between 2023/24 and the forthcoming 2024/25 budgets in the so-called ‘Red Book’ – an analysis of the economy and a summary of the budget allocation – the Committee discerned a noticeable “reduction in real terms.”

Mark Francois, one of the more vociferous voices in the Committee, cited the Red Book noting the budget had fallen by around £2.5bn ($3.15bn).

This shortfall equates to the figure due to be spent on various forms of military support for Ukraine in its war against invading Russian forces. The UK Government prides itself on being one of the largest contributors of Ukrainian aid after the US, having spent £12bn on Ukraine – £7.5bn of which was allocated to military assistance.

Francois argued that the £2.5bn that goes to Ukraine is not part of the UK Defence Budget “because you can’t spend the same pound twice.” If the MoD spends it on assistance to Ukraine, it cannot then also spend it on army salaries or submarine maintenance.

“So what you’ve done is you’ve suffered a massive defeat at the hands of the Treasury,” he told Shapps. “You’ve had your budget cut by £2.5bn and you’re now trying to play smoke and mirrors with Ukrainian money to pretend that your budget hasn’t been cut, when it’s been slashed.”

While the Chancellor of the Exchequer Jeremy Hunt maintained the UK’s commitment to Ukraine in the Budget, which was welcomed by defence industry observers, there is concern that the UK Armed Forces are coming up short.

Contrary to this apparent shortfall, Shapps noted that the budget for the forthcoming year was nominal – that the figure did not account for supplemental money that had been accounted for in the previous year.

“The reason why those numbers come out as misleading is simply because the previous year’s figures… includes the supplemental, the next year… doesn’t produce the supplemental. The argument is simple: you either have to include it entirely or you don’t include it entirely.”

According to Nato’s account of its members' defence expenditures between 2014 and 2023, the alliance accounted a -4.12% setback in the UK’s annual real change percentage in 2023 – the lowest figure in that period.

Since much of the UK defence spending is international, the MoD takes a larger hit than most departments when the cost to import rises.

Equally, UK defence companies became more attractive as producers when the value of the pound dropped. This would prompt these companies to hike their prices slightly to cover the increased cost of importing subsystems.

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