The Magic 2% – A Look at the Budget 2015

UK GDP Defence Spending

I have often warned about fixating on the magic 2% of GDP as a means of measuring defence spending for the simple reason it becomes the objective of defence policy.

Much like NHS targets that saw ‘hello nurses‘ being deployed to hit A&E targets the danger is the whole of defence becomes fixated on meeting a single arbitrary target that actually means nothing and has no relation whatsoever to actual needs. Clever sums will be deployed en-masse to ensure the UK meets the NATO target, budgets will be massaged, costs shuffled from one line to another, things will be counted as defence that were not previously and receipts such as fuel transfers to allies and facility rental will all be ruthlessly maximised.

It is all theatre, completely ignoring the sorry state of much of the armed forces.

Every year NATO publish a set of tables showing spending for all the member states using the NATO approved accounting method, click the image to read archive and current versions.

FireShot Capture - NATO - Topic_ Information o_ - http___www.nato.int_cps_en_natohq_topics_49198.htm

Be very careful to read the small print, UK data for example, prior to 2005 did not include pensions. Crucially, it also includes the cost of operations, unlike the MoD’s departmental budget, which does not (operations are funded from the Treasury reserve).

That said, apart from the USA, in 2014 he two joint highest spenders were the UK and Greece.

Estimated figures for 2015 shows a slightly different picture; the UK is at 2.1%, Estonia 2%, Greece 2.4% and Poland 2.2%, all others (except the USA) below 2%.

Let me repeat that, the figures for 2015 are estimated.

The NATO reported figures for the past several years are shown in the table below;

Year Percentage of GDP spent on Defence
1985 5.2
1986 4.9
1987 4.6
1988 3.2
1989 4.1
1990 4.1
1991 4.3
1992 3.8
1993 3.6
1994 3.4
1995 3.1
1996 3
1997 2.7
1998 2.6
1999 2.5
2000 2.5
2001 2.5
2002 2.4
2003 2.4
2004 2.2
2005 2.5
2006 2.4
2007 2.5
2008 2.6
2009 2.6
2010 2.6
2011 2.6
2012 2.2
2013 2.3
2014 2.2
2015 2.1

Dropping these NATO figures into a graph…

UK GDP Defence Spending

As can be seen from the graph there is a marked increase post 2005 that is sustained to 2011, after which it falls off a cliff.

The reasons for this 2005 to 2010/11 ‘hump’ is likely due to two main reasons. First, military pensions are included in the NATO calculation from 2005 and second, the cost of military operations is included. As the cost of operations in Iraq and Afghanistan were significant, the implications for the statistics are obvious, if it wasn’t for these costs, it is likely the current high profile debate on percentage of GDP defence spending would have come sooner.

Before the Budget announcements yesterday, the MoD was invited to save £500m taken from ‘efficiency savings’ only last month and after the obligatory ‘softening up’ campaign by ministers, a confirmation that the MoD’s £450m contribution to the joint MoD/FCO/DFiD Conflict Stability and Security Fund (CSSF) (previously the Global Conflict Prevention Pool) would be included in the official definition of defence spending. There was also a largely unnoticed shift in some definitions of equipment spending that would allow one of the election pledges on equipment spending to be met by including some support costs.


Since then, there has been a deafening clatter on maintaining spending at the NATO target of 2% of GDP, made worse by David Cameron hectoring everyone at the last NATO summit and the never ending stream of stories about Russian incursions into international airspace, orchestrated I suspect, by those with a vested interest in more defence spending, not the incursions of course, hyping them in the media.

The Budget yesterday confirmed a number of spending commitments on defence and much was made of them, especially by those that are a bit dim or have very short memories. Dressing up 2% tomorrow as some sort of victory given that it is actually a decrease from today seems to be an exercise in kidding oneself.

This was my first reaction.

But enough of my snarkiness.

The Budget Document starts with…

the government will ensure that the UK spends 2% of GDP a year on defence for the rest of the decade

As we all know, a government cannot bind its successor and given the lack of legislation to enshrine this in law, don’t hold your breath for anything beyond.

It goes on to say;

1.81 The first duty of government is to ensure the safety and security of the country and its people. The government remains committed to ensuring real growth of the Ministry of Defence equipment plan of 1% per year and maintaining the size of the Army at 82,000. The government will go further, and this Budget commits to raise the entire Ministry of Defence budget by 0.5% a year in real terms. This Budget also protects overall counter terrorism spending across government, a total of more than £2.0 billion spent by a range of departments, agencies, and the police.

What’s not to like, except of course, defence inflation is currently running at 2.1%, compared with about 1% for the main rate.

You may have seen the defence inflation issue repeated elsewhere.

The additional funding looks good.

1.82 The threats the UK faces are diverse and require coordinated responses from the armed forces, security and counter terrorism agencies. In addition to the annual increase in the defence budget, this Budget announces up to an additional £1.5 billion a year by the end of the Parliament to fund increased spending on the military and intelligence agencies by an average of 1% a year in real terms.

This is welcome, but details remain elusive. It seems that the fund will be split between the intelligence agencies, MoD, FCi and DFiD on a bid by bid basis and increased gradually to the full amount by 2020.

1.83 The final allocation of this additional funding will be determined by the Strategic Defence and Security Review and Spending Review, and is conditional on the armed services and agencies producing further efficiencies within their existing budgets to ensure continued investment in the most important capabilities.

Ah, the final allocation of additional funding is contingent on Captain Efficiency getting on parade, again.

1.84 Allowing for all of the public spending that supports the Ministry of Defence and the contribution made by the secret intelligence agencies, this Budget commits the government to meet the properly measured NATO pledge to spend 2% of national income on defence every year of this decade.

And here is the kicker,the double fudge accounting creativity clause.

The first one is ‘allowing for all public spending that supports the Ministry of Defence’

What public spending supports the MoD, is that simply another way of say the MoD’s budget or spending, or something else.


‘the contribution made by the secret intelligence agencies’.

I think we probably understand what the secret intelligence agencies are; MI5, MI6 and GCHQ what what does contribution actually mean. Does it include all of MI5’s budget which would include its contribution to counter espionage and organised crime, or will some proportion of MI5’s costs only devoted to counter terrorism be used to prop up the figures to get to 2%?

Lots of questions here.

Finally, what does ‘properly measured’ mean, does NATO improperly measure them, is there some future argument with NATO brewing on how it does its sums.?

Further in the document these are repeated.

2.22 Defence spending – The Ministry of Defence budget will rise at 0.5% per year in real terms to 2020-21.

2.23 Defence and intelligence spending – The government commits to make available up to an additional £1.5 billion a year by the end of the Parliament to increase spending on the military and intelligence agencies by an average of 1% a year in real terms.

2.24 Meeting the NATO 2% pledge – The government commits to meeting the properly measured NATO pledge to spend 2% of national income on defence every year of this decade.

2.25 Counter terrorism spending – The government commits to protect in real terms counter terrorism spending of more than £2 billion across government

From the Budget Red Book, a handful of others of interest…

2.47 The use of banking fines – The government has committed nearly £70 million of banking fines over the next 5 years to support military charities and other good causes, including:

  • Defence Medical Welfare Services £0.5 million – the provision of welfare services such as magazines to members of the Armed Forces who are in hospital
  • Royal Commonwealth Ex-Services League £5 million – to help ex-Service men and women from the Commonwealth who have served The Crown and are now in need
  • Victoria Cross and George Cross Association £3 million – to increase the annuity for VC and GC holders and to support the 75th Anniversary of the Association
  • Victims of Terrorism Memorial £1 million – to commemorate the UK victims of terrorism overseas through the construction of a new memorial
  • Cadet Expansion Programme (CEP) £50 million – to increase the number of Cadet Units in state schools to 500 by 2020
  • Children’s Air Ambulance £2 million – to increase the service to 2 helicopters by the end of 2016 to enable the Children’s Air Ambulance to extend this free of charge service
  • Ludlow Museum £0.25 million – to facilitate the publication online of the unique and historically important geological collections held in Ludlow
  • Regeneration of the National Memorial Arboretum £2 million – to protect the long term future of the Memorial and to preserve it for the next generation
  • Team Rubicon £2.5 million – to establish in the UK an organisation that uses ex-military personnel to support immediate disaster relief effort overseas
  • Clock Tower Foundation £3 million – to provide a bespoke rehabilitation centre to support the Special Forces
  • Battle of Britain Bunker £1 million – to renovate and maintain the Battle of Britain Operations Room at RAF Uxbridge which coordinated the air defence of London and the South of England in WWII.

Some great examples there but how exactly is photographing a geological collection in Ludlow Museum connected to the rest of the overwhelmingly defence oriented projects?

You may well ask.


Here is a completely unrelated and random picture of Minister of State for Defence Procurement and MP for Ludlow, Phillip Dunne MP!

(H/T TD Commenter Alex)

The website of Andy Boddington, Shropshire Councillor, reports further on the great news;

Helped by Philip Dunne, John Cherry and Lottie James – chair of the Friends – pitched a case for a slice of Libor funds to the treasury. It must have been a good pitch because the grant to “Ludlow Museum” was one of just eleven Libor awards announced in Wednesday’s budget.

This is no secret of course, Phillip Dunne repeats the good news on his website, click here

And a nice picture


Great news indeed.

The Government also indicated that its estate will be managed on a more commercial basis

Budget 2015 announces that the government will implement a new commercially-driven approach to land and property asset management across the central government estate, based on departments paying market-level rents for the freehold assets they own.

1.85 Given their very large property and land holdings, there is also the potential to generate significant efficiencies within the Ministry of Defence estate. However, the Ministry of Defence maintains a varied estate, including assets of strategic military importance. Therefore, the department will introduce a similar charging mechanism, to the same timescale, within its existing estate management organisation, to incentivise users of the Ministry of Defence estate to reduce their footprint and release value, including land for development.

One thing that I think most of us missed was Pitcairn.

2.259 Marine Protected Area (MPA) at Pitcairn – The government intends to proceed with designation of a MPA around Pitcairn. This will be dependent upon reaching agreement with NGOs on satellite monitoring and with authorities in relevant ports to prevent landing of illegal catch, as well as on identifying a practical naval method of enforcing the MPA at a cost that can be accommodated within existing departmental expenditure limits.

‘within existing departmental expenditure’

What does that mean!

Public sector workers are subject to a 4 year continuation of the previous 4 years wage increase cap of 1% which may very well include MoD civil servants and service personnel.

Following these announcements the usual talking heads, commenters and defence grown ups have been beating a path to the mainstream media’s studios to say what a momentous and great day for defence this tiny increase and exercise is clever sums was.

Perhaps this is what happens when your expectations are so low.

The Chief of the Defence Staff, General Sir Nicholas Houghton, said;

This is a great day for defence. In fact it is a great day for the country, I would say. I think for anybody who has got an interest in the security of the nation, the strategic place internationally of the country, it’s been a good day. There was a risk, perhaps, that we were going to, in military terms, fight a withdrawal, manage decline further. But what this does is give us positive choices for the future.

You could argue that this is a Good Thing™, perhaps even a Great Thing™, but it is difficult to muster a huge amount of enthusiasm, like finding an extra fiver down the back of the sofa and then realising you actually need a tenner.

Let’s not be too churlish though, this is an emphatic stop to the continued decline of defence budgets, a strong political message to the rest of NATO and Mr Putin, a period of funding stability and depending on ‘accounting foo’ a modest increase in actual cash terms to address many of the yawning gaps in capability in defence.

None of the budgetary definition changes are necessarily a bad thing either, quite the opposite in fact, but it is the fundamental underhanded dishonesty and obvious political intent of hitting the 2% figure that that takes the shine off. The changes have not been made because they are a good idea, clearly they have been made to contribute to the political target of 2%.

We all understand political rhetoric and reality are often strangers but one would have hoped that in matters of defence and security, there would be higher standards.

Don’t go spending it all at once chaps.

Pitcairn here we come…


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