IFS response to defence spending announcement

Ben Zaranko, Associate Director, Institute for Fiscal Studies said:  

"If the UK needs to spend more on defence on a structural and permanent basis, that is not something that can be sustainably borrowed for. The Prime Minister has recognised this, and has signalled that higher defence spending will be offset, at least in the short term, by lower spending on overseas aid. If defence spending needs to go higher than 2.5% of GDP, cuts to aid won't be enough. Getting towards 3% of GDP will eventually mean more tough choices and sacrifices elsewhere - whether higher taxes, or cuts to other bits of government. The world has changed, and one question is whether the government's pre-existing promises on tax and spend might need to change as well. 

As a minor note to what is a major announcement, the Prime Minister followed in the steps of the last government by announcing a misleadingly large figure for the "extra" defence spending this announcement entails. An extra 0.2% of GDP is around £6 billion, and this is the size of the cut to the aid budget. Yet he trumpeted a £13 billion increase in defence spending. It's hard to be certain without more detail from the Treasury, but this figure only seems to make sense if one thinks the defence budget would otherwise have been frozen in cash terms. This is of course dwarfed by the significance of today's announcement but is frustrating none the less."