Defence funding at an all-time low, ICAEW reports

There is no mistaking the fact that global tensions have been steadily increasing over the past few years; political rifts dividing previously united nations and further isolating those with polarising ideals. All of this has brought the defence sector back into the public eye.

According to a recent statement released by the Institute of Chartered Accountants in England and Wales (ICAEW), the chancellor now faces big choices about defence and security spending, as “the long decline” in these areas cannot continue.

Pressure is being placed on the chancellor to provide additional funding for these sectors. In the last fifty years “the UK has enjoyed a post-Cold War peace dividend that has been used to fund the growing welfare state.” Although this sector has benefitted from increased attentions, defence has been allowed to slide.

The report continued: “Growing international tensions, a higher level of perceived threat and increased lobbying for the UK to increase its military strength means that there is pressure on the chancellor to allocate additional funding to defence and security – but these demands are competing with pressures on other public services and the government’s commitment to reduce the deficit.”

Defence and security spending has decreased from the 15% they were allotted 50 years ago to 5% today, whereas social security and health investment has increased from 25% to 50%.

Ross Campbell, public sector director as ICAEW, said: “Defence is just one of the many areas with competing demands for greater public funding by the Treasury, driven by concerns about the affordability of current plans.

“While the government needs to balance these demands with its fiscal targets and its ambition to make the public finances sustainable in the longer term, we face treaty obligations and the first duty of any government is the security of its citizens. Hard choices will need to be made.”

ICAEW’s report goes on to add that “further cuts to the defence budget to fund social protection are no longer possible if the UK is to meet its commitment as a member of NATO to spend 2% of the national income on defence.”

As it is, there are already serious points of concern, such as the plans to upgrade military equipment; overruns are expected between 2017-2027. The general cost of the much-needed equipment has continued to increase above the inflation rate, according to ICAEW. The original equipment plan was originally based on the exchange that, for every UK pound, the value was $1.55. This has since fallen to $1.25, thus proving that the management of risks in currency needs to be improved.

Furthermore, there are anticipated difficulties in sourcing qualified people to fill technical roles in both the armed forces and Ministry of Defence – this may lead to an increase in recruitment costs.

Campbell concluded: “The long decline in defence spending may be over. Over the last fifty years, the UK has reduced its spending on defence as the perceived threats to its security and interests have fallen. This has enabled public funds to be put to other uses, in particular on expanding health and welfare provisions. That trend is about to come to an end.”