The budgets for the Royal Navy, Army and RAF are being cut in real terms, due to inflation, say analysts.
The allowance for all departments, including the Ministry of Defence (MoD), will rise in line with the 2021 spending review, representing a cash boost, according to reports. But it has been suggested this will be devalued by inflation, which is currently at 10%.
This means Rishi Sunak is set to cut defence spending in real terms as planned budget hikes are dwarfed by soaring inflation. With GDP contracting by 0.2%, Jeremy Hunt has warned of a "tough road ahead" for the UK. Ahead of revealing his much-anticipated autumn budget on Thursday, the Chancellor said yesterday he will be working to make a possible recession “shallower and quicker”.
Sticking with the 2021 spending review would see the MoD budget rise in cash terms from £47.9 billion this year to £48 billion in 2023 and then £48.6 billion in 2024. Despite hitting a 40-year high of 10.1% in September, CPI inflation is expected to have risen even further last month.
The Conservative manifesto in 2019 pledged to “increase the budget by at least 0.5% above inflation every year of the new Parliament”, suggesting failing to add to the planned rise could constitute a breach of past promises. According to the Telegraph, ministers will insist that by taking the average annual increase across the five-year period as whole, the promise can be met. A Treasury source said they would not comment on speculation.
General Lord Richard Dannatt, the former head of the army, told the newspaper a real terms cut would seem “incredible” given the situation in Ukraine. “The Government has to cut public expenditure in order to balance the books as it is reluctant to raise taxes, but it does seem incredible that with a land war in Europe it feels it can cut the defence budget,” he said. “Given that we have had 2.5% and 3% waved under defence planners’ noses, now to be cutting it to 2% or under, it makes you wonder how on earth you can plan anything sensible for the future.”
Following the undeniably disastrous mini-budget, the Chancellor suggested that the anticipated autumn statement next week will show the UK can "pay our way", as it learns it's lessons. Hunt made the comments following his predecessor Kwasi Kwarteng's first interview since his dramatic exit from government, in which he claimed that the Prime Minister and Chancellor cannot blame Liz Truss for the UK's well-publicized financial issues.
Speaking to TalkTV on Thursday, Mr Kwarteng acknowledged his mini-budget had caused "turbulence", but still refused to apologise. “The only thing that they could possibly blame us for is the interest rates and interest rates have come down and the gilt rates have come down. It wasn’t that the national debt was created by Liz Truss’s 44 days in government.”
In the aforementioned mini-budget on September 23, Mr Kwarteng announced the biggest raft of tax cuts for half a century. The former chancellor set out a package which included abolishing the top rate of income tax for the highest earners, axing the cap on bankers' bonuses and financing an expensive energy support package by using more than £70 billion of increased borrowing. It caused instability in the financial markets, sparking an economic and political crisis that eventually led to Ms Truss’s resignation as prime minister after just fifty days at 10 Downing Street.
Mr Hunt said: “When we produced a fiscal statement that didn’t show how we were going to bring our debts down over the medium term, the markets reacted very badly and so we have learned that you can’t fund either spending or borrowing without showing how you are going to pay for it and that is what I will do.”
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