Plans to cut more than 70,000 civil service jobs will help to fund an increase in defence spending to 2.5% of GDP, the Treasury has said.
The prime minister announced yesterday that the UK will increase defence spending from the current 2.3% to 2.5% of GDP on defence by the end of the decade – rising from around £64bn in 2024-25 to £87bn a year in 2030-1.
In a speech in Warsaw, Sunak said the plan will be “fully funded with no increase in borrowing or debt”.
“We have a clear plan for what we’ll spend, when we’ll spend it, and how we pay for it,” he added.
However, the Treasury has only set out how it will fund a small portion of the extra spending – which would amount to a total of around £75bn over the next six years.
The Treasury has now said some of the funding will come from a previously announced increase in R&D spending, from £20bn this year to £22bn in the next parliament, some of which will be used on defence R&D.
A drive to reduce the civil service headcount to pre-pandemic levels by 2029-30 – confirmed by chancellor Jeremy Hunt last year – is expected save a net £2.9bn by 2028-29, which will also be funnelled into the defence budget, according to the Treasury.
The cost of increasing defence spending from 2.3% now to 2.5% will cost £4.5bn in 2028-29 alone, the Treasury has said.
But the Institute for Fiscal Studies has said that to fund the estimated £17bn that the extra defence spending will cost by 2030, unprotected public services are now facing cuts of around 4% – up from its estimate of between 1.9% and 3.5% a year at the time of the Spring Statement.
Ben Zaranko, an economist at the IFS, said: “Ultimately, if we as a country need to permanently spend more on defence because the world has changed for the worse, we need to either 1) raise taxes or 2) consume less of something else (i.e. fewer public services).”
Defence spending pledge brings R&D commitments and new agency
Alongside the increase in defence spending, the government has also committed to ringfence at least 5% of the defence budget for research and development from 2025-26 onwards.
As part of this commitment, Sunak said the government will establish a Defence Innovation Agency in early 2025, which will, “for the first time, bring together the fragmented defence innovation landscape into a single responsible and empowered organisation for defence innovation and R&D”.
The prime minister said that he wanted to reassure the public that "we are not on the brink of war and nor do we seek it", but warned that "we've entered a period in history in which competition between conquered countries has sharpened profoundly an axis of authoritarian states with different values to ours".
He specifically pointed to Russia, Iran, North Korea and China as posing "real risks to the United Kingdom's security and prosperity".
"The danger they pose is not new, but what is new is that these countries or their proxies are causing more instability more quickly, in more places at once," he said.
"And they're increasingly acting together, making common cause and an attempt to reshape the world order."