£24bn in extra defence spending will be spread over four years

“Asked whether he supported an overall increase in spending, Mr Wallace insisted that he had already secured £24 billion of additional defence funding”

Defence Secretary Ben Wallace has claimed the government has “£24 billion pounds extra” to spend on defence in an interview with the Sunday Telegraph, splashed on the front page. 

The figure isn’t clarified in the article, but it represents the extra budget the Ministry of Defence will receive over a four-year period compared to the 2020/21 budget, not the increase in the annual budget. The additional funding was announced back in November 2020.

At the 2020 Spending Review, the Treasury said an extra £24 billion in cash terms would be spent on defence over the next four years—£16.5 billion more than had been pledged in the Conservative Party’s manifesto commitments.

At the time, economist Ben Zaranko at the Institute for Fiscal Studies called the use of the cumulative £16.5 billion figure "misleading”. 

In June 2021, the House of Commons Library wrote: “By describing the increase as £24 billion in cash terms against 2020/21 the Government seems to be talking about cumulative increases – it appears the Government may have taken the cash difference between 2020/21 and each subsequent year and added them up. This is opposed to the more conventional method which simply takes the difference between a starting and ending year[…]

“The way the figures have been presented by the Government in the Spending Review 2020 are not factually wrong, although they are not necessarily how people usually describe increases or decreases in funding.”

The House of Commons Library noted Full Fact’s previous work on this practice when Theresa May’s government announced an “£84-billion real-terms funding boost” for the NHS in 2018, a figure which added up four years of funding increases. We’ve also written about this issue before in education funding announcements.

Over the period being referred to (2020/21 to 2024/25) the annual defence budget is expected to increase by £6.2 billion in cash terms, from £42.4 billion in 2020/21 to £48.6 billion in 2024/25. 

What will the spending increase be in real terms?

While the figures above show how defence spending is rising in cash terms, they don’t take into account rising prices (inflation).

Working out what the increase will mean in real terms is complicated, as we are already part way through the four-year period, and inflation forecasts are currently volatile. But once you factor in rising prices, the net increase in the annual budget will likely be significantly less.

By our calculations (using the Treasury’s GDP deflators and budget estimates from the 2021 Spending Review) a £6.2 billion cash-terms increase in the annual defence budget between 2020/21 and 2024/25 would equate to a real-terms rise of around £3.3 billion, or 8%, in current money.

Image courtesy of UK Parliament under CC BY 3.0 licence