A defence spending cut – disguised by Boris Johnson's fiscal sleight of hand

Boris Johnson (2L) speaks at RAF Brize Norton on board a C-17 Globemaster - Getty Images Europe
Boris Johnson (2L) speaks at RAF Brize Norton on board a C-17 Globemaster - Getty Images Europe
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From the fuel in fighter jets to the clothes on soldiers’ backs, inflation is pushing up the cost of Britain’s military.

Boris Johnson urged allies on Tuesday night to “dig deep” on defence spending to ward off the threat of Vladimir Putin but his own military is facing two years of real terms spending cuts.

Departments were allocated the next three years of funding by Chancellor Rishi Sunak at last year’s Spending Review. But soaring inflation since then has made budgets far less generous than initially thought and even point to spending cuts in real terms.

The Prime Minister called on the West to boost budgets to at least 2pc of GDP - the NATO target - but the UK’s own military is facing cuts both in real terms and as a share of GDP in the coming years.

NATO estimates that after inflation is taken into account British spending on the military will only be equal to 2.1pc of GDP this year, a fall compared to last year.

Number 10 says spending will hit 2.3pc of GDP this year with MOD spending in cash terms equal to £47.9bn. Another £1.3bn has been spent on aid to Ukraine.

The threat from the Kremlin has prompted defence secretary Ben Wallace to push the Prime Minister for a boost in his budget to 2.5pc of GDP by 2028, which would equate several billions of pounds extra.

Economists warn that under the current plans MoD spending is also falling in real terms in some years.

In cash terms, the MoD budget will rise from £46bn in 2021/22 to £47.9bn, a 4pc jump. It will then edge up to just £48bn in 2023/24 and £48.6bn the following year.

Ben Zaranko, economist at the Institute for Fiscal Studies, says the latest inflation forecasts suggest spending will increase just 0.9pc in real terms this year, far less generous than the 2.2pc boost initially expected.

The MoD budget will then fall in real terms by 2.6pc in 2023/24 as inflation squeezes spending and a further 0.6pc the following year.

Zaranko says: “It was always planned to fall that year [2023/24] - the recent inflation spike has just increased the size of the drop.

“Over the course of the full parliament, though, the MoD budget is still set to increase. By 2024/25 the MoD budget will be 7.6pc higher in real terms than in 2019/20.”

Paul Dales, economist at Capital Economics, says defence spending would need to be £50.4bn in 2022/23 to keep up with consumer prices - though he says a measure for prices of defence spending would be more accurate.

“Our forecast that CPI inflation will average 9.5pc in 2022/23 suggests that in real terms defence spending will decline by 5.4pc this year.”

Nonetheless Treasury ministers have insisted it will not top up budgets to make up for the inflation squeeze.

To keep defence spending rising in a dangerous new world, Johnson will need to persuade his Chancellor as well as Western allies.