MNI INTERVIEW:UK Defence Review Likely Before Budget Boost-IFS

Any significant increase to the UK’s military budget in response to Russia’s invasion of Ukraine is likely to be delayed for some time by a defence review as the government takes stock of the new strategic environment while addressing other spending priorities, the deputy director at think-tank the Institute for Fiscal Studies told MNI.

The Treasury is under pressure both to offset a cost-of-living squeeze and to strengthen the armed forces in its mini budget this month, and a rethinking of defence strategy would push higher military spending into the medium term, leaving room for Chancellor of the Exchequer Rishi Sunak to ease the hit to household finances, Carl Emmerson said in an interview.

Under the government’s fiscal rules, current budget spending, which includes items that only be used once such as missiles and bullets but not other defence systems which count as capital expenditure, has to be balanced three years’ ahead, leaving Sunak facing a trade-off.

GUNS OR BUTTER

"Every billion he puts towards the defence budget, then that is not money he can spend one-off on supporting households,” said Emmerson, a member of the advisory panel to official forecaster the Office for Budget Responsibility.

"In terms of scale the household hit from the energy bills is much, much bigger (than any defence increases),” he noted.

The UK already meets its NATO commitment to spend 2% of GDP on defence and Emmerson said that while some boost can be delivered immediately it would make sense for the government to look carefully at medium-term needs by updating the 2018 review before committing to greater expenditures.

“I would suggest that is a review that can take a little bit of time," he said, adding that this would also buy Sunak time.

The chancellor in February unveiled measures providing some GBP9 billion to cushion the hit to households from rising energy bills over the coming year, offsetting about half of the expected increase. The IFS estimates further hikes in energy prices since then could increase the hit to households to GBP43 billion, only a fifth of which would be offset by the current package.