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2% Defence target achieved only through creative accounting, says Defence Committee

Defence Committee Press Notice – 21 April 2016

The Government has achieved its 2% commitment to defence spending in the last year only through what appears to be creative (albeit permissible) accounting. So says the Defence Committee in its Report, entitled, Shifting the Goalposts? Defence expenditure and the 2% pledge.

The Committee welcomes the Government's commitment not to fall below the NATO recommended minimum of spending 2% of GDP on defence each year for the rest of the current Parliament. This sends an important message to UK partners and potential adversaries. But quite what accounts have been included in the definitive Defence Budget, both now and in the past, are unclear.

The MoD has been unable to provide a robust data set identifying which years the costs of operations or the purchase of urgent operational requirements were included in its calculation of UK defence expenditure submitted to NATO. Such inclusions are allowed by NATO, but the lack of clarity confuses anyone’s ability to make year on year comparisons of the Defence Budget.

In accounts for 2010 and 2015, provided by the MoD, the new inclusions of the 2015 accounting strategy are difficult to identify. The only way that the MoD can refute claims of ‘creative accounting’ is to outline, clearly and unambiguously, what the new inclusions are and from which Department each was funded previously.

Defence Committee Chairman, Dr Julian Lewis MP, says:

“It’s good news that we have managed to achieve the 2% promise for Defence Spending but if the MOD has only achieved this by including things like war pensions or intelligence gathering which previously came under other budgets, you wonder what effective, battle-winning spending increases have actually been made. The MoD have shed insufficient light on this confusion.”

Despite the UK's high ranking, in terms of defence spending, relative to other NATO members, UK defence expenditure has fallen far too low in the UK’s national priorities.

The decline in defence spending is set out in tabular form in the Report and contrasts sharply with the huge rise in expenditure on health, welfare, education and overseas development.

The world today is at its most dangerous and unstable since the end of the Cold War. While 2% is arguably a useful metric by which to measure a county’s commitment to NATO, it does not solely determine whether our total expenditure on defence is sufficient, given that the UK has significant additional commitments such as our defence of the Falkland Islands. Some of the costs of these UK commitments are additional to our NATO role, and therefore constitute an additional requirement for UK defence expenditure.

Until and unless the MoD quantifies the net additional costs of the UK’s commitments beyond NATO, the Committee cannot be confident that our 2% is enough, whether in terms of quantity or capability. The Committee remains to be convinced that the current financial settlement is sufficient to rectify the decline of defence as a national priority.

[To read the full report, click here.]

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This Report presents analysis of the Government’s commitment to spend 2% of GDP on defence until the end of the current Parliament. It examines the nature of the commitment; which budgetary items have been incorporated to constitute the calculated 2% of GDP; the significance of the 2% figure; and what this enables Britain to afford within the remit of defence.

The Report commends the UK Government’s commitment to UK defence and finds that its accounting criteria fall firmly within existing NATO guidelines. However, those criteria have been amended to include several significant items not previously included when calculating defence expenditure. Since these items are instrumental in attaining the minimum 2% figure, the Government can be said to have ‘shifted the goalposts’ in comparison with previous years. There is a risk that the promise of new money to defence could be undermined by the inclusion of items in the re-calculation of defence expenditure that previously had not fallen within the MoD budget.

Our Report also considers to what extent meeting the 2% minimum is a political statement, and to what extent it guarantees sufficient and robust defence of the United Kingdom. We highlight the fact that the 2% figure is a NATO-led minimum target. In itself, it does not guarantee security if allocated ineffectively, inefficiently or without due regard to emerging threats.