UK on the defensive - navigating the 2% GDP target maze
A closer look at NATO's target for defence spending
6th March 2024
Introduction: In the realm of international relations and security, one metric often takes centre stage—the 2% GDP target set by NATO for member countries' defence spending. As the UK consistently meets this benchmark, questions arise: What does this mean in practical terms? How is defence spending measured, and does it genuinely position the UK on the front foot? In this comprehensive exploration, we dissect the intricacies of defence spending, examining the UK's commitments, international comparisons, and the effectiveness of the 2% target.
Understanding the NATO Target: To comprehend the significance of the 2% GDP target, we delve into its origins. In 2006, NATO defence ministers agreed that member countries should commit a minimum of 2% of their Gross Domestic Product to defence spending. This is seen as more of a political gesture than a purely strategic or a military necessity. NATO itself acknowledges this on its website, recognising the target as a guideline to ensure members contribute fairly towards shared objectives.
What Counts as Defence Spending? Before diving into the specifics of the UK's defence budget, it's crucial to understand what falls under the umbrella of defence spending. The components vary across countries, and some remain classified for national security reasons. Broadly, defence spending typically includes:
- Personnel Costs: Salaries and benefits for military personnel, encompassing active-duty service members, reserve forces, and civilian employees within the defence sector.
- Operations and Maintenance: Expenses tied to maintaining and operating military equipment, facilities, and infrastructure. This category covers training, logistics, maintenance of weapons and equipment, and day-to-day operational costs.
- Equipment and Vehicles: Acquisition of new military hardware, such as aircraft, vehicles, ships, weapons systems, and other defence-related technology.
- Research and Development (R&D): Investment in the development of new military technologies, innovations, and research initiatives aimed at enhancing defence capabilities.
- Other Military Costs: This encompasses a variety of expenditures, including infrastructure spending, military aid, and contributions to international peacekeeping efforts.
The technical measure of this spending involves dividing the total expenditure on defence in a given calendar year by the total real GDP figure for that year.
UK Defence Spending Analysis: It's estimated that the UK spent £54 billion on defence in 2023, accounting for approximately 2.1% of real GDP. A closer examination of the figures reveals intriguing trends and challenges within the UK's defence budget.
Figure 1 – Real UK defence spending (2015 prices) and defence spending as percentage of real GDP, 2014-2023
Source: NATO
Figures for 2022 and 2023 are estimates.
Figure 2 – Spending on equipment and personnel, as a percentage of total UK defence spending, 2014-2023
Source: NATO
Figures for 2022 and 2023 are estimates.
Spikes and Trends: Figure 1 illustrates how spending as a percentage of GDP experienced a notable spike in 2020. However, this wasn't driven by an increase in real spending. Instead, it was a consequence of the sharp fall in GDP as lockdowns took effect. The subsequent return towards pre-pandemic levels is attributed to the bounce back of real GDP and inflation impacting real defence spending.
Consistently Above NATO Target: One key takeaway is that defence spending as a percentage of GDP in the UK continues to surpass the NATO target. However, with economic stagnation and persistent inflation, nominal increases in defence spending are likely necessary to maintain compliance with the 2% target.
Personnel Spending Challenges: A tight labour market is identified as a factor causing recruitment problems for the military, leading to a decline in spending on personnel (Figure 2). However, increases in equipment spending suggest a potential shift towards exploring ways to replace human roles with technological solutions.
International Comparison: To contextualize the UK's defence spending, it's imperative to compare it with other NATO allies. A broad analysis reveals that the UK sits in the middle of the pack, consistently exceeding the average for all countries excluding the USA, which stands at 1.76% of GDP. Eastern bloc nations, with closer proximity to Russia and China, tend to allocate higher levels of spending. Notably, four of these nations enforce laws requiring a minimum of 2% of GDP to be spent on defence. These countries are signified in green.
Figure 3 – NATO defence spending in 2023, as a % of real GDP
Source: NATO
Conclusion: As we wade through the complex terrain of defence spending, we're prompted to consider not just the numbers but the effectiveness of the 2% GDP target. Is it a mere performative gesture, or does it genuinely contribute to dispelling threats? The intricacies of measuring defence output add another layer of complexity. Unlike sectors with tangible outputs, measuring defence is challenging due to the collective consumption by society and the preventative nature of defence spending.
Productivity Challenges: Defence output, as measured in National Accounts, is seen as equal to its inputs—what you put in is what you get out. While this concept makes sense, it doesn't account for measuring productivity increases. If you always get out what you put in, you can never get more out for putting in the same. In an ideal world, you would measure output in terms of specific what is produced or the services that is offered. For example, with health, operations and GP appointments, amongst other services are counted, to estimate directly the output of the health service. If more services are offered for the same level of inputs, that constitutes for a productivity gain. The lack of a unit to measure peace or security further complicates the evaluation of defence spending's effectiveness.
The New Threat: With NATO facing a new threat on its borders, the debate intensifies. Some argue for increased defence spending to bolster security and act as a deterrent, while others contend that higher spending may make NATO's enemies feel threatened, creating a less safe environment. Amid these debates, the pressure to maintain the 2% target persists, echoing sentiments from figures like Donald Trump.
As geopolitical tensions rise and the international landscape evolves, the intricacies of defence spending demand further consideration. This exploration sheds light on the multifaceted nature of the 2% GDP target, prompting reflection on its effectiveness, its role in global security, and the significant challenges of measuring defence output. In a world where threats are dynamic and the effectiveness of defence spending remains elusive, understanding these complexities is crucial for informed discussions and strategic decision-making.
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