The UK has finally set a timetable to increasing its spending on defence from 2.3% of GDP to 2.5% by 2027, before moving to 3% post-2029. While these top-level numbers provide the political slogan, the devil is in the detail.
The increase in defence spending will be funded by reducing Overseas Development Assistance (ODA) from 0.5% to 0.3% of GNI [gross national income] and reinvesting it into defence. This move, according to UK Prime Minister Keir Starmer, will fully fund the increase in defence spending.
“That means spending £13.4bn more on defence every year from 2027,” Starmer told the House of Commons on 25 February.
However, this appears to be a projection as it cannot be determined with certainty what the UK’s GDP will be in 2027, and, as a result, what the 2.5% will provide.
The UK’s GDP in Q1 2025 is around £2.56tn ($3.24tn), depending on the source, providing an estimated defence spend at the current 2.3% of £58.88bn. Should the UK economy not grow at all by April 2025, then 2.5% would be reflected by a £64bn UK defence budget.
According to data provided by the Office of National Statistics this month, the UK’s real GDP was estimated to have increased by 0.1% in Q4 2024, following unrevised no growth in the previous quarter.
The real GDP per head was estimated to have fallen by 0.1% in Q4 2024.
With a stagnating UK economy in 2025 and inflation rising once again – raising the spectre of a period of stagflation – it is by no means guaranteed the country’s financial state will be able to provide “£13.4bn on defence every year from 2027”, claimed Starmer.
A December 2024 briefing paper compiled for the UK Parliament states that in the 2023/2024 financial year, the UK spent £53.9bn on defence. According to the report, spending plans set out in the 2024 Autumn Budget showed that defence spending was expected to total £56.9bn in 2024/2025, increasing to £59.8bn in 2025/2026.
This was equivalent to an annual average real-terms growth rate of 2.3% between 2023/2024 and 2025/2026.
However, real terms defence spending fell by 22% between 2009/2010 and 2016/2017 (from £57.1bn to £44.6bn in 2023/2024 prices), before starting to increase again to nearer its 2010 levels.
Regarding the 2.5% move by 2027 and an ambition to spend 3% of GDP on defence “within the next parliament”, MPs gathered in the Commons on 25 February appeared to think this timeline was not moving fast enough.
“It is a start not a finish, I think we will have to be raising defence spending further,” said Conservative MP Iain Duncan Smith.
Labour MP Derek Twigg echoed the sentiment, stating that it was likely “we have to revisit the 3% target” before the next parliament, post-2029.
Being creative: UK to ‘update’ what counts as defence
Despite the term ‘defence spending’, not all the funding goes on military acquisitions, maintenance, or operations. Nato’s own regulations allow for the inclusion of ancillary defence costs to be included, a route used by its members to enable them to claim a larger figure.
In example, German defence spending was estimated by Nato to be around 2.2% of its GDP in 2024, a figure that is widely understood to not be entirely reflective of reality as it includes a proportion of a wider pan-departmental ‘special fund’ for national programmes. Germany’s actual defence budget is thought to be around 1.4% of GDP.
For its part, the UK moved to include war pensions (then £820m), contributions to UN peacekeeping missions (then £400m), pensions for retired civilian MoD personnel (then £200m), and a large portion of MoD income (then around £1.bn), into the official defence budget in 2014, the December 2024 UK parliamentary paper stated.
These figures have since increased. According to a paper from the UK House of Lords in December 2024, the UK was the fifth-highest provider (behind the US, China, Japan and Germany) of assessed contributions to the UN peacekeeping budget (contributing 5.36% of the total) between 1 January 2022 and 31 December 2024.
Following on from this move, it was determined in 2023 that all military nuclear-related programmes and expenditure, including in-service running costs of the Trident nuclear deterrent, to be ringfenced within the MoD’s budget.
This creative use of accounting, permitted by Nato, enables the UK to claim a 2.3% spend on defence matters, with perhaps a distinction between ‘defence’ and ‘military’ required.
The waters look set to muddy further as Starmer has determined to “update” the definition of defence spending to “recognise what our security and intelligence agencies do to boost our security, as well as our military”, according to a UK Government release on 25 February.
“This change means that the UK will now spend 2.6% of GDP on defence in 2027,” the government said.
This apparently will see the inclusion of the Single Intelligence Account (SIA) – the combined budget of the domestic Security Service/MI5, the overseas Secret Intelligence Service/MI6, and cybersecurity centre GCHQ – into the ‘defence budget’.
According to the UK Government, the 2022/23 spending on the SIA was reported to be £3.6bn. In addition, between 2023-2024 and 2025-2026, the government has committed to increasing SIA spending by around £340m.
Clearly, given the remit of agencies such as MI5, MI6, and GCHQ, their activities are not necessarily defence related.
Did US commentary influence UK move?
The timing of the UK announcement comes two days before Starmer will head to Washington to make his case for Europe to a US administration that appears to have washed its hands with the continent.
However, when quizzed as to whether US statements at the recent Munich Security Conference and Ukraine Defense Contact Group on the paucity of European defence spending had had an impact on UK defence planning, UK Defence Secretary John Healey responded simply: “No,” during a media briefing at the Institute for Government briefing on 18 February.
This did not appear to tally with a response by Starmer in the Commons.
“We have known, I think, for three years, this was going to come and what has happened in the last three weeks has accelerated that and made it the more urgent,” Starmer said, responding to a question in the House.
