UK Met 2% Defence Pledge Only Through Creative Accounting: MPs

Defence Committee publishes report “Shifting the goalposts? Defence expenditure and the 2% pledge,” which concludes that the Government has achieved its 2% commitment to defence spending in the last year only through what appears to be creative (albeit permissible) accounting.

Report

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.

Creative accounting

The Ministry of Defence (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.

Decline of UK defence expenditure

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.

Chair's comment

Defence Committee Chairman, Dr Julian Lewis MP, said:

"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."

Click here for the full report (50 PDF pages) on the UK Parliament website.

Ministry of Defence Response

Some papers carry the Commons committee’s call to ‘come clean about creative accounting’ methods they allege were used to meet the commitment.

The MOD’s response to the report is below:

“The Committee’s own report confirms that all UK spending on defence including intelligence, cyber and war pensions falls firmly within NATO’s guidelines. When defence spending will increase by £5 billion over this parliament it is nonsense to suggest there is no new funding.

“Our plans will deliver more ships, more planes, more troops at readiness, better equipment for special forces, and more on cyber to help Britain safe.”

(EDITOR’S NOTE: The fact that the British government would be unable to increase defense spending to 2% of GDP was clear from the start, and was reported at the time, including in our Nov. 2015 story titled “De-spinning the UK Defense Review.”
Seeing a Parliamentary committee accuse the government and the Ministry of Defence, in an official report, of resorting to “creative accounting” to meet this pledge is a welcome development.
It might even persuade N° 10 and ministers to tone down their “spinning” and obfuscation to avoid a repetition of this very public shaming, although MoD’s response above shows that this is unlikely.)

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