Will extra military spending really help the wider UK economy?

Is there any merit in claims that the extra spending on the UK’s defence forces will yield an economic dividend? Ben Chu looks at the evidence

While it might serve a geopolitical purpose, will extra spending on the UK military help UK livelihoods? (PA)

The primary justification for the government’s decision on Thursday to greatly increase the UK’s defence budget over the next four years is military power.

“The international situation is more perilous and more intensely competitive than at any time since the Cold War and Britain must be true to our history and stand alongside our allies,” said Boris Johnson.

Yet there was also an economic justification. The prime minister said the additional spending would help “level up our country” and “pioneer new technology”.

And Ben Wallace, the defence secretary, argued that the additional money “secures UK jobs and livelihoods, allows us to invest in our fantastic shipyards and aerospace industry, spreading prosperity to every corner of the UK”.

But is there any merit in these claims that the extra spending on the UK’s defence forces will yield an economic dividend?

Or, with some anticipating that the colossal impact of the coronavirus crisis on the public finances will force government spending restraint in the coming years, is this a wasteful use of public resources?  

Paul Johnson, of the Institute for Fiscal Studies, says the new defence commitments might make funding health, pensions and social care in the face of an ageing population even harder in the coming years.

First, it’s worth looking at the numbers.

In 2019-20 the government was spending, according to the official data, around £42bn on defence, which was in line with our NATO commitment to spend 2 per cent of national income on our armed forces.

In one sense this is clearly a lot. It’s more than the government spends on public order and safety (£34.5bn) and transport (£35bn) and far more than is being spent on housing (£14.5bn).

The UK spends more on defence as a share of its GDP than economic peers such as Germany, France and Italy, although much less than the US’s 3.5 per cent.

Yet from a historical perspective, the UK’s military outlay is arguably relatively modest.  

As recently as the early 1980s the government was spending 5 per cent of GDP on the armed forces. That proportion has been falling fairly steadily ever since. Although the end of the Cold War clearly reduced the justification for those very high levels of military expenditure.

The new spending announced this week will add roughly £6bn a year to the UK’s military spending over the next four years taking it up to 2.3 per cent of GDP – a significant increase, but still nothing like the levels of past decades.

The US has been urging its NATO allies, including the UK, to spend more on defence. Some analysts have suggested that the incoming Joe Biden administration in Washington might have signalled to Downing Street that it wanted Britain to spend more, which may explain this somewhat surprisingly large settlement.

But while it might serve a geopolitical purpose, will the extra spending help UK livelihoods?

Through history, a recurrent argument in favour of military spending is that, on a fundamental level, defence underpins a nation’s safety and thereby its prosperity.  

But this case is less straightforward in an era of international military alliances and nuclear deterrents. Japan’s defence budget was less than 1 per cent of its GDP in the decades after the Second World War, a period when the country’s economy grew spectacularly.  

The Japanese economy has stagnated more recently, but economists ascribe that to factors such as entrenched deflation, an unreformed banking system and a low birth rate, rather than low military spending.

Economists who have looked at cross-country comparisons for a positive impact of defence spending on domestic economic growth have generally failed to find one.

One study in 2017 found increased military spending in a country between 1970 and 2014 was actually associated with slower economic growth, especially in more developed countries.

One possible counter argument is that the US’s Defense Advanced Research Projects Agency (DARPA) programme, established in the late 1950s, produced spinout technologies such as the internet, the Global Positioning System (GPS) and artificial intelligence.  

These are innovations that have greatly enhanced productivity growth in the civilian economy, not just of the US but in all countries. This might explain the prime minister’s reference to “new technology” in his statement.

Dominic Cummings, the prime minister’s outgoing chief adviser, was in the process of establishing an agency like DARPA in the UK, but without the defence element.

But David Edgerton, Professor of the History of Science and Technology at King’s College London, doesn’t think such an approach will work in a UK context.

"The US in the 1950s and 60s dominated the world of innovation. Of course in that context, adding a DARPA or an ARPA on top of a mass of innovative activity was probably a good idea but the UK’s in a radically different place,” he says.

The innovation foundation Nesta argues that a UK ARPA can help spread prosperity around the UK by funding research hubs in less prosperous parts of the country and that it should be linked with a “mission”. 

But, crucially, Nesta argues the mission ought to be an objective such as tackling climate change, rather than bolstering national military defence capabilities.

The idea that we haven’t had mission-oriented R&D is just a nonsense. 

Professor David Edgerton

And David Edgerton argues the whole concept of ARPA, civilian or military, is misconceived.

“People are assuming that there is no mission-orientation without something like ARPA,” he says.

“The idea that we haven’t had mission-oriented research and development is just a nonsense. We do have mission-orientation in the defence field in the UK. "

"There is an argument for having more mission-oriented research and development on the civil side. What we have for the last 40 years is a situation where the non-mission stuff has grown proportionally. So there is an argument for re-balancing, but what that should mean is giving more money to departments like defence, health, or communities. ARPA is not the way to do it.”