ICAEW chart of the week: Global military spending

While the UK commits to increasing its defence and security expenditure, our chart this week looks at military spending around the world, which has reached $2.4trn.

Column chart

Global military spending
ICAEW chart of the week

Column 1: NATO

USA $916bn
UK $75bn
Rest of NATO $360bn
Total $1,351bn

Column 2: SCO and CSTO

China $296bn
Russia $109bn
India and other $106bn
Total $511bn

Column 3: Rest of the world

Other US allies $304bn
Ukraine $65bn
Other countries $212bn
Total $581bn

25 April 2024.
Chart by Martin Wheatcroft FCA. Design by Sunday.

Source: SIPRI Military Expenditure Database. Excludes Cuba, North Korea, Syria and Yemen.

© ICAEW 2024

Our chart this week is based on the latter, with SIPRI reporting that global military expenditure has increased to $2,443bn in 2023, a 6.8% increase after adjusting for currency movements. SIPRI’s numbers are based on publicly available information, which means that some countries may be spending even more on their militaries that are included in the database. SIPRI was unable to obtain numbers for military spending by Cuba, North Korea, Syria, Yemen, Turkmenistan, Uzbekistan, Somalia, Eritrea, Djibouti, and Laos.

Military spending is the news this week following the announcement by the UK government that it will commit to spending 2.5% of GDP on defence and security, the recent vote by the US Congress to provide $95bn in military aid to Ukraine ($61bn), Israel ($26bn) and Taiwan and others in the Indo-Pacific ($8bn), and the release of the Stockholm International Peace Research Institute (SIPRI) Military Expenditure Database for 2023.

More than half of that spending is incurred by NATO, with total military spending of $1,351bn, comprising $916bn by the US, $75bn by the UK and $360bn by other NATO members. Of the latter, $307bn was spent by the 23 members of the EU that are also members of NATO (including $67bn by Germany, $61bn by France, $36bn by Italy, $32bn by Poland and $24bn by Spain), while $53bn was spent by the other seven members (including $27bn by Canada and $16bn by Türkiye).

The Shanghai Cooperation Organisation (SCO) and the Collective Security Treaty Organisation (CSTO) are partially overlapping economic and military alliances convened by China and Russia respectively. China has the biggest military with $296bn spent in 2023, while Russia spent $109bn and other members spent $106bn (of which India spent $84bn).

We have categorised the rest of the world between other US allies which spent $304bn in 2023 (including $76bn by Saudi Arabia, $50bn by non-US members of the Rio Pact, $50bn by Japan, $48bn by South Korea, $32bn by Australia, $27bn by Israel and $17bn by Taiwan), Ukraine which spent $65bn, and $212bn spent by other countries for which SIPRI has data.

The numbers do not take account of the differences in purchasing power, particularly on salaries. That means China and India, for example, can employ many more soldiers, sailors and aircrew than NATO countries can for the same amount of money.

The Ukraine number also excludes $35bn in military spending funded by the US ($25bn) and other partners ($10bn) during 2023 that was not part of its national budget.

Global military spending is expected to increase further in 2024 as the international security situation deteriorates. This includes NATO members that plan to increase their defence and security spending to meet or exceed the 2% of GDP NATO minimum guideline set in 2014 to be achieved by 2024.

This includes the UK, which now plans to increase its spending on defence and security from 2.35% of GDP in 2023/24 to 2.5% of GDP by 2028/29, with suggestions from defence sources that setting a target of 3% of GDP may be necessary at some point in the next decade.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK Armed Forces

Our chart of the week puts the spotlight on defence, illustrating how the UK’s regular forces have more than halved over the past 40 years. The big question is, are further reductions planned over the next few years still realistic in light of the invasion of Ukraine by Russia?

Filled area chart showing decline of the UK armed forces from 338,000 in 1981 to 149,280 in 2021.

Army - down 50% from 166,000 to 82,230 soldiers

Royal Navy (including Royal Marines) - down 54% from 74,300 to 33,850 sailors and marines

Royal Air Force - down 64% from 93,500 to 33,200 aviators.

The post-Cold War ‘peace dividend’ has been reflected in a decline in defence spending over the past 40 years, accompanied by fewer soldiers, aviators, sailors and marines, as illustrated by our chart of the week. This shows how regular force numbers have fallen from 338,800 on 1 April 1981 (comprising 166,000 in the Army, 74,300 in the Royal Navy, including the Royal Marines, and 93,500 in the Royal Air Force) to 149,280 on 1 April 2021 (comprising 82,230 soldiers, 33,850 sailors and marines and 33,200 aviators). 

There has been a small rise in numbers in the past couple of years as improvements to recruitment have helped bring the armed forces up to its planned complement.

The substantial falls in service personnel numbers since the 1980s have been accompanied by significant reductions in the numbers of tanks, ships and aircraft in operation – although technological and warfare developments mean that modern defence equipment is much more powerful than its predecessors. The two Queen Elizabeth-class aircraft carriers recently commissioned by the Royal Navy are a case in point.

The numbers in the chart exclude Army, Navy and Air Reserves of 37,420, Ghurkas of 4,010 and other military personnel of 8,170, at 1 April 2021. Also not included are civilians working for the Ministry of Defence or for the security services, who are also important parts of the UK’s national defence and security capability.

Last year’s Integrated Review of Security, Defence, Development and Foreign Policy included plans for greater investment in military equipment and cyber warfare, but it also set out further reductions in regular force numbers, with the Army expected to reduce to fewer than 75,000 by 2024.

Whether these plans will be revised in the context of a war in Europe remains to be seen, but it seems likely that the government will, at the very least, need to re-evaluate its plans. This may have implications for public finances as pressure will probably grow for spending on defence to increase from the £46bn – just under 2% of GDP – budgeted in the current financial year. 

However, as the pandemic has perhaps demonstrated, the costs of being inadequately prepared for future eventualities – both in lives and money – could end up being significantly greater in the long run.

This chart was originally published by ICAEW.

ICAEW chart of the week: global military spending

19 March 2021: The UK’s Integrated Review is the inspiration for this week’s chart, illustrating the 20 countries around the world that spend the most on their militaries.

Chart showing global military spending in 2019 led by USA (£526bn) and China (£200bn) followed by 18 other countries - see text below the chart for details.

The UK Government launched its Integrated Review of Security, Defence, Development and Foreign Policy on 16 March 2021, setting out a vision for the UK’s place in the world following its departure from the European Union and in the context of increasing international tensions and emerging security threats.

At the core of the Integrated Review is security and defence, and ICAEW’s chart of the week illustrates one aspect of that by looking at military spending around the world. 

The chart shows spending by the top 20 countries, which together comprise in the order of £1.2tn of estimated total military spending of around £1.4tn to £1.5tn globally in 2019 – an almost textbook example of the 80:20 rule in action.

More than a third of the total spend is incurred by just one country – the USA – which spent in the order of £526bn in 2019 converted at current exchange rates. The next biggest were China and India at £200bn and £50bn respectively, although differences in purchasing power mean that they can afford many more soldiers, sailors and aircrew for the same amount of money. This is followed by Saudi Arabia (£45bn), Russia (£41bn), France (£38bn), the UK (£38bn), Germany (£38bn), Japan (£34bn), South Korea (£33bn), Australia (£21bn), Italy (£20bn), Canada (£17bn), Israel (£16bn), Brazil (£14bn), Spain (£13bn), Turkey (£11bn), the Netherlands (£9bn), Iran (£9bn) and Poland (£9bn).

Exchange rates affect the relative orders of many countries in the list, for example between Russia, France, the UK and Germany which can move up or down according to movements in their currencies, while there are a number of caveats over the estimates used given the different structures of armed forces around the world and a lack of transparency in what is included or excluded in defence budgets in many cases.

In addition, the use of in-year military spending does not necessarily translate directly into military strength. Military capabilities built up over many years or in some cases (such as the UK) over many centuries need to be taken into account, as do differing levels of technological development and spending on intelligence services, counter-terrorism and other aspects of security. Despite these various caveats, estimated military spending still provides a useful proxy in understanding the global security landscape and in particular highlights the UK’s position as a major second-tier military power – in the top 10 countries around the world.

Global Britain in a Competitive Age: the Integrated Review of Security, Defence, Development and Foreign Policy sets out some ambitious objectives for security and defence, which it summarises as follows: “Our diplomatic service, armed forces and security and intelligence agencies will be the most innovative and effective for their size in the world, able to keep our citizens safe at home and support our allies and partners globally. They will be characterised by agility, speed of action and digital integration – with a greater emphasis on engaging, training and assisting others. We will remain a nuclear-armed power with global reach and integrated military capabilities across all five operational domains. We will have a dynamic space programme and will be one of the world’s leading democratic cyber powers. Our diplomacy will be underwritten by the credibility of our deterrent and our ability to project power.”

The estimates of military spending used in the chart were taken from the Stockholm International Peace Research Institute (SIPRI)’s Military Expenditure Database, updated to current exchange rates.

This chart was originally published by ICAEW.

NAO says £190bn Defence Equipment Plan 2020-30 is unaffordable

21 January 2021: The National Audit Office (NAO) says additional funding provided in the November 2020 Spending Review will still not be enough to plug shortfalls in the 10-year Defence Equipment Plan.

The NAO has issued a report on the £190bn Defence Equipment Plan for the 10 years from 2020 to 2030. For the fourth consecutive year, the NAO reports that the plan by the Ministry of Defence (MoD or the Department) to procure and support defence equipment is unaffordable.

The Equipment Plan is a rolling 10-year set of programmes that currently comprises £87bn in planned procurement, £97bn in support costs and £6bn for contingencies, with the total of £190bn representing a £9bn increase over the previous year’s plan. Excluding contingencies, the plan includes £44bn for the Defence Nuclear Organisation, £35bn for Air Command, £33bn for Army Command, £31bn for Navy Command, £29bn for Strategic Command and £12bn for Strategic Programmes.

The MoD’s forecast assessment is that the 2020-30 plan will cost £214bn if delivered as expected, with £17bn in adjustments and planned savings to bring that down to £197bn, some £7bn more than the allocated budget. The NAO also notes that the Equipment Plan is fully allocated to existing and planned programmes, with no headroom for potential new projects that may be identified over the next few years, although there may be £9bn potentially available from other parts of the MoD’s budget between 2025-26 and 2029-30. 

The primary finding of the report is that not only is there an identified budgetary shortfall of £7bn, but there are potential cost pressures of at least £20bn that put delivery of the plan at significant risk. This includes significant uncertainty as to whether planned efficiency savings can be achieved as well as concerns about escalating costs on major procurement programmes and the impact of fluctuating exchange rates on long-term forward purchases.

The NAO states in the report that the Department “has still not established a reliable basis to assess the affordability of equipment projects and its estimate of the funding shortfall in the 2020–30 plan is likely to understate the growing financial pressures that it faces. The plan does not include the full costs of the capabilities that the Department is developing, it continues to make over-optimistic or inconsistent adjustments to reduce cost forecasts and is likely to have underestimated the risks across long-term equipment projects. 

In addition, the Department has not resolved weaknesses in its quality assurance of the plan’s affordability assessment. While the Department has made some improvements to its approach and the presentation of the plan over the years, it has not fully addressed the inconsistencies which undermine the reliability and comparability of its assessment.”

Additional funding of £16.5bn over four years announced in the Spending Review in November 2020 should, in theory, plug the gap. However, the MoD has indicated it intends to use a substantial proportion of this new money to invest in improving military capabilities, with investments in cyber warfare and drones at the top of the list. This likely means the Equipment Plan remains under significant pressure, with several major new procurements expected to be added this year, many of which will involve untested new technologies with their own set of risks.

This will require some tough decisions to be made as part of the Integrated Review expected to be published shortly. There are rumours this may see cuts in the size of the Army to free up resources for other priorities, with MoD officials informing the Defence Select Committee they were actively looking to “disinvest” from a number of existing capabilities they considered would not be needed in the future.

The NAO concludes, “The Department faces the fundamental problem that its ambition has far exceeded available resources. As a result, its short-term approach to financial management has led to increasing cost pressures, which have restricted top-level budget holders from developing military capabilities in a way that will deliver value for money. The growing financial pressures have also created perverse incentives to include unrealistic savings and to not invest in new equipment to address capability risks.

The recent government announcement of additional defence funding, together with the forthcoming Integrated Review, provide opportunities for the Department to set out its priorities and develop a more balanced investment programme. The Department now needs to break the cycle of short-termism that has characterised its management of equipment expenditure and apply sound financial management principles to its assessment and management of the Equipment Plan.”

Martin Wheatcroft, adviser to ICAEW on public finances, commented, “The Ministry of Defence has made significant strides over the last decade to improve how it procures and supports defence equipment, but there remain significant weaknesses in financial management that need to be addressed. It is concerning that issues highlighted in four successive NAO reports are still not resolved.

However, even the strongest financial management at the MoD would struggle to deliver on the UK’s current ambition to be a global military power on a limited budget. Managing complex procurement programmes effectively will continue to be extremely challenging without a major change in strategy – either to scale back the UK’s defence capabilities to a more modest level or to allocate a much larger share of public spending to defence.”

This article was originally published by ICAEW.

UK aircraft carrier groups won’t be operating to full extent until 2026

26 June 2020: NAO reports on challenges remaining to the Carrier Strike programme, including cost overruns since their last report in 2017.

The National Audit Office (NAO) has published the latest in a series of challenging reports on defence procurement with a critique of the Ministry of Defence (MoD) programme to establish two fully operational carrier strike groups.

This is a complex multi-year effort that has seen the building of the HMS Queen Elizabeth and HMS Prince of Wales aircraft carriers at a cost of £6.4bn, the initial order of 48 fighter aircraft (out of a long-term plan for 138), and the planned integration of carriers, warships, radar systems and support ships with navy personnel into two fully combat capable carrier groups.

This report focuses on the last three years of development since 2017 – a period that has seen the Royal Navy complete and launch two new aircraft carriers, receive and test the initial batch of aircraft, construct essential on-shore infrastructure, and undertake extensive training of sailors and aircrew.

Key highlights from the report include:

  • There was a further cost overrun of £193m on building the two aircraft carriers, equivalent to 3% of their total cost of £6.4bn.
  • The MoD has spent £6.0bn to date on 48 Lightning II fighter jets, of which 18 have been delivered on schedule. Port and military airfield facilities have now been completed.
  • The Crowsnest airborne radar system is 18 months behind schedule, affecting carrier group capabilities in the first two years of operation.
  • The MoD delayed seven of its 48 jets on order to 2025 to accommodate budgetary pressures, with the approved cost now at £10.5bn, a £1.0bn or 15% increase.
  • Funding has not yet been made available for enough Lightning II jets to support the carriers through to the 2060s as planned, with no commitment as yet to order the remaining 90 jets.
  • The MoD has been slow to develop the support ships needed to operate carrier strike group, with only one ship currently in operation – with delays in ordering three new support ships potentially hampering operations until 2028 or later. The MoD has also not provided the necessary funding for logistics projects and munitions.

The NAO reports that the MoD is making progress in delivering key milestones, albeit with some caveats.

  • Initial operating capability for one carrier group and 12 jets is expected to be achieved by December 2020 on schedule, albeit with more basic radar capability than originally planned.
  • There is a tight schedule to deliver ‘full operating capability’ by 2023 (two carrier groups with up to 24 jets) and the planned extended capability by 2026 to deliver a wide range of air operations and support amphibious operations worldwide. 
  • Significant questions need to be answered about the place of the carrier groups within defence strategy, the investment prioritisation necessary to ensure that they can operate for the planned life-span of 50 years, and a clear understanding of the full costs of operating the carrier groups in the context of a Defence Equipment Plan that is currently unaffordable (as reported in several other NAO reports).

The NAO conclude by making a series of recommendations for strengthening programme management, ensuring there is a clear view of future costs, and on monitoring new governance arrangements that have recently been put in place. The NAO also recommends transferring lessons learned from the Carrier Strike programme over to other major defence projects.

Gareth Davies, the Comptroller & Auditor-General for the United Kingdom and the head of the NAO, commented on the good progress made by the MoD to deliver Carrier Strike. But he also stressed the need for greater attention to be paid to the supporting capabilities essential for full operability, and the need for the MoD to get a firmer grip on future costs.

Martin Wheatcroft FCA, advisor to ICAEW on public finances, said:

“In many ways, the MoD receives quite a positive report card from the NAO on the good progress that it has made over the last three years, improving on much less complementary reports in 2017 and before.

However, as the NAO reports, the MoD continues to struggle to deliver major procurement programmes within a defence budget that is unaffordable and there remain significant issues that need to be addressed. The extent to which further funding will be provided in the long-delayed Spending Review later this year is yet to be seen.”

The NAO report Carrier Strike – Preparing for deployment is available on the NAO website.

This article was originally published on the ICAEW website.