Spending

Ben Wallace likes to talk tough on public sector pay. “We’re not going back to the 1970s where the trade union barons thought that they ran the government,” the Defence Secretary declared last year. Paul Nowak, general secretary of the Trades Union Congress, had called for ministers to negotiate. “There’s no magic wand here to come up with money that the country doesn’t have,” was Wallace’s response. Except that he does have a magic wand – if it is for defence spending. Wallace is currently publicly negotiating with the Chancellor through the pages of national newspapers in a bid to secure an extra £8bn-£10bn for his department in next month’s Budget. He is also reported to have pushed for a real-terms increase in defence spending over the next spending review period beyond 2025. Wallace has told the BBC that he would “make the case to the Treasury that I will need some money to insulate myself”. Millions of people would like more income to insulate themselves from the living standards crisis, but Wallace is not their ally. All of this amounts to fiscal exceptionalism – austerity for the many, profligacy for the few. Wallace is one of those who has campaigned to entrench a steep rise in defence spending: last year he indicated he was prepared to resign if Liz Truss did not honour her Conservative leadership campaign pledge to spend 3 per cent of GDP on defence by 2030 – an increase from 2 per cent. Defence and security are major undertakings but a compelling case can be made for many public services. A vast amount is allocated to military and defence in the Nato alliance; the US may account for just over 4 per cent of the world’s population but its defence budget represents 40 per cent of global military expenditure. Within Nato, UK defence spending is at extremely high levels, both in total and in comparison with other states. Figures for 2021 put the total UK budget at £45bn a year, making it the fourth highest spending country. In response to Wallace’s demands, Treasury briefings indicate concern that existing defence projects are overrunning by billions of pounds. The Ministry of Defence is indeed addressing the pressures of the war in Ukraine and inflation. But on defence, Britain is already a high spender. It is incredible that people sitting on this level of expenditure are unwilling or unable to argue that they can defend the country. Far stronger than the case for defence spending is the case for resolving the wages crisis. Real household disposable income per person is set to fall by 7 per cent over the next two years, the biggest reduction on the the Office for Budget Responsibility's records. Collapsing pay is leading to a workforce crisis in key areas such as schools and the NHS as recruitment and retention both plummet. Across society people on middle and low earnings alike are seeing their spending power eroded – something that will lead to job losses and wage cuts elsewhere. For these reasons, an immediate economic and moral priority should be to raise the proportion of the economy going into incomes. The public is very capable of seeing through an argument that claims there is no more money for NHS workers or teachers, but that there is money for military expenditure. Economists have often discussed the “guns or butter” tensions faced by economies: the choice between defence spending and the requirements of the wider population. That may be summed up at present as a question of wages, not weapons.

Why is there always a magic money tree for defence?

The left should try to shape Starmerism, not bury it

Why we need an Office for Spending Evaluation

Mandelson: Labour cannot ignore the need for spending cuts