Some government departments have been asked to make savings which would amount to a 11% cut in spending – as the prime minister faces calls to raise defence spending.
Sky News has been told that departments which do not have their spending protected have been asked to model two options – “flat” spending, which, adjusted for inflation, amounts to a cut; and a deeper reduction amounting to 11% in real terms.
No final decisions on departmental spending will be taken until the Treasury’s spending review, which sets departmental budgets for three years, and will be completed in June. Decisions on possible spending cuts by departments have been described by sources as “incredibly difficult”.
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It comes amid calls to increase defence spending, in the light of the Trump administration’s warning to European nations to shoulder their own security – and send peacekeeping troops to Ukraine.
Sir Keir Starmer has promised to increase defence spending to 2.5% of GDP but has not set out when this will be achieved. Ministers say a defence review to be published this spring will set out a “roadmap” to it.
Those departments with their budgets protected include the NHS, childcare and schools, defence and overseas aid at 0.5%.
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What could be hit?
This raises the prospect of more severe cuts for unprotected departments including local government – which is responsible for social care – justice, including courts and prisons; the environment, Home Office and culture.
John Healey the defence secretary, announced a shake-up of defence spending at a speech in Westminster, to focus on “war readiness and deterrence”. He said: “At this time, we must rearm Britain.”
He said: “The decisions that we make right now over the coming weeks will not only define the outcome of the conflict in Ukraine, but the security of our world for a generation to come. And the nature of government means dealing with these challenges”.
Mr Healey would not say how quickly defence spending would rise but said conversations over the past week with the US defence secretary Pete Hegseth were about the need to go further.
He said the message was “not new”, adding: “We know as European nations we need to step up on European security, on defence spending and on Ukraine, especially over the last year we’ve been doing just that. What Pete Hegseth accelerated was that recognition that we’re stepping up, but we must go further.”
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Raising defence spending to 2.5% of GDP would cost ‘£6bn a year’
Paul Johnson, director of the Institute for Fiscal Studies, said that increasing defence spending from its current level of 2.3% to 2.5% would mean finding approximately an extra £6bn a year by the end of the parliament.
He said: “Six billion in our overall budget is not enormous. The problem facing the government is that the fiscal situation is so tight, even finding that kind of money is going to be difficult.
“The last government and this one have increased spending quite a bit across quite a range of public services since 2020. So it’s not that we’re coming right off the back of austerity, but we are still in a position where a lot of government departments, the Ministry of Justice, for example, have got less money now than I had all the way back in 2010.
“So it’s still going to be hard for a lot of these areas to swallow any further cuts or even to cope with flat spending.”
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A Treasury spokesperson said: “The chancellor has asked all departments to deliver savings and efficiencies of 5% of their current budget as part of the first zero-based spending review in seventeen years and every pound of government spending is being interrogated, to root out waste and get the best value for taxpayers.
“National security is a foundation of this government’s plan for change, which is why we have increased defence spending by almost £3bn while delivering the highest pay rise for our armed forces in over 20 years.
“We will set out a path to 2.5% once the strategic defence review has concluded. We will not give a running commentary while the review is undertaken.”
