2004 Spending Review

PN A7

12 July 2004

Further boost for Britain's armed forces

The Chancellor announced today the longest period of sustained real terms growth in planned defence spending since the early 1980s.

The settlement for the armed forces builds on the annual 1.2 per cent real terms increase announced in Spending Review 2002, with a further annual average increase of 1.4 per cent over this Spending Review period, equivalent to a further £3.7 billion a year by 2007-08 compared to this year.

On top of this settlement, the Ministry of Defence will seek to release additional resources to the front line armed forces by delivering a £2.8 billion programme of efficiency savings over the Spending Review period, primarily by rationalising central bureaucracy and back office functions and by adopting best practice in procurement and business processes.

The additional costs of the armed services’ continuing commitments in Iraq will continue to be funded entirely separately, from the special reserve set aside by the Treasury in Budget 2003 and topped up in Budget 2004.

Chief Secretary to the Treasury, Paul Boateng said:

“We have maintained the longest sustained increase in defence spending for twenty years, and have bettered even the settlement agreed in 2002. On top of that, we will continue to fund all the additional costs of the campaigns in Iraq, Afghanistan and elsewhere. We will continue to ensure that our armed forces are well equipped to do the difficult job we ask of them, and we welcome the MOD’s commitment to cut the costs of its central administration and improve its procurement practices to release even more resources for our forces in the front line.”

Defence Secretary, Geoff Hoon, said:

"I welcome this settlement which demonstrates the Government’s continued commitment to defence. The threat posed to the UK’s interests by international terrorism and failing states presents us with very real and immediate challenges. As well as sustaining our investment in new capability, this settlement enables the continued modernisation of our Armed Forces against a backdrop of evolving threats to our security and advances in technology."

£ million	2004-05	2005-06	2006-07	2007-08
Ministry of Defence
Resource Budget	31,370	32,449	32,698	33,018
Capital Budget	6,327	6,880	6,970	7,600
Total Departmental Expenditure Limit¹	29,710	30,888	32,067	33,447
Near-cash spending in MOD DEL²	26,479	27,600	28,659	29,969

Details

The 2003 Defence White Paper, “Delivering Security in a Changing World”, builds on the 1998 Strategic Defence Review (SDR) and 2002 Strategic Defence Review: New Chapter, in setting out the strategy for the UK’s Armed Forces. The White Paper sets out the policy context within which the future structure and capabilities of our Armed Forces will be determined.
In the three years to 2004, the Government has provided over £4 billion to meet the net additional costs of military operations in Iraq and Afghanistan and its international obligations.
Spending Review 2002 represented the largest planned increase in defence spending for twenty years, providing an additional £3.5bn by 2005-06, representing 1.2% average annual real growth.
Spending Review 2002 included a £578M Modernisation Fund specifically to modernise logistics and business information systems across defence. The Spending Review 2004 settlement increases its funding at an increased rate of £1 billion over three years, with an expanded scope which now includes rationalisation of the defence estate.
The Ministry of Defence has committed to find over £2.8 billion of efficiency savings by 2007-08, in areas such as more efficient procurement and logistics, and reduced back office and support functions. The settlement includes a specific fund to aid modernisation in key areas of logistics, business information systems and estates rationalisation.
This settlement supports the further modernisation of the Armed Forces, focused on increasing their flexibility, agility and operational effectiveness when acting independently or alongside our allies. The longstanding arrangements of central funding of the net additional costs of military operations and urgent operational requirements will remain in place.

Notes for editors

1. Media enquiries to contact HM Treasury Press Office on 0207 270 5238.