British Prime Minister Rishi Sunak met with German Chancellor Olaf Scholz in Berlin and promised closer defence cooperation as the UK announced a large hike in defence spending.

Both the UK and Germany are amongst the most generous Ukrainian donors of both money and materiel. Both leaders repeated the mantra Europe must unite to support Ukraine against Russia “for as long as it takes.”

Sunak hail the German commitment the day after he announced a significant increase in the nation's defence spending to 2.5% of GDP by 2030, escalating Britain's military budget to £87bn annually. This move is part of a broader strategy to bolster the UK’s arms industry in response to what Sunak described as an “increasingly dangerous” global environment.

Likewise, Scholz launched a new defence policy last year that will increase German spending on defence by an extra €100bn and pledged to reach NATO's target of spending at least 2% of gross domestic product on defence, as part of a major policy shift in response to Russia's invasion of Ukraine. Germany is already the biggest producer of arms in Europe.

"We've committed to delivering a new framework for our cooperation on defence, and we're delivering an immediate expansion of our industrial cooperation," Sunak told a joint news conference with Scholz.

Asked about Germany rejecting a call to deliver the game changing Taurus cruise missiles to Kyiv, Scholz defended his decision to decline calls, arguing that no other country had delivered as many arms defence systems as Germany, but adding that he would not change his mind on sending the sought after Taurus missiles.

He retorted that he hoped other countries would send the US-made Patriot missiles that play a key role in Ukraine’s faltering air defences. Germany has promised to send two more batteries, which the rest of Europe remains reluctant to part with their remaining batteries, worried about their own security.

Germany has spearheaded calls for members of the Nato military alliance and beyond to step up on deliveries of air defence systems, which President Volodymyr Zelenskiy says are desperately needed to protect Ukraine from a Russia barrage that began in March and has decimated Ukraine’s power infrastructure.

The UK already spends more than most Nato members and is one of the few members that has already passed the 2% of GDP of spending on defence mandated by Nato membership. The UK plans to spend GBP 64.6bn in 2024-2025, or 2.3% of GDP, rising to GBP87.1bn in 2030-31, or 2.5% of GDP.

 

Arms spending increasing around the world on war fears

Both UK and German spending pales when set again to the US spending of 2.9% of GDP in 2024 but that is expected to fall to 2.5% by 2034. Russia is spending a surprisingly modest 6% of GDP on defence, despite allocating $100bn to defence spending, that highlights the relative size of the Russian economy that is currently worth more than $2 trillion in unadjusted terms.

As bne IntelliNews reported, Russia’s budget results for the first three months of 2023 is in robust shape with the current account surplus at its second highest level ever and the deficit falling after revenues surged by half as of the end of March, against spending that was but by a more modest 20%. In particular, the budget deficit fell from RUB1.5 trillion in February ($17bn) to RUB600bn ($6.4bn) in March, or only 0.3% of GDP – well inside the forecast end of year deficit forecast by the Ministry of Finance (MinFin) of 0.8% -- half of last year’s result of 1.8% of GDP in July.

Russia budget results year to date RUB bn

	3M24	3M23	Change % y/y
Revenues	8,719	5,679	53.5
Oil & gas rev	2,928	1,635	79.1
Non-oil & gas	5,791	4,044	43.3
VAT	3,356	2,693	24.6
Expenditures	9,326	7,765	20.1
Deficit cash	-607	-2,086
Deficit % GDP	0.3	-1.2

Source: MinFin

This year Russia is expected to increase its social spending to RUB7.5 trillion in 2024, while spending on national security will rise of RUB3.5 trillion. However, defence spending will make up about a third of all spending and rise to RUB14.5 trillion ($157bn) in 2024, over taking social spending for the first time. Before the war, Russia used to spend about RUB3.6 trillion on defence, but the Soviets used to spend around 16% of GDP on its military.

Ukraine has long since put its economy on a total war footing is currently spending 35% of GDP on defence, including $6bn allocated to arms spending this year. Last year Ukraine increased its defence spending by 51% to $64.8bn – not including $35bn in military donations from allies.

The fear of war and heightened geopolitical tensions has seen defence spending rise around the world. A new high of $2.4 trillion of spending in 2023 by Stockholm International Peace Research Institute (SIPRI) is the ninth straight annual increase, and the highest since the end of the Cold War.

UK war spending Sunak’s block buster announcement follows intense pressure from Conservative MPs, including Defence Secretary Grant Shapps, advocating for heightened military expenditure to counter rising global threats.

Sunak addressed the media in Poland, where he was on a visit to rally support for Ukraine and ahead of a looming UK general election. The British PM said there is a clear "choice on this topic" for voters. The Labour Party has been vacillating on increasing defence spending, but the shadow cabinet minister Steve Reed told Sky News that Labour “would want to match that,” referring to Sunak’s decition to increase defence spending.

Sunak pledged committing at least GBP3bn of funds for Ukraine annually “for as long as required.” The UK was the first to sign a “security assurance” deal with Ukraine in January that puts British military aid on a longer-term and more predictable basis, but does not oblige UK forces to come to Ukraine’s aid in case of an attack.

Speaking in Warsaw alongside Nato Secretary General Jens Stoltenberg, Sunak called for European nations to elevate their defence commitments.

“In a world that is the most dangerous it has been since the end of the Cold War, we cannot be complacent. As our adversaries align, we must do more to defend our country, our interests, and our values,” he said.

The UK plans to invest GBP10bn in munitions production, aiming to deepen weapon stockpiles after they have been badly depleted by sending much of the UK surpluses to Ukraine over the last two years. But Sunak was careful to temper concerns about escalating military tensions: "We must not overstate the danger. We’re not on the brink of war. And nor do we seek it." Sunak stressed that this increase in defence spending would not necessitate borrowing or additional debt but would be offset by a reduction of 70,000 civil service jobs and enhanced returns on investments in research and development. The policy is expected to cost GBP4.5bn annually by 2027-28.

This robust stance on defence is very similar to earlier plans proposed by former Prime Minister Boris Johnson and is seen as a move to consolidate support within Sunak’s party and among his political base ahead of a general election. The UK needs to prepare as it is also facing threats from other autocratic states like Iran and China, Sunak said.

To oversee the spending Sunak announced the creation of a new defence innovation agency and committed at least 5% of the defence budget to research and development. Additionally, GBP500mn in military funding for Ukraine will be drawn from Treasury reserves, totalling GBP3bn in this financial year.