Strategic Defence Review 2025

Lord Stirrup Excerpts

Friday 18th July 2025 Lords Chamber

[Lord Stirrup (CB)]

My Lords, I too congratulate the authors of this thoughtful review, and the noble Lord, Lord Robertson of Port Ellen, on his eloquent and powerful presentation of it today. The key arguments it makes are compelling, and the recommendations are, in the main, well judged. There are, of course, points of detail that are open to debate, and these will no doubt be the subject of further scrutiny as the Government develop their policy in response to the conclusions.

In the limited time available today, I want to focus on the issue that threatens to undermine the effectiveness of the whole review: the Government’s unwillingness to face up to the urgency of the financial consequences. The authors were, of course, constrained throughout by the financial assumptions they were given, but, even so, their analysis demonstrates clearly that we face a quantitative as well as qualitative challenge. NATO has since agreed that these can be addressed successfully only by its members committing 3.5% of GDP to defence, and the Prime Minister has agreed that the UK will meet this target by 2035. However, the Government’s current proposition is that defence spending will be increased to 2.5%, or perhaps 2.6% of GDP, by 2027, and anything in the eight years beyond that remains vague and uncertain. In an answer to me at the Dispatch Box just last week, the noble Lord, Lord Livermore, confirmed that an increase to 3% of GDP remains only an aspiration and a matter for the next Parliament and that any further increases are for the Parliament after next; that is, around 2034 and beyond.

This is wholly unrealistic for a number of reasons. The first, of course, is the urgency of the need. On current assumptions, only about 3% of the total defence funding for the remainder of this Parliament will be available to fund the crucial capabilities identified in the review. On that basis, many of the proposed improvements will not be made until well into the 2030s, including the remediation of some of our current, very serious vulnerabilities.

The second reason is the need to build up the scale of defence orders over a number of years, matching them to the necessary growth in industrial capacity. If this is not done, if industry is faced with a sudden cascade of orders in the 2030s, the consequence will be a dramatic increase in defence inflation, seriously undermining the value of any budget increases. We have already seen this damaging phenomenon as a consequence of the demands of the war in Ukraine.

Finally, there is the wider fiscal position. There are only three ways of paying for an increase in the defence budget: taxation, borrowing or a reallocation of public expenditure. Increases in taxation, which look inevitable, are likely to be consumed almost entirely in sustaining the viability of the economy overall. This is already challenging given the high and volatile cost of servicing the national debt, so the scope for further borrowing looks very limited.

That leaves a reappraisal of public expenditure. We were spending 4% of GDP on defence in the early 1990s. By 2024, that had reduced to 2.3%, although accounting changes over the interim period mean that it would be more like 2.1% in 1990s terms. By 2023, health and social security accounted for about 41% of total managed public expenditure, while defence took just 4.8%. That latter share would need to increase to about 7.2% to bring the defence budget up to 3.5% of GDP. This would equate to a 5% reduction in total health and social security spending. Considering the scale of the challenge and the difficulty of the various options, it is clear that the kind of restructuring I believe is necessary could not be carried out quickly, so the process needs to start soon if we are to be anywhere near 3.5% of GDP for defence by 2035. As yet, however, there is no sign of any urgency on any side of the political divide on addressing this crucial matter. This is surely the key issue for public policy and debate over the coming months because unless it is resolved, and resolved quickly, the excellent work that has gone into this review will be wasted and the country will be left ill prepared for the risks it will face in this complex and dangerous world.