January 3, 2023 - 10:15am

Discussions are taking place at Downing Street about the country’s military budget. The military want more money. The Prime Minister, meanwhile, is trying to ensure the country doesn’t tip into bankruptcy. What emerges in terms of military spending in the coming months and years could define Britain’s military posture as we enter an emerging multipolar world.

The first thing that stands out about Britain’s military spending is how inefficient it appears to be. Britain fields a total army of around 217,100 personnel, comparable to Germany’s army of 233,550. But, according to the Stockholm International Peace Research Institute (SIPRI), Britain spent $68.4bn in 2021 on its military while Germany spent $56bn. Britain spent 22% more than Germany on an army 7% smaller.

This is widely appreciated in British military circles. Military consultant Francis Tusa told the Financial Times that “we are demonstrably spending more and getting less . . . France, Italy, Germany and Spain do things better, quicker and cheaper”. This probably didn’t matter when times were good but now — with the country facing a deep recession, high inflation and a bloated government budget — policymakers will have to start asking tough questions.

What makes these questions so interesting is that the economic distress is being caused by geopolitical turmoil. The war in Ukraine and the related sanctions policies are driving much of the inflation which, in turn, is forcing central banks to raise interest rates and creating a recession. This underlines the trade-offs that we are currently seeing between geopolitical goals and economic goals.

Yet the two are inherently connected. To put it bluntly: it is only possible to field a serious military if it can be afforded — and there is much evidence mounting that Britain is getting a lot poorer. At the same time, Britain’s geopolitical ambitions seem to be expanding. The Financial Times reports that defence chiefs are looking for more spending “so the UK can confront the rising threats from Russia, China, North Korea and Iran that were identified last year in Britain’s high-level defence strategy, the Integrated Review (IR)”. Ambitious.

If the Integrated Review is correct and conflict with what amounts to a large portion of the world economy continues, can we really expect the financial picture in Britain to improve? It seems unlikely. Last week, the Times reported that policymakers were discussing how Britain is not prepared for any economic warfare with China. Frankly, if Britain is pulled into an economic war with China, it will leave a huge dent in the public purse.

What Britain’s leaders need to understand is that they cannot have their cake and eat it. Decades of globalisation have rendered the country extremely reliant on open trade with the rest of the world. If this trade collapses due to geopolitical conflict, the basis of the national economy will no longer exist. 2023 may be the year we find that out.

Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics