Shapps demands defence spending is lifted to 2.5pc of GDP

Grant Shapps, the Defence Secretary, gives a speech at Lancaster House in London
Grant Shapps, the Defence Secretary, has warned that the UK needed to 're-establish our leadership in Europe' - ANNA GORDON/REUTERS

Grant Shapps is demanding that Jeremy Hunt raise defence spending to 2.5 per cent of GDP in the Budget amid growing threats to Britain, The Telegraph can reveal.

The Defence Secretary sent a letter to the Chancellor formally making the request on Jan 24, in which he warned that the UK needed to “re-establish our leadership in Europe”.

The Cabinet split piles further pressure on Mr Hunt, who is already facing a Tory backlash after this newspaper reported that no new money is set to be announced for the Ministry of Defence [MoD] in Wednesday’s Budget.

Increasing next year’s defence spending to 2.5 per cent of GDP would cost about £9 billion, according to a security think tank. It currently stands at about 2.2 per cent.

Mr Shapps is understood to have written in the letter to My Hunt: “I believe we must take bold action in your Budget in March to commit to defence spending increasing to 2.5 per cent in 2024.

“This will resonate with our allies and adversaries. It would re-establish our leadership in Europe.”

Another section read: “I recognise this may mean hard choices elsewhere, but we should seek to reap the benefits of your successful management of inflation and the economy.”

Mr Shapps continued: “The threats we are facing are growing and so defence spending is only going to go one way. We should seize the initiative for your Budget.”

His warning that the UK needs to re-establish its leadership in Europe has emerged in the week that Emmanuel Macron, the French president, attempted to position himself as Ukraine’s champion, floating the idea of sending troops to the country.

The idea was dismissed by Nato allies. London and Washington have offered significant support to Kyiv since the start of the war, while French pledges of financial and military support have been among the lowest in Europe.

Germany has markedly increased defence spending since Russia invaded Ukraine, but on Friday Berlin ruled out sending powerful Taurus missiles to Ukraine amid fears that they could be used to strike Moscow.

Mr Shapps’s words also suggest that he believes Britain will be less well prepared to counter the threats it faces if defence spending does not rise.

Government figures moved to play down the row last night, with an MoD source saying that Mr Shapps would ultimately accept what was decided.

The MoD source said: “The Defence Secretary, like every secretary of state, has been pushing for more money for his department.

“He doesn’t want to debate it in public, but has been working behind the scenes. He fully supports the Chancellor and the Prime Minister and will support their final decision given the financial constraints.”

‘Focus on economic growth’

A Treasury source said: “A strong Armed Forces requires a strong economy. We need to focus on economic growth so we can raise living standards and raise the revenue necessary to invest in our defence.”

There have been repeated splits within the Conservative Party over defence spending in recent years. Many Tory MPs want a rise, but some of those in government are also mindful of budget limitations.

Rishi Sunak’s public position is that Britain should at some point raise defence spending to 2.5 per cent of GDP, but he has set no specific time frame for when that should happen.

Mr Shapps in his run for the Tory leadership in 2022 called for 3 per cent defence spending, a figure that Liz Truss in her brief premiership made official policy to hit by 2030.

Jeremy Hunt called for spending of 4 per cent of GDP on defence and 'soft power' during his Tory leadership bid in 2022
Jeremy Hunt called for spending of 4 per cent of GDP on defence and 'soft power' during his Tory leadership bid in 2022 - KIRSTY O'CONNOR/HM TREASURY

Mr Hunt put spending 4 per cent on defence combined with foreign aid and “soft power” at the centre of his own Tory leadership bid in 2022.

On Wednesday, Mr Hunt was photographed meeting Commons Leader and former defence secretary Penny Mordaunt who has championed defence spending and represents Portsmouth North, a constituency with a large naval presence.

Ms Mordaunt posted on social media that she had told the Chancellor that the Government’s “first duty” was to protect the country and spoke about the work she had done to get the best return from the current defence budgets.

Economic forecasts, which Treasury insiders say have left the Chancellor with less money to play with for the Budget on March 6, mean less generous public spending plans than were once under consideration are expected to be unveiled.

The tight public finances have seen the Treasury look at scrapping non-domiciled tax status and expanding the oil and gas windfall tax to bring in extra money for tax cuts.

Mr Hunt is also understood to have been forced to abandon plans for a package of support for first-time buyers, including a shake up of the Lifetime ISA savings product to reflect the rise in house prices and offering Government-backed 99 per cent mortgages.

There had also been speculation that the Chancellor could make an announcement on stamp duty, which is set to rise substantially when a temporary cut ends in 2025.  Treasury insiders said new support for first-time buyers in the Budget was now “unlikely”.

No extra money

However, Mr Sunak appeared to hint that a cut to National Insurance is planned when speaking to reporters at the Scottish Tory conference on Friday, though some well-placed Tories predict a cut to the basic rate of income tax will be announced instead.

The Telegraph’s revelation on Monday that no extra money is being planned for the MoD triggered Conservative anger, with former defence secretaries Sir Gavin Williamson and Ben Wallace speaking out.

Some figures in Whitehall are hopeful that a surprise package for the MoD could yet be agreed given the pressure, but Treasury sources have dismissed the idea.

It is unclear exactly how much extra money would be needed to hit a defence budget of 2.5 per cent of GDP.

Nato, which demands members spend 2 per cent of GDP on defence, has its own definition for what counts as defence spending.

British spending that counts towards the target goes beyond just the MoD budget and includes relevant funding in other departments such as for the intelligence services.

Fluctuating figures

The other complication is that forecasts about the size of the economy can fluctuate, making it uncertain exactly what the UK’s GDP will be in the 2024-25 financial year.

Prof Malcolm Chalmers, deputy director-general at the Royal United Services Institute, said to spend 2.5 per cent on defence under the Nato definition next year would require about an extra £9 billion.

There have been recent defence spending increases, as Treasury insiders note when challenged on their current plans.

An increase in defence spending was announced last spring, with £4.95 billion extra given to the MoD across this year and next year.

An additional £2 billion was pledged each year after that for much of the remaining decade, in part to help pay for the Trident nuclear deterrent.