The next UK government will have limited resources for its international agenda. Foreign aid, defence, and science and technology all need more funding to achieve the goals we have recommended. That means trade-offs and clear priorities. Investing in strategic influence should be a guiding principle for policymakers.
Addressing the international crises explored in this paper will cost money. But under the UK’s current fiscal rules, the next government will have very limited capacity for spending. Commitments to lower the debt-to-GDP ratio are already at odds with existing plans for funding domestic public services. The Institute for Fiscal Studies (IFS) finds that by one measure, reducing the debt-to-GDP ratio will be more challenging than it has been for any government since the 1950s.
Given these constraints, where can the UK prioritize investments in its global commitments? Ideally it would spend more on defence and international development; more feasibly, it might focus on more consistent, effective spending and – that old bugbear, which has driven the Public Accounts Committee in parliament to distraction – better procurement. It can also make more of its competitive science and technology base, a source of global power, by easing barriers to investment.
Foreign aid – increase spending and make it predictable
If the UK seeks to be influential on global governance, then returning to its commitment to spend 0.7 per cent of gross national income (GNI) on official development assistance (ODA) would help. However, a more immediate priority should be to re-establish the predictability of aid spending in general, regardless of whether it amounts to 0.5 per cent of GNI (as at present) or the target 0.7 per cent.
One idea for achieving this – as the Center for Global Development and Institute for Fiscal Studies propose – would be to base the spending target on the previous year’s GNI, while holding a reserve within the spending target for emergencies
and shocks.
The priority should be clarifying the purpose of development spending and ensuring it is governed well. This also means addressing the fact that a substantial share of ODA is now spent on accommodation for asylum seekers and refugees in the UK.
The priority should be clarifying the purpose of development spending and ensuring it is governed well. This also means addressing the fact that a substantial share of ODA is now spent on accommodation for asylum seekers and refugees in the UK. This category of spending accounted for over a quarter of the aid budget in 2023. Moreover, the reported £3.7 billion spent by the Home Office and other agencies on hotel accommodation for refugees and asylum seekers in 2022 was 1.6 times the amount spent bilaterally in Africa and Asia during that year (almost £2.3 billion combined). Domestic expenditure on refugees and asylum seekers is a legitimate use of aid, but a system in which one department draws on another’s budget to do so is fraught with moral hazard – it limits the incentives to ensure value for money, control costs or be accountable on either measure. The irony is that the merger of departments that created the Foreign, Commonwealth & Development Office (FCDO) in 2020 likely prompted some officials to hope for increased funding for the former FCO, which had long been poorer in comparison to DFID; in the event, large proportions of the funding ended up with the Home Office.
The next government should address the muddling of responsibilities that comes from multiple departments spending money classed as aid, and situate oversight and accountability for this spending clearly with the FCDO. It might consider capping the proportion of the aid budget that can be spent domestically. It could also re-emphasize and strengthen former DFID processes that included the obligation to justify aid spending on the basis of expected development results, publish plans and project documents, and use independent evaluations of impact.
Defence spending and investment –
a prioritization challenge looms
The UK government says it plans to spend 2.3 percent of GDP on defence in 2024; NATO figures suggest it has consistently been spending just over 2.1 per cent of GDP on defence from 2014 to 2023. The current government has expressed the ambition to raise this share to 2.5 per cent by 2030, and the Labour Party has said it would do so ‘as soon as resources allow’. But questions remain about how the increase to 2.5 per cent will be funded, and given the threats the UK faces, especially of security crises in Europe, a target of spending at least 3 per cent of GDP on defence would be better.
Recruitment and force size are both worries. The UK has just over 152,000 full-time personnel in its armed forces. Current targets are to reduce this to around 30,000 personnel each in the Royal Navy and Royal Air Force, and to 73,000 in the Army (down from a 2015 target of 85,000). Recent warnings suggest force sizes may end up even lower, however, as people are leaving the armed forces faster than they can be enlisted. Despite being about the sixth highest military spender in the world, the UK has problems with equipment and weaponry. It has suffered highly publicized procurement delays. In addition to equipment quality, there remain concerns about limited reserves of warships (many of which are ageing beyond planned operational lifespans), modern armoured vehicles (which have been plagued by procurement problems) and combat aircraft. The war in Ukraine has intensified scrutiny of a number of critical gaps in the UK’s capabilities – particularly in munitions stockpiles, but also around the UK’s readiness to meet its commitment to field a full warfighting division for NATO without support from an ally or addressing logistics gaps.
The fiscal trade-offs around defence are formidable. Some of the significant drivers of UK defence spending, beyond personnel, are expected to be in modernization of nuclear weapons systems and modernization of the Army. Delivering in these two areas alone, especially given the risk of budget overruns, will be challenge enough for the next government.
The war in Ukraine has intensified scrutiny of a number of critical gaps in the UK’s capabilities – particularly in munitions stockpiles, but also around the UK’s readiness to meet its commitment to field a full warfighting division for NATO without support from an ally or addressing logistics gaps.
Yet if it does not spend more, the government will have to reduce the range of things it asks the military to do. An interim goal might be reversing the projected shrinkage of the Army. This would require better retention and use of reservists, improvements in recruitment and housing, and credible plans to meet the UK’s full commitments to NATO. Priorities should also include replenishing stocks of equipment, weapons and munitions, supporting Ukraine, and continuing to support AUKUS and GCAP.
Meeting a goal of spending 3 per cent of GDP on defence would help with these efforts. Spending better is also feasible by addressing long-recognized problems in procurement. This means making the UK’s defence procurement entities more accountable to parliament; ensuring there are fewer changing, complex and detailed requirements for weapons systems; and placing a greater focus on incremental procurement and getting the basics right. Bolstering UK industry to sustain military supplies to Ukraine should also be a priority.
Some of the UK’s investments in defence, science and technology could help Britain retain its competitive edge economically in addition to contributing to its hard power. The AUKUS pact has the potential to create significant numbers of jobs and stimulate investment in industrial centres such as Barrow-in-Furness. Pillar 2 of AUKUS commits partner countries to developing critical technologies together. But uncertainties about the funding and purpose of Pillar 2 have led to delays and a lack of engagement with the private sector, despite some evidence of progress – for example, in the UK and Australia’s joint statement to collaborate on quantum technology. Some research suggests that China is ahead in the development of most of the technologies covered by AUKUS. The next UK government might strengthen Pillar 2 by exploring other sources of investment. This could include structures intended to encourage more private investment, such as the AUKUS Defence Investors Network or the Quad Investors Network (the latter is linked to the ‘Quad’ strategic security dialogue between Australia, India, Japan and the US). The UK could also explore expanding Pillar 2 of AUKUS to include partners in Asia, or to include Canada and New Zealand (the other two members of the Five Eyes intelligence alliance).
Investing in science and technology
In a more competitive world, investing in strategic assets at home is important to global power. The UK’s science and technology base is important for prosperity, and for unlocking productivity and efficiency gains which the economy – and public services specifically – badly needs. But science and technology power can also be mobilized in service of foreign policy. Health research innovation driven by the UK – enabled by a public health infrastructure that supports large-scale clinical trials – led to the discovery of one of the first effective drugs to reduce COVID-19 mortality. British research institutions played a significant role in the decades-long development of the first successful malaria vaccines; in October 2023, the World Health Organization recommended for widespread use a vaccine developed by the University of Oxford, the Serum Institute of India, and biotech firm Novavax. Science and technology development is also an area of global strategic competition. Cutting-edge technologies are sources of power, and authoritarian states, especially China, have long sought to influence their development. The UK has an interest in ensuring that its own science and technology sector is competitive.
But the UK’s level of investment in this sector is lower than in countries like South Korea and Israel. The UK’s strength is arguably reliant on one or two outlier institutions. Its research hubs badly need investment – especially in laboratory space, education and skills. The next government should ease barriers to investment, improve infrastructure (notably for power supply, 5G telecoms and broadband), and set consistent policy that gives the private sector certainty. The latter is especially needed on immigration, so that research institutions and companies can attract talent in strategic sectors. Policy may become a trade-off between the Home Office, seeking control of immigration, and other government departments seeking skilled workers. Appointing a cross-departmental minister for immigration or otherwise managing these tensions might help ensure immigration policy is more aligned with broader objectives.
The UK also faces competition from other powers that are accelerating investment in strategic technologies, as the US and EU have respectively done through the 2022 Inflation Reduction Act and the 2023 European Chips Act. But the UK is not a continent-sized bloc like the US or EU, and lacks the resources and manufacturing base to compete with them.
The next government might consider a more targeted approach supporting the infrastructure for promising science and technology. The strategic industries of the future may well benefit from some state-backed infrastructure. Advances in AI require huge amounts of computing power and resilient semiconductor supply chains. Green technologies, from wind power to electric vehicles, require large-scale manufacturing and nationwide rollout of infrastructure such as charging points and electricity storage. The next government should therefore make targeted investment where the UK has an existing advantage from its research base, and should develop a clearer strategy for diversifying supply chains for other critical and green technologies.
