![](https://www.defence-and-security.com/wp-content/uploads/sites/19/2016/06/roberto-catarinicchia-A4TwTyERnJA-unsplash-428x241.webp)
The UK is ranked sixth globally in terms of military expenditure and has been facing constant budget cuts over the 2012-16 period in accordance with the nation’s aim of reducing overall expenditure. UK defence expenditure registered a negative compound annual growth rate (CAGR) of 2.42%, declining from $60.0 billion in 2012 to $54.4 billion in 2016.
The country actively participates in peacekeeping missions all over the world, with established bases in the strategically partnering nations. For instance, it has a naval presence in Bahrain and is trying to establish a permanent base there. The UK took part in the operations in Afghanistan, ending combat operations in 2014.
The removal of troops from Afghanistan will affect defence expenditure, and the budget cuts and resource optimisation suggested by the ‘Strategic Defence and Security Review’ are expected to have a significant impact as well. However, the country has deployed more than 1,600 troops in Jordan against IS, which has increased the country’s peacekeeping expenditure in 2016. The UK defence budget, which comprised 1.8% of GDP in 2016, is expected to remain the same over the forecast period to 2021.
Foes old and new
The recent terror threats from organisations such as IS and Cold War-related insurgencies such as Russia’s military intervention in Ukraine, alongside modernisation programmes, lead to the implication of considerable budget increases over the forecast period when compared with the historic period. It is expected that the UK will increase its defence budget with a CAGR of 3.09% over the forecast period.
Revenue expenditure forms the largest share of the UK defence budget, with an average allocation of 78.0%, and the remaining 22.0% assigned for capital expenditure during the historic period. Expenditure for revenue purposes is expected to dominate the budget to 2021; its allocation is expected to increase to an average of 78.9%. Correspondingly, the share for capital expenditure is projected at 21.1%. The procurement of defence equipment and services, and army, navy and air force expenditure together constitute defence capability expenditure, which accounts for over 90.0% of the UK’s defence expenditure.
Despite budget cuts, the UK Government plans to go ahead with the procurement of new Chinook helicopters, the life extension of Apache helicopters and the upgrade of Puma helicopters. Additionally, it is procuring new armoured fighting vehicles and ballistic missile submarines, as well as working on the construction of two new Queen Elizabeth-class aircraft carriers. Key opportunities for companies are expected to be in sectors such as submarines, ballistics, multirole aircraft, IT networking, facilities management, multimission helicopter MRO and police modernisation.
Home and away
The UK’s homeland security expenditure -spending on internal security, maintaining law and order, judiciary and prisons, and other related activities – was valued at $23.9 billion in 2012, declining to $21.3 billion in 2016, registering a CAGR of -2.93%. Over the forecast period, owing to modernisation plans, the allocation in terms of value is expected to rise. Furthermore, threats from internal and external terrorist groups, the procurement of modern weapons for police personnel and strengthening border security will be driving the country’s homeland security expenditure over the forecast period.
The homeland security budget stands at $22.6 billion in 2016 and is predicted to reduce to $22.3 billion by 2021, reflecting a CAGR of -0.36%.
The four main market-entry routes into the UK defence industry are international joint weapons programmes, the formation of subsidiaries, joint ventures and the acquisition of domestic companies.
However, the UK had constant budget cuts during the historic period in order to reduce the country’s fiscal deficit. As the UK procures the majority of its defence equipment from domestic companies or from companies in the EU, the market seems unattractive for foreign OEMs until one of the aforementioned methods is used to enter the market. With further developments of the domestic sector, it is anticipated that the country will further reduce imports of defence equipment.
The UK is one of the major military spenders across the world and is expected to continue the trend during the forecast period. Counterterrorism measures, modernisation programmes and peacekeeping operations are the key factors expected to stimulate defence expenditure. Currently, the UK Ministry of Defence (MoD) is embarking on budget cuts, a trend expected to continue until the end of 2016. This is primarily due to the government’s steps to balance its overall expenditure through the restructuring of operations, efficiency enhancements and erasing redundancy. Another contributing factor is the end of the war in Afghanistan and the withdrawal of troops from the region at the end of 2014.
However, it is forecast that the government might increase the budget by 6.2% in 2017 due to planned procurement and efforts to strengthen border security. Over the forecast period, capital expenditure is expected to increase steadily due to the government’s procurement plans.
The country’s homeland security expenditure, which recorded a CAGR of -2.93% for 2012-16, is expected to revive in the forecast period. The projected CAGR for homeland security for 2017-21 is expected to be -0.36%. The increasing homeland budget can be ascribed to the nation’s mission to provide better security to its citizens and defend against external threats.
Homeland security expenditure is driven by increasing threats to cybersecurity, terrorist activity and increased border security. A number of companies based in the UK want the government to take greater initiative in closing foreign deals, as companies believe government-to-government relationships play a key role in this regard. Therefore, with more government intervention in defence deals, it is expected that the domestic sector will grow further and, thus, investments made in the UK’s domestic defence market could prove to be beneficial.
Taking on terrorism
Following the UK’s international military operations against the Taliban and al-Qaeda in Afghanistan, the level of terrorist activity in the UK by extremist groups has increased considerably in the past few years. The country’s close association with the US makes it even more vulnerable to terrorist attacks, and the growing presence of IS in Europe is further intensifying the threat of terrorist activities in the UK. The recent attacks in Paris and Brussels are forcing the country to expend more effort and money to ensure the nation’s security.
The current threat to the UK from international terrorism is considered to be severe. Within mainland UK, the threat level is substantially high from international terrorism and moderate from terrorist groups based in Northern Ireland.
For example, in September 2013, suicide attacks were planned but were disrupted by the arrest of 11 terrorists alleged to be involved in the plot. In July 2013, Pavlo Lapshyn, a Ukrainian student that wanted to start a "race war", attacked a mosque in Tipton with an explosive device. In 2016, various intelligence teams from the UK and the US alerted the country to a possible terror attack in London, which increases concern.
To fight against these terrorist attacks and to ensure border security, the government has introduced eborders, a system that electronically collects and checks individual passenger details against UK police, security and immigration watch lists. Technology such as full-body scanners and boarding pass scanners will be installed at all airports to prevent terrorist groups from entering the country.
Additionally, the government formed the National Counter Terrorism Security Office, a police unit that works to protect crowded places, as well as assisting the Centre for the Protection of National Infrastructure, in ensuring the security of the country’s critical infrastructure.
UK armed forces are also involved in a significant number of peacekeeping operations across the globe. The UK is fifth in terms of contributions to UN peacekeeping missions as of July 2015, accounting for 6.68% of the total contribution. The country has deployed troops for peace-support operations of the United Nations Organization Stabilization Mission in the Democratic Republic of Congo (MONUSCO), UN Peacekeeping Force in Cyprus (UNFICYP), United Nations Multidimensional Integrated Stabilization Mission in Mali (MINUSMA), and the UN Mission in Sudan (UNMISS).
Furthermore, the UK Government has extended its support to the European Union peace operations in Bosnia and Herzegovina, and Georgia. The country also has 9,500 troops deployed in Afghanistan and supported the Afghan Government with its military until 2014.
Expenditure on various peacekeeping operations will be driving the country’s defence budget over the forecast period. In addition to this, the country is sending troops to Somalia to counter Islamic militants and continue peacekeeping efforts.