A brief look at the British Defence Budget in the 1990s

In the early 1990s, the end of the Cold War allegedly led to the ‘Peace Dividend’ in Britain and elsewhere. The British Government adopted large and significant cuts to the defence budget.

Despite that, the Government did not reduce strategic commitments, and the British Armed Forces became increasingly overstretched and overworked. The Defence Reviews of the 1990s also led to the increased normalisation of the primacy of short-term considerations in the economic field over the long-term demands of the Defence of the Realm.

The annual report of the International Institute for Strategic Studies (IISS), the so-called “Military Balance 2022”, indicated that in 2021 the United Kingdom – with a defence budget of 71.6 billion dollars – was the third largest defence spender in the world after the United States ($754bn) and China ($207.3bn), followed relatively close by India ($65.1bn).

A few years before that, in 2017, the UK ranked sixth worldwide with a defence budget of $50.7bn, behind the United States ($602.8bn), China ($150.5bn), Saudi Arabia ($76.7bn), Russia ($61.2bn), and India ($52.5bn); although the calculations for the Saudis included expenses with internal policing and derivatives. Additionally, the British position in 2017 was closely followed by France ($48.6bn) and Japan ($46bn).

Although at first sight, 2017 might be seen as a low point for the British defence budget, spending had increased in that year for the first time since 2009. Nevertheless, even in 2022, with its $70bn military budget (falling behind Russia’s spiralling 86bn defence expenditure due to the war in Ukraine), when considering real-term adjustments, the UK had yet to recover the same defence spending levels it had in 2009-2010. Even back in 2010 the budget in relation to the UK’s Gross Domestic Product (GDP) was relatively small compared to its size in 1990.

In short, from 2010 to 2017, or even until 2020, when the budget suffered a real-term contraction, successive British Governments presided over declining or stagnant funding for the Defence of the Realm. The contracting nature of the British defence budget is not an unexpected outcome of the British Government’s Defence Policy in the last decades. In contrast, its successive contractions, followed by limited relief attempts to withhold the cutting spree of the Treasury, is a longstanding planned policy reinforced in the 1990s by the end of the Cold War and the “Peace Dividend” mentality that quickly took hold of the then British Government led by John Major (1990-1997).

The Peace Dividend can be summarised as the policies put in motion by the Western powers following the perception that the dissolution of the Soviet Union in 1991 opened the way for reduced defence spending. The rationale was simple: the end of the Soviet Union meant that the West’s primary strategic antagonist was gone. At the same time, its main successor – the Russian Federation – was a shadow of Soviet power and appeared to be willing to engage with the West in amicable terms in the 1990s. Hence the downgrade of the military capabilities, particularly in Europe.

Britain is one the prominent examples of the Peace Dividend put in practice with lasting consequences for its military strength. In 1990, the Defence Review “Options for Change”, essentially an offspring of the last term of Margaret Thatcher’s Government (1979-1990) but implemented under John Major, established the strategic posturing of the British Government in a world of rapidly changing strategic concerns. By the time Options for Change was published, Britain had regarded that the nature and extent of the Soviet threat were under a transformation that could benefit the West. Despite that, most of the cuts laid down by the 1990 Defence Review took a risk when it predicted that the ongoing “changes” would allow severely reduced military spending.

In 1990, the United Kingdom spent roughly 4.1% of its GDP on the Defence budget. Spending was relatively stable since 1988 but smaller than the 4.7 to 5% figures spent annually between 1972 and 1981. However, the 1980s witnessed the Defence budget rising considerably for the first time since the Korean War (1950-1953). Due to the Falklands War and the subsequent need to replace assets lost in that conflict, the budget of Ministry of Defence grew from 4.8% of the GDP in 1981 to roughly 5.4% in the following three years before falling to 4.7% in 1986. The assumptions made by the 1981 Defence White Paper (also known as “John Knott’s Review” after the then Secretary of State for Defence) were effectively broken by the war in the South Atlantic, leading to many of the planned expenditure cuts being cancelled and others delayed. By 1987, five years after the Falklands War, the budget had shrunk to 4.5% of the GDP. This decrease was followed in 1988 by another round of minor cuts and a lack of further investments to keep the Defence budget in line with the UK’s economic growth, leaving the spending at the already mentioned 4.1% of the GDP.

So, within one decade, the Ministry of Defence (MoD) witnessed its budget grow by approximately 15% between 1982 and 1985 in relation to its 1981 spending just to see it falling by slightly more than 20% by the end of the decade. As the 1990s approached, the concept of a defence budget close to 5% became increasingly distant. 1985 was the last year with a British Defence budget above 5% of the GDP. Although the “Peace Dividend” had yet to come, the context that the Ministry of Defence found itself in the late 1980s was already unfavourable. The age of the 5% budget was over, but what was to come would be much more severe than anticipated by some officials. The new age inaugurated by the “Options for Change” was the “age of the 2.5% Defence budget”. Even that period would not last long before being replaced by the minimum 2% NATO spending target.

Following the decisions of the 1990 Defence Review, cuts to the British Armed Forces were extensive. Total personnel reductions throughout the Services of the Armed Forces reached approximately 18%. The overall size of the British military would be cut from 306,000 personnel to 255,000 within five years. The Army received the bulk of the reductions, downsizing from 160,000 to 120,000 between 1990 and 1995. Concomitantly, the Royal Navy had its fleet of destroyers and frigates reduced from 48 to 40, reaching the levels proposed by John Nott’s Review in 1981, and part of the diesel-powered submarine fleet would be decommissioned without replacement; the non-strategic submarine fleet fell from 28 vessels to 16. Moreover, 15% of the Nimrod Maritime Patrol Aircraft were retired. According to the Ministry of Defence, the Government reached its targets in 1994. Showing that the axe of the Defence cuts would go further, in 1995, the Forces mustered roughly 234,000 personnel.

Officially, these changes aimed to establish “smaller forces, better equipped, properly trained and housed as well as motivated”. Despite that, as soon as the British Government published the Review, its assessments began to be questioned by geopolitical events worldwide. Amidst severe Defence cuts, Britain faced crises in the Middle East and the Balkans. These issues were the outbreak of the Gulf War in August 1990 and the civil war in Yugoslavia; both would – with different demands and intensity – involve London diplomatically and militarily. Reduced resources dealing with basically unchanged commitments would stretch thin the Armed Forces. As Professor Stuart Croft argued, in the early 1990s, “commitments have only been trimmed, while resources have been cut” (Croft 1991).

Therefore, this practice inaugurated a phase in the British military that made the term “overstretched” a common part of the defence vocabulary. In the 1990s, when the topics of military commitments, spending, and long-term strategy of the country were debated by Parliamentary Committees, “overstretch”, “overworked”, and similar terms appeared even more frequently than in the previous decades. Sources within Parliament, the Ministry of Defence, and academia regularly warned the British Government that using the changing strategic scenario as an excuse to “balance the books” of public expenditure would increasingly leave the UK unprepared to act independently, even in conflicts similar to the Falklands War. In other words, the warning was clear: Defence Policy guided by the rationale of HM Treasury is no proper Defence Policy but a scapegoat for short-term economic challenges.

Only four years after Options for Change and faced with an economic downturn, the British Government disclosed that it intended to perform a small review of the state of the Armed Forces. The 1994 “Front Line First: The Defence Cost Study” paper aimed at applying cuts to the Defence budget without affecting the “front line forces” of the military. Targeting “headquarters, stores, infrastructure, manning and all other aspects of defence administration and support”, the Defence Cost Study would inevitably affect the front line. Ultimately, the Armed Forces would lose 11,600 active personnel, with the Royal Air Force laying off 7,500 personnel, the Army 2,200, and the Royal Navy 1,900. The civilian staff of the Ministry of Defence was also reduced by over a quarter. Notably, the MoD Procurement Executive – replaced in 1999 by the Defence Procurement Agency – lost 500 members of its staff, meaning that slightly more than 7% of the total civilian positions cut (around 7,000) in 1994 were responsible for equipment procurement for the British military.

Front Line First had at its core the objective of not affecting the operational capability and overall strength of Britain’s Armed Forces. Nevertheless, the reality differed from what the Government expected or argued. Beyond the additional loss of 11,600 troops, reducing the active personnel to 234,000 in 1995, the review performed cuts to the logistics of the Armed Forces precisely at a moment when Britain was reorienting its military focus away from a “threat-based defence policy” toward a “capabilities-based policy”, which required frequent deployments of forces outside of the traditional North Atlantic-Europe-Mediterranean area of the Cold War. Thus, Defence Policy contradicted itself when cuts to the logistics capabilities were made. At the same time, the overall Defence posturing of the country signalled a desire for renewed expeditionary forces for “out-of-area” operations. By the end of the decade, the British Armed Forces were more expeditionary than in the late 1980s, however, “Options for Change” and “Front Line First” had left a profound mark on the overall organisation and strength of the British military.

Following the Labour victory at the General Elections of 1997 under the leadership of Tony Blair (1997-2007), the new Government announced that a new Defence Review would be published within one year. The 1998 “Strategic Defence Review (SDR): Modern Forces for the Modern World” was the last major review of the 1990s, forming part of the “90s triad” of reviews that continue to influence the organisation and capabilities of the British Armed Forces in the early 2020s.

Through the 1998 SDR, the British Government wished to accelerate the reorganisation of the Armed Forces’ expeditionary focus, increasing inter-service interoperability and exchange of expertise while eliminating duplication of resources. This tri-Service approach was epitomised by creating up to two Joint Rapid Reaction Forces (JRRFs), each having approximately a contingent of 15,000 personnel. Formed from a pooling of units from all three Services of the British Armed Forces, the JRRFs were envisaged as high-readiness and flexible forces that could be promptly deployed worldwide for military operations in medium-intensity conflicts. The 2001 Exercise Saif Sareea 2 tested the concept of Rapid Reaction Forces, gathering more than 22,500 British personnel in Oman.

With two JRRFs, Britain could sustain two medium-scale expeditionary operations across the globe. The underlying aim in London was to maintain a warfighting capability with a global reach that could be deployed to more than one region, a feat that would sustain the country’s position as a first-rank military power. The 1998 SDR made additional commitments to expanding the British expeditionary forces. Amongst those commitments, the plans for acquiring two new large aircraft carriers – later becoming the Queen Elizabeth class, commissioned between 2017 and 2019 – and new strategic air and sealift capabilities are worth noting.

Despite the positive prospects that the 1998 Strategic Defence Review brought to the Defence Policy, particularly on the issue of future capabilities, it continued the trend of cuts and the reluctance of the Exchequer to fund the promises made in the Review, albeit at a reduced intensity. Regarded as “marginal” reductions to the Royal Navy and Royal Air Force and affecting “older” assets, both Services witnessed the third significant round of cuts within eight years, not considering the “invisible cuts” performed by the retirement of units ahead of plan.

The Royal Navy’s fleet of frigates and destroyers was reduced from 35 to 32. It is worth highlighting that the numbers discussed in the 1990 Options for Change were cuts from 48 to 40 vessels; however, by 1998, the fleet was already at 35 frigates and destroyers. Similarly, the attack submarine fleet was cut from 12 to 10. These changes also led to a loss of 1,400 active personnel. Concomitantly, the RAF’s losses amounted to three squadrons. Concerning aircraft assets, the RAF was set to be reduced by 10% in the following years. Lastly, as part of restructuring the British Army, the number of main battle tanks (MBT) was cut, and the size of the Territorial Army (or Army Reserve since 2014) was reduced from 56,000 to 40,000 volunteers.

Compared to its two predecessors (1990 Options for Change and 1994 Front Line First), the 1998 SDR’s outcome was relatively less severe for the British Armed Forces. Even though the Government performed further cuts, the balance tilted favourably to the planned and ongoing additions in capability. Air-lift and sea-lift capabilities were to be increased, the Royal Navy would have new and more capable aircraft carriers replacing the Invincible class, the Army would receive the planned order of Challenger II MBTs, and the RAF would witness the Eurofighter Typhoon enter service in the following years. However, reluctance from the Chancellor of the Exchequer to fully fund the Review would weaken the idea of a “relatively favourable outcome” for the Armed Forces.

The three reviews between 1990 and 1998 gradually changed the profile of the British Armed Forces while leading to the country to the age of the 2.5% Defence expenditure that would last roughly until 2010. In addition, by the turn of the millennium, Britain’s Armed Forces were more oriented toward small to medium-scale conflicts, with growing assets oriented to tackle less conventional and non-state-based threats while focusing on areas outside of the North Atlantic-Europe axis. This would be done with a highly technologically equipped force but considerably downsized compared to its organisation in the 1980s. This orientation prevailed in the following decades, even though the idea of “downsized but capable” forces began to be increasingly questioned by the changes in international politics.

Although without major reviews between 1998 and 2010 – the 2002 SDR New Chapter and the two White Papers of 2003 and 2004 are not regarded as major policies – operations in Afghanistan, Iraq, Sierra Leone, and the Balkans, and growing economic troubles due to the 2007-2008 Financial Crisis soon led to additional cuts on a force already stretched thin by commitments around the world and dwindling resources. The 2010 Defence Review published by the coalition under David Cameron (2010-2016) unleashed another severe blow to the Defence budget, mimicking the 1990 Options for Change and 1994 Front Line First in the sense that considerations from the Treasury dominated the decision-making process and strategic risks were openly taken. However, in 2010, differently from the early 1990s, the cuts hit another level for much of what was left could be considered the “bare minimum” for the requirements of the UK. Yet, the 2010 Review avoided contemplating that glowing issue.

Therefore, another legacy of the British Defence Reviews of the 1990s is their normalisation of expenditure cuts on behalf of economic issues instead of strategic ones. The 1990s witnessed the British Defence budget dropping by roughly a third in relation to the GDP; some figures show a 39% reduction. Exact numbers vary according to the source. For example, the Stockholm Peace Research Institute (SIPRI) indicates that Defence spending in Britain fell from 3.6% in 1990 to 2.1% in 2000. James Rogers (2017) indicates that the expenditure was cut from roughly 4.1% to 2.5% of the GDP within the same timeframe. Despite these divergences, the fact that a severe reduction of the Defence budget occurred in the 1990s remains.

A further consequence is the effect it had on the British military capability. On the one hand, the UK had, in the early 2000s, an increasingly expeditionary force that could sustain a warfighting capability for up to two medium-intensity conflicts – involving no more than 15,000 troops – overseas. On the other hand, the UK did not relinquish commitments after opting for smaller but technologically advanced and highly trained forces. There are limits to what the newest “state-of-the-art” military asset can perform without being over-stretched and overworked.

Lastly, the 1990s can be seen as a period when the trend of Defence-related budgetary readjustment of post-Second World War gathered a renewed momentum and reached a threshold that could start to damage the British position as one of the leading military powers in the international system. Cuts in the aftermath of the Second World War and, to a lesser extent, the Korean War were expected and regarded as necessary to bring back the economy out of its warfighting orientation. Additionally, several reductions in British Defence expenditure during the Cold War were considered part of the changing position of the United Kingdom in the world. The UK had declined from the Hegemonic Power or Superpower of the nineteenth century and first decades of the twentieth century to a Great Power focused on Europe and neighbouring regions while balancing the threat posed by the Soviet colossus.

By the 1990s, even though the idea of the UK as a Great Power – although not at the same level as the United States – was quite vivid within the ranks of the British Government, the strategic considerations over the Defence budget were frequently superseded by short-term demands and rationale from the Treasury. This solidified the trend of the “Treasury’s primacy” that had been in the making for decades but was relatively constrained due to the threats of the Cold War. In the following years, this trend continued relentlessly, epitomised by the 2010 Defence Review that casts its long shadow over the British Armed Forces in the early 2020s.

Within this context, the lack of willingness of the British Government to address the funding issues of the Armed Forces is not without consequences for military capabilities and national security. However, aspirations for a “Global Britain” remain, and despite the UK ranking as one of the world’s largest economies, it has difficulties funding a force to match the country’s international position. A similar issue is the absence of a national strategy with a long-term view with proper funding and inter-party support that would indicate a Policy of State instead of “here-today-gone-tomorrow” Policies of Government.

Thus, with varying intensity, since at least the 1990s, Defence Policy has been largely determined not by a set of strategic priorities but rather by the Treasury. Ultimately, cost, not military necessity and strategic considerations, is the prime criterion of Defence Policy in the UK. This issue leaves the country unable to completely fulfil its role as the foremost military power in Europe while protecting its interests in an international system marked by inter-state rivalry and Great Power competition.

More than discrete increases in Defence spending, particularly between the late 2010s and early 2020s, might be needed to remove the lasting legacies of previous Defence Reviews. In 2023, as the British Government stated that it would only commit to a 2.5% Defence expenditure when the economic conditions allow, it remains clear that the Defence Policy – and the Defence of the Realm – is still largely under the whip of the Treasury.