U.K. Unexpectedly Commits to Meeting NATO Defense-Spend Goal

Updated on

Workers pass the bulbous bow section of the Royal Navy's second Queen Elizabeth class aircraft carrier, the Prince of Wales, manufactured by the Aircraft Carrier Alliance, a joint operation between BAE Systems, Thales SA and Babcock International Group Plc, at Babcock shipyard in Rosyth, U.K., on March 25, 2014.

Photographer: Simon Dawson/Bloomberg

Britain said it will spend a sum equal to 2 percent of gross domestic product on defense through the end of the decade, ending speculation that the new government would fail to meet the funding goal for NATO members.

Military outlay will reach the target each year until the end of the Conservative administration’s tenure in 2020, Chancellor of the Exchequer George Osborne said in his budget speech to the House of Commons Wednesday. An additional 1.2 billion-pound ($1.8 million) security fund will also be created.

“We know that while those commitments don’t come cheap, the alternatives are far more costly,” Osborne said, adding that he had “delivered security to the people of Britain.”

The chancellor said defense outlay will be “properly measured,” after critics of government policy suggested new items might be folded in to meet the North Atlantic Treaty Organization requirement. Today’s surprise announcement came ahead of a full-scale review of military costs later this year.

“The services will have to demonstrate they are delivering real efficiency and the Strategic Defence and Security Review will allocate the money in the most effective way,” said Osborne, who is continuing with an austerity drive.

BAE Gains

Today’s surprise announcement boosted shares of arms-makers including BAE Systems Plc, Europe’s biggest, which ended the day 3.5 percent higher at 460.90 pence in London, the biggest closing gain since April 17 last year.

“We welcome today’s budget and its focus on long-term prosperity, productivity and national security,” BAE Chief Executive Officer Ian King said in an e-mail. “The pledge to spend 2 percent of national income on defense and the creation of a joint security fund are particularly encouraging.”

Read this next:

Shares of Cobham Plc, a maker of air-to-air refueling technology, rose as much as 2.1 percent.

The U.K. is the only West European country to have met the NATO spending target in recent years, as euro-region nations struggle with sluggish growth. Germany and France say they’ll boost budgets, without committing to meeting the 2 percent goal.

Lieutenant General William Hix, director of strategy at the U.S. Army Capabilities Integration Center, said in an interview last week he was “sympathetic” to the spending challenges facing Britain, where Prime Minister David Cameron won a May election with a pledge to reinforce austerity measures.