The case against spending targets
Who could dispute either? The former invokes images of the UK doing good across the world, underpinned by a sustainable source of funding that grows or shrinks only in line with ‘what we can afford’. The latter shows our commitment to domestic and global security. Both of those are valid aspirations, either of which could be presumably better achieved with more resources? But they may not.
The problems are these:
- what to spend should be driven by need,
- quantity of spending does not equal quality, and
- spending can have unintended consequences.
The aid target is a great case study on all of these. Sending money to areas of the world in need is not difficult. Ensuring it ends up supporting those needs, rather than lining the pockets of dubious regimes, crowding out domestic investment, or creating dependency, is extremely difficult. When the aid target was imposed the Department for International Development it found it difficult to find new projects that met their not unreasonably high standards. They did not hit the target, but with good reason: they didn’t want to spend it unwisely. Begging the question that if the goal of the policy was to increase funding of good quality projects that deserved funding, what was the point of the target?
This is equally true of defence spending. Semi-regular Strategic Defence and Spending Reviews always start with threat assessments, current and future. How to manage those threats comes next, followed by what could be spent, finally what will be spent. The target is irrelevant to both the assessment and final decisions. And so it should be; at time of war for example, the figure could be as high as 50%; in the lull of a long peace well below 1%. A target in that context is meaningless.
Then there are unintended consequences. Rapidly increasing spending on anything tends to cause cost inflation as supply fails to keep up with demand. The UK cannot recruit soldiers or aid workers on magic jobs plantations, it takes time to recruit, train and enable people. Capital equipment and technology does not materialise instantly, particularly not in a military context, it requires time and investment to deliver economies of scale and experience to ensure value for money. Flooding the market with money for future tech, when that tech is at its most expensive, is guaranteed to come with a high degree of waste, something very familiar to those involved in defence procurement.
Ah yes say some, but what about global leadership, if we do x, others will also do x, and more good / stability and peace will follow. This is a dubious argument unsupported by evidence. Self-evidently US military ‘leadership’ for decades has not led to Europe following suit, or neither the US nor UK would be concerned about it. Conversely it has encouraged free riding, as we might expect given the political attractions of diverting domestic resources to higher domestic priorities, the US having generously donated their treasure to keeping allies secure. Appeals to British ‘leadership’ on tackling climate change (for which read overspending on imported obsolescence), or global spending targets for climate mitigation should be treated with equal scepticism on this basis. And then there’s the clear point that if spending targets encourage waste in one country, globalised spending targets merely amplify that issue worldwide.
In short, there is nothing to suggest spending targets have value beyond their appeal as a sales pitch for interest groups. In regards to the public finances, they undermine prudence, creating incentives to splurge. In regards to international co-operation, they encourage complacency, creating incentives to free ride. All of which, long term, builds up to a very unattractive alternative to limited Government, living within its means, only spending where no better alternative exists, in response to clearly identified needs.