MoD accused of using ‘creative accounting’ to meet Nato commitment on defence spending

Ministers have only been able to meet their Nato commitment to spend two per cent of GDP on defence by “creative accounting”, a committee of MPs will reveal.

The Commons Defence Committee said the inclusion of items such as more than £1 billion of pension payments was the only means by which the Government was able to meet Chancellor George Osborne’s pledge to abide by the target announced in last year's summer Budget.

The Committee said ministers also had to include measures such as intelligence-gathering - which were not previously counted as defence spending - in order to make the figures add up.

While the changes were in line with Nato guidelines, the Committee warned that this “redefinition” to some extent undermined the Government's claims that the 2 per cent figure represented a significant increase in defence spending.

“We note that the Nato minimum would not have been fulfilled if UK accounting practices had not been modified, albeit in ways permitted by Nato guidelines,” it said.

“The only way that the Ministry of Defence can refute claims of ‘creative accounting’ is to outline, clearly and unambiguously, what the new inclusions are, how much they constitute, and from which department each was previously funded.”

The Committee also called on ministers to explain how they would continue to meet the 2 per cent target for the rest of the parliament given the pressures from pay and fact that this year's total included a number of one-off items which would not be repeated in future years.

It warned that while the 2 per cent figure was valuable as a “political statement” of the UK's commitment to defence, it did not guarantee that the country would have the resources it needed to protect itself from the various threats to British and Nato security.

“We remain to be convinced that the current financial settlement is sufficient to rectify the decline of defence as a national priority,” it said.

“The Government must be clear that 2 per cent is a minimum - not a target - and be prepared to increase defence expenditure further in order to reflect the increasing threats faced by both the UK and our allies.”

The Committee chairman, Julian Lewis, said: “It's good news that we have managed to achieve the per cent promise for defence spending but if the MoD has only achieved this by including things like war pensions or intelligence-gathering which previously came under other budgets, you wonder what effective, battle-winning spending increases have actually been made.

“The MoD have shed insufficient light on this confusion.”

But an MoD spokesman said the report confirmed that all UK spending on defence - including intelligence, cyber and war pensions - fell within the Nato guidelines.

“When defence spending will increase by £5 billion over this parliament, it is nonsense to suggest there is no new funding,” the spokesman said.

“Our plans will deliver more ships, more planes, more troops at readiness, better equipment for special forces, and more on cyber to help keep Britain safe.”

But the shadow Defence Secretary, Emily Thornberry, said it was increasingly clear that the 2 per cent commitment is being delivered not through increases in frontline defence spending but by “fiddling the books”.

“Time and again on defence, the Tories are shown to be all rhetoric and no reality, and it is our armed forces who are paying the price,” she said.