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Monday, 12 November, 2001, 10:33 GMT
Spending the war chest
By BBC News Online's Ollie Stone-Lee

Taxes and wars have marched hand in hand over centuries of British history so it is no surprise the campaign on terror has led to speculation over new demands on the public purse.

Income tax was first introduced as a war time measure, with Pitt the Younger emphasising it was important that the rich - those with most to lose from defeat - paid the most.

Earlier, the first period of heavy taxation in Britain came under Richard I, first to finance his crusade and later to pay his ransom, explains Durham University's Professor Michael Prestwich.

I'm surprised we are already having all this political hype that the tax rate might have to rise because of the war

Keith Hartley
Defence economist
"You do not really get systematic national taxation until the late 13th century," he told BBC News Online.

Again war was the reason, this time Edward I's campaigns in France, Wales and Scotland.

Edward's immediate successors sometimes raised taxes on the pretext of finding cash for other purposes when in fact they were driven by the need to raise a war chest.

Link broken

In contrast, cynics now predict Chancellor Gordon Brown may use the war as an excuse for raising taxes to pay for other public spending amid fears of more troublesome economic times ahead.

That is because the traditional link between wars and higher taxes has been broken in recent times.

Royal Marines on exercise in Oman this year
Marines are being kept on standby
No tax rises were needed to fund either the Falklands or Gulf Wars, let alone the campaign in Kosovo.

Although the spending on those campaigns looks high, the Falklands accounted for just 0.6% of government spending and the net cost of the Gulf War was even lower.

Defence experts say the costs to the UK so far of the campaign in Afghanistan have been minimal, with the main outlay the estimated 1m each cost of a few Tomahawk missiles.

Professor Keith Hartley, director of the Centre for Defence Economics at York University, told BBC News Online: "That's why I'm surprised we are already having all this political hype that the tax rate might have to rise because of the war."

'Small rise at most'

Prof Hartley predicts Mr Brown will announce at most a "very small" increase in defence spending at this month's pre-Budget report.

More importantly, he believes the events of 11 September will give the defence chiefs a much stronger case for resisting any plans for cuts ahead.

"You might not get the peace dividend that Gordon Brown might otherwise have seen over four years," he said.

The US terror attacks have already prompted the government to start "a new chapter" to the 1998 Strategic Defence Review, although Defence Secretary Geoff Hoon suggests changes may only mean shifting costs, not increasing spending.

Gordon Brown, who gives his pre-Budget report on 27 November
Brown has stressed the need to control spending
Any greater emphasis on "homeland" security could also be met through the police or, as in the US, by reservists, rather than the regular armed forces.

Prof Hartley suggests forces chiefs may also argue they need different equipment if they are to fight campaigns in such far-off lands as Afghanistan.

The UK's Challenger Two tanks are excellent for use in Europe but lighter vehicles would be quicker to transport across the globe, for example.

There is a possible parallel here to the Falklands campaign.

The 1981 Defence review under Defence Secretary John Nott included major cuts to the Royal Navy.

Just a year later, those plans were sunk when the importance of a naval taskforce was shown in compelling detail in the South Atlantic.

The Ministry of Defence may make history repeat itself on the back of the current military action.

Cash wrangles

Such efforts may not go down well inside the Treasury, which traditionally has seen the MoD as wasteful.

In his book on New Labour, Andrew Rawnsley suggests Mr Brown followed that tradition by demanding swingeing last-minute cuts when the last defence budget was set - until he was outgunned by General Sir Charles Guthrie, then chief of the defence staff, and others.

Rawnsley recounts a rare meeting between the chancellor and the military chief where Mr Brown allegedly said: "You don't think I understand defence, do you?"

General Charles Guthrie
Guthrie is said to have outgunned Gordon Brown
"No, I bloody don't," the general is said to have replied.

The result of the wrangling was the first real terms rise in defence spending since 1985 - albeit by just 0.3% over three years.

Defence spending has halved as a share of GDP from just over 5% in 1984 to 2.5% of GDP this year but Geoff Hoon sees the rise as important.

He said recently: "We have turned that corner. We have started increasing the level of defence expenditure and obviously it's my job on behalf of the Ministry of Defence to continue that trend."

Such an aim can only be strengthened by the current conflict.

Cuts concerns

Liberal Democrat defence spokesman Paul Keetch argues the 3% efficiency savings, demanded by the Treasury from all departments, are in fact particularly hitting the MoD.

"We think that is wrong. I would hope they might actually be scrapped," Mr Keetch told BBC News Online.

He argues the ministry has reached its bottom line on efficiency and the savings in reality will amount to a squeeze on defence spending.

Lib Dems defence spending policy is still under review but the Conservatives are hinting at a more hawkish line.

Shadow defence secretary Bernard Jenkin told BBC News Online: "The fundamental question, which the government must answer, is do the resources mean that our capabilities match our commitments?

'Key shortages'

"The evidence is there are key shortages of personnel, there are key shortages of spares and equipment."

Mr Jenkin says Tony Blair's Labour Party conference speech suggested a widening of the work of the UK armed forces.

The Treasury highlight a 300m underspend over the last three years out of the MoD's 25bn budget (other departments have similar "spending constipation"), as well as new spending flexibility to ease procurement.

Gordon Brown has called for all departments to keep a lid on public spending - his pre-Budget report will prove whether or not the MoD has won an exemption.

See also:

01 Oct 01 | UK Politics
Brown talks tough on spending
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