“Now thrive the armourers … They sell the pasture now to buy the horse.” (Henry V)

AS KEIR STARMER seeks to lead Europe in stretching out the Ukraine war to the crack of doom the issue of the cost of defence spending will return as a vital topic to Britain.

It would however be a mistake to focus only on the direct support to Ukraine, for the indirect costs to Britain of the energy crisis which has accompanied the tensions between Russia and the West have been much higher.

These latter costs turn the impact of the Ukraine war on Britain into something between the totality of the two world wars and the “expeditionary” wars that Britain has been involved in since 1945 from Malaya to Libya.

Direct support to Ukraine

In the first two years of the war, according to the most recent government figures, Britain gave £12.8 billion to support Ukraine: £7.7bn in military and £5bn in non-military support in the form of loans. There are various estimates including one, the Kiel Institute, which includes the cost of hosting Ukrainian refugees. Excluding that we can stick with the official estimate for the first two years.

Further amounts have been pledged in the last year. £3bn is to be spent in 2024 to 2025, together with loans and export finance arrangements. These include a £2.26bn loan to be repaid using the profits generated by confiscated Russian assets, and £3.5bn of export finance for military equipment.

Indirect costs of the war to Britain

The energy crisis emerged towards the end of 2021 and sanctions against Russia and the Western sabotage of the Nordstream pipeline sent prices rocketing. Household energy prices in Britain doubled between October 2021 and October 2022, with all the attendant effects on prices. The rise in the price of gas especially affected the price of fertilisers. Costs to farmers rose by 39 per cent, raising prices and threatening future production.

Inflation rose to 11 per cent in October 2022 and with worsening terms of trade the Bank of England forecast the “longest recession in 100 years.”

The autumn Budget 2022 therefore announced a package of measures, the most important being the Energy Price Guarantee together with various forms of household support. The Sunak government later reported that “the government cushioned the effect of the rising cost of living, introducing support worth £94bn over two years and paying almost half of households’ energy bills from October 2022 to June 2023.”

Combined impact

If we therefore combine the direct support to Ukraine with the indirect costs to Britain, we have a figure of between £106.18bn over the first two years of the war. That is, about £53bn per year.

For comparison, annual defence expenditure in 2022-3 was £54bn. So-called “benefit fraud,” of which we hear a great deal, was £7.4bn in 2024.

Such huge amounts delivered a short sharp shock to Britain’s budget deficit in the period, for which Rachel Reeves now wishes to make us pay.

In addition, the increased prices for energy imports have added to Britain’s already inflated balance of trade deficit. According to the Energy and Climate Intelligence Unit: “Britain will have spent in the region of £60–70bn buying gas on wholesale markets in the 12 months since February 24 2022, adding around £50–60bn of additional costs to the British economy compared to before the gas crisis and pandemic.”

The current situation

From early 2023 energy prices began to decline and inflation, having reached a peak of 11 per cent in October 2022, was 4 per cent by January 2024. By this stage the Energy Price Guarantee was effectively no longer operating and other measures were winding down. Hence the figures for the third year of the war are much lower. However, since October 2024, prices began to rise again, with households now without the same “cushioning.” According to End Fuel Poverty Coalition, once the new price hike (the “price cap") of 6.4 per cent is implemented from April to June, average annual household bills for those paying by direct debit will be £1,849. This is £800 more than the same bill in 2020/21 or a 77 per cent increase.

Public loss, private gain

The last two winters have seen 16 per cent of British adults (8.8 million people) living in cold damp homes, and “Dickensian conditions,” which have a litany of health effects. The health effects of damp and mould include respiratory problems and infections, increased risk of heart disease, heart attacks and strokes, poor mental health, dementia, hypothermia and slower recovery from injury. Yet, we are told, the NHS must “live within its means” with no commitment to training the doctors and nurses that are needed: in secondary care alone there are nearly 108,000 vacancies in England.

Energy debt is an emerging crisis. Households held a record £3.7bn of debt and arrears owing to energy suppliers. For those who do not have an arrangement to repay their debt, the average arrears is over £1,500 on their electricity bill and over £1,300 on their gas.

Meanwhile, 20 energy companies made a collective £483bn in profits in the course of the energy crisis. Over the winter 2022/23 when the average household energy bill would have hit £4,279, the typical family was saved £1,300 as the government covered the difference in price. This was achieved by compensating the energy companies for the difference.

What lies ahead?

Starmer intends military spending to rise to 2.5 per cent of GDP from April 2027 reaching 3 per cent in the next parliament. Under Sunak there was sufficient fear of British reaction to the energy crisis to seek to “cushion” us people from some of the worst.

How will Starmer pay for the new military spending without breaching his own sacred “fiscal rules?” Only, as Rachel Reeves has already intimated, by a slash-and-burn approach to all forms of welfare and benefits. How will the British people react without the “cushioning” of the early years of the war? Aye, there’s the rub.