In September 1938, at the time of the Sudetenland crisis and the Munich Agreement, Britain had undergone a war scare. That autumn, the last-minute preparations for war had thrown light on a wide range of military shortcomings. Of the Royal Air Force’s (RAF) 26 fighter squadrons available for home defence, only six had been equipped with the most modern fighters. A shortage of parts meant that only around half of the RAF’s bombers were ready to fly. The Royal Navy lacked enough smaller escort vessels and minesweepers to protect convoys and keep the sea-lanes clear. The British Army was revealed to have only around one third of the number of searchlights and anti-air guns considered necessary to protect London.

Over the course of 1939, however, confidence had grown. While not all of the previous faults had been rectified, a great many had. By the time of the declaration of war on Germany in September 1939, the RAF had 39 operational fighter squadrons, 26 of those equipped with the most modern aircraft – the Spitfires and Hurricanes that would prove their worth the following summer, during the Battle of Britain. The radar system of early warning stations along the coast was up and running, giving air defence a further crucial boost. The Army, which in September 1938 had only hoped to be able to send two divisions – around 40,000 men – to France was able to have more than 150,000 soldiers and 20,000 vehicles across the Channel by the beginning of October 1939.

British military aircraft production in the first half of 1939 was approaching four times the level of the first half of 1938 and, in September 1939, monthly production outpaced Germany for the first time. The workforce in aircraft factories doubled in the year to June 1939. Tank production, too, was now outpacing that of Germany. The ration books were already printed and more than one and a half million Anderson bomb shelters had already been installed. The United Kingdom felt ready for war.

The British Cabinet, senior civil servants and chiefs of staff that went to war in September 1939 expected a conflict that looked something like the one fought between 1914 and 1918, even if they hoped Britain might play a somewhat different role this time around. The clash would be decided not just on the battlefield but in the factories. The victorious side would be that able to outproduce and outlast its opponent. Munitions production, food security and general economic staying power would all prove to be decisive factors. Economic strength, financial reserves and raw industrial capacity were, according to British grand strategists, the ‘fourth arm of defence’. And while Britain and France might be inferior to Germany when it came to land and air power, both of those deficiencies could be corrected in time while the Allies retained a decisive lead in both naval strength and in the all-important fourth arm. As long as the western powers could avoid losing a short war, which now seemed more likely, they were increasingly confident they could win a long one.

The rise in defence spending between 1935 and 1939 was the largest peacetime increase in British economic history, with spending on the services soaring from £113.9m in the financial year 1934-35 to £382.5m in 1938-39. Expressed as a somewhat anachronistic share of national income, or GDP, it rose from 2.8 per cent in 1934-35 to 7.7 per cent in 1938-39.

This was a world away from the beginning of the decade. From 1919 until early 1932, British defence policy, and its budget, was guided by the Ten Year Rule, a planning assumption that no major war would occur within the coming decade. Spending on the services had been allowed to slip and major deficiencies and gaps in capacity had opened up.

The story of British rearmament in the 1930s remains contentious. Neville Chamberlain, the man at the centre of it as chancellor of the exchequer from 1931 to 1937 and then as prime minister, saw his reputation ruined by appeasement and its failure. And, in its own terms, rearmament failed to meet its own goals; the point of hiking up military spending was supposed to be to deter a future war rather than to fight one. But it did leave Britain in a much stronger position than it had been in the early 1930s, as a power confident enough to declare war on Germany fully expecting victory.

Rearmament for Britain was always – until the very end of the process at least – a balancing act, and one fraught with trade-offs. Rearm too quickly and the country risked undermining the fourth arm of defence – financial probity and industrial capacity – that would prove vital in a long war of attrition. Rearm too slowly and the country was vulnerable to defeat in a short war before its long-term strengths could be brought to bear. It was a complex process to manage with interacting political, strategic and economic pressures – not to mention the fluctuations of public opinion. It was also a process that had to grapple not only with the timings of rearmament, but with the central question of against whom was Britain arming? In their own ways, Germany, Italy and Japan all presented differing threats that required differing military responses and capacities.

Between 1935 and 1939, in response to a changing international security environment, Britain’s armed forces were transformed and prepared for war, all of which was a world away from the 1920s.

In 1901, Winston Churchill had predicted that ‘a European war can only end in the ruin of the vanquished and the scarcely less fatal commercial dislocation and exhaustion of the conquerors’. He was not far wrong. The more than 700,000 military deaths sustained during the Great War – together with more than twice that number wounded – was not the only lasting cost to Britain. The economy was twisted out of shape and crucial export markets lost. Government debt had soared from around 25 per cent of national income to more like 135 per cent. The country as a whole, which had been forced to borrow heavily in the United States, had been transformed from a net-creditor country to a net debtor. Just servicing the interest payments on this huge government debt would cost more than £300m a year for most of the 1920s. By contrast, debt interest in 1913 had been closer to £20m. And, with promises of a ‘home fit for heroes’, the government found itself with new social programmes to fund.

The prime minister, David Lloyd George, in a parliamentary debate in August 1919, was clear that ‘you must pay the interest on debt and sinking fund on debt, and you must pay pensions. You cannot cut down education – that would not be a very good reduction. There is only one direction in which you can effect considerable reductions, and that is in your armaments’.

The result was what became known as the Ten Year Rule, something supported by Churchill, who was by then serving as Secretary of War and the Air – responsible for both the army and the new air force. In August 1919, it was agreed that the Defence Estimates, the annual military budget, would be set based on the presumption that ‘the British Empire will not be engaged in any great war during the next ten years and that no Expeditionary Force is required for this purpose’.

There was something of a cross-party consensus on holding down defence spending throughout the 1920s. Churchill may have been a former Secretary of War and Air, and a former First Lord of the Admiralty with a passion for all things military, but he was not a kind to the forces as Chancellor of the Exchequer between 1924 and 1929. In January 1925, he remarked that he expected a ‘long peace, such as follows in the wake of great wars’. His major goal was to find further economies that allowed him the space to cut income tax. He told Baldwin that not cutting defence spending further could lead to a ‘Socialist victory’ at the next election which would ultimately be even worse for the armed forces.

Defence spending was trimmed further over his five years in the Treasury from around three per cent of national income to just 2.7 per cent. In 1928, he persuaded the Committee of Imperial Defence, the British government’s central military planning apparatus, that the Ten Year Rule should henceforth operate on a rolling basis with a standing assumption that ‘at any given date there will be no major war from that date’ until such a time as the Foreign Office or the Chiefs of Staff thought differently.

Bob Boothby, Churchill’s parliamentary aide during his years at the Treasury, was going too far when he complained in 1970 that Churchill disarmed the country ‘as nobody has ever disarmed this country before’.  But the cuts did bite deeply. The First Sea Lord, the commander of the Royal Navy, complained in 1925 that ‘Winston has gone mad, economically mad and no sacrifice is too great to achieve what in his short-sightedness is the panacea for all evils, to take one shilling off the Income Tax’.

Rearmament, when it came, played out in stages. The Ten Year Rule was officially dropped in early 1932 in response to increasingly aggressive Japanese expansionism in Asia, although the Cabinet noted that ‘this must not be taken to justify an expanding expenditure by the Defence Services without regard to the very serious financial and economic situation’. Britain was, after all, still in the midst of the great slump that had forced it from the Gold Standard and broken Ramsay McDonald’s Labour government. By 1934, it was clear that Germany, rather than Japan, was the primary danger to Britain and, after 1935, Italy increasingly appeared to be a likely enemy.

Following the abandonment of the Ten Year rule, defence spending grew from just over £100 million annually in 1932-33 to £113.9 million by 1934/35, the most substantial increase since the Great War but small in comparison to what would follow. Significantly, this was funded through running a smaller primary surplus rather than via borrowing. Equally significantly, the Defence Requirements Committee – bringing together the key ministers, civil servants and service chiefs – was established to identify pressing needs and ensure some form of co-ordination.

The second stage of rearmament, beginning in 1935, was a more noteworthy change. Spooked by intelligence reports of the scale and speed of German rearmament, the Treasury decided that a National Defence Loan would be necessary to fund a more rapid British response. The defence white paper of 1935 marked the change, with Stanley Baldwin declaring that ‘Our attempt to lead the world towards disarmament by unilateral example has failed.’ By 1937-38, defence spending was running at £262 million and had increased, as a share of GDP, from 2.8 per cent in the mid 1930s to 5.5 per cent.

The policy was still largely dictated by the Treasury and its doctrine of the Fourth Line of Defence. Even against a backdrop of sharply rising defence spending, the individual service ministries were still subject to what the Treasury dubbed ‘rationing’ with major procurement decisions being scrutinised for their strategic value. The Treasury was not so concerned by the financial costs of borrowing as much by the real resource constraints facing the economy. The problem, in other words, was not so much the money to pay for more armaments, but ensuring that the UK had enough manpower and industrial capacity to produce what was required without overheating the economy and risking overall macroeconomic stability.

In the third, and final, phase of rearmament in 1938 and 1939, the economically led approach was replaced with a military driven agenda as it became clear that the risk of war was very close indeed. Defence spending hit £382.5 million (or 7.7 per cent of GDP) in the final full fiscal year of peace of 1938-39. It rose higher still, even before war was declared, in the following year.

Nowadays the talk is once again of rearming. A combination of Russian aggression in Ukraine and, to put it mildly, a lack of certainty over the security guarantees offered to Europe by the United States has finally prompted a rethink in British defence needs.

Thus far, though, the rhetoric of ‘the largest sustained increase in British defence spending since the Cold War’ runs rather ahead of the reality. Last year, the British government made a song and dance about cutting international development spending from 0.5 per cent of GDP to 0.3 per cent by 2027 in order to increase defence spending from 2.4 to 2.6 per cent. To misquote Churchill, never in the field of human conflict have so many words been written about so small a share of national income. The stated policy now is to increase defence spending to 3.5 per cent of GDP by 2035.

A plan to increase defence spending by one percentage point of national income over a decade hardly feels up to the moment. In terms of Britain’s successful rearmament of the 1930s, the current government feels still in the first stage – that of a necessary rise but not a transformational one.

The good news is that nothing on the scale of the 1930s effort is currently required. Outside the White House’s occasional ranting, few serious observers believe that defence spending of even five per cent of GDP will be necessary to seriously deter Russian aggression, support Ukraine’s war effort and rebuild Britain’s – and Europe’s – ability to manage its own security in the absence of the United States. Europe has the economic and industrial weight to stand on its own two feet. Accordingly, 3.5-4 per cent of GDP would be more than enough; the question is not one of scale but of timing. 2035 is far too distant.

Nor is this really a question of money. The answer to ‘how can Britain find an extra 1-1.5 per cent of GDP to spend on defence?’ is straightforward: some combination of borrowing and taxes. Like in the 1930s, the actual question is one of real resources, what does Britain – and Europe – want to do less of to free up resources for national defence?

Some sacrifices will be necessary. Higher defence spending is, after all, an economic burden. Despite attempts to talk up the potential of higher defence spending to boost economic growth, the evidence for this claim is shaky at best. It seems strange to believe that the 1990s and 2000s offered a post-Cold War ‘peace dividend’ as defence spending was cut and that the 2020s will offer a rearmament boost as it ramps up again. In as much as borrowing-funded defence spending produces a temporary fillip to demand and growth, the driver there is the borrowing and the fiscal stance, not the fact that the money is going on defence.

If the costs of increasing military deterrence are real, they are still cheap compared to the alternative. Putting Britain’s – and Europe’s – armed forces on a surer footing is the best way to prevent war and that is surely worth another one per cent of GDP? No one enjoys paying insurance premiums, but, in the longer run, it is usually worth the cost.