Boris Johnson has agreed a four-year £16.5bn surge in defence spending at a time when Britain’s public finances have been stretched by the pandemic and a day after it emerged that billions of pounds could be cut from the foreign aid budget. Experts said the windfall represents the largest real-terms increase in the defence budget since Margaret Thatcher’s premiership and will be partly spent on a National Cyber Force of hackers and a new Space Command designed to protect orbiting satellites and launch its own rockets. It comes weeks after ministers resisted spending extra money to fund free school meals in the holidays, and days after it emerged that the overseas aid budget is set to be cut by billions, from 0.7% of of gross national income to 0.5%, triggering criticism from senior Tories. Johnson said he had taken the decision to boost spending on the armed forces “in the teeth of the pandemic” because “the defence of the realm must come first”. The prime minister is also keen to show new US president-elect Joe Biden that the UK wants a strong military capability after Brexit. Insiders said the defence funding, which will be detailed by Johnson when he speaks to the House of Commons on Thursday, had been put together at breakneck speed as Downing Street seeks to reassert control after last week’s No 10 meltdown, which led to the departure of chief aide Dominic Cummings and his ally Lee Cain. It will see £16.5bn extra being spent on defence over and above a commitment to increase the existing £41.5bn budget by 0.5 percentage points above inflation. Taken together, the increase amounts to £21.5bn until March 2025, and defence sources said it would mean the UK remained Europe’s biggest defence spender. Aid experts said the announcement demonstrated there was no need to cut the aid budget. Simon Starling, a director at Bond, the UK network for organisations working in international development, said: “What today’s announcement shows is that when the government needs to find the money for certain areas, it can.” A battle within Whitehall had been raging for about a month after Rishi Sunak, the chancellor, suddenly announced that a planned cross-government spending review would be abandoned because of the pandemic. Ben Wallace, the defence secretary and a long-time ally of Johnson, pressed for a special multi-year deal to allow the Ministry of Defence (MoD) to negotiate long-term weapons and systems contracts, which would be more expensive if bought from year to year. There had been speculation that the MoD had hoped for as much as £20bn extra but defence sources said the £16.5bn would allow for “modernisation without making painful cuts”, and claimed the final figure represented a victory for the defence secretary. Some of the extra defence money will be spent on the creation of a long delayed National Cyber Force, a group of computer hackers who will conduct offensive operations; a Space Command which aims to be able to launch own rockets from 2022; and a new agency dedicated to artificial intelligence. Although Wallace and Cummings frequently clashed, the ousted chief aide had been a supporter of a multi-year funding settlement. But Cummings had also been a fierce critic of MoD waste, writing in a blog post last March that the procurement process “has continued to squander billions of pounds, enriching some of the worst corporate looters and corrupting public life via the revolving door of officials/lobbyists”. Malcolm Chalmers, of the Royal United Services Institute, said that the final outcome was “a much larger increase for defence than most analysts, including myself, had predicted. It is the largest real-terms increase in the defence budget since the early years of the Thatcher premiership, a rise of between 10 and 15% in real terms.” Labour said the spending announcement signalled “a welcome and long overdue upgrade to Britain’s defences after a decade of decline”. The shadow defence secretary, John Healey, added that since 2010 “the size of the armed forces has been cut by a quarter, defence spending was cut by over £7bn”. But Lloyd Russell-Moyle, Labour MP for Brighton Kemptown, said that while “funding our military is a must … people will wonder if rightly our national security can get money, why is the government letting councils who offer child protection and social care go to the wall”. The MoD already has a shortfall of £13bn in its equipment budget, according to the National Audit Office, and would have been forced to cut back on aircraft and lose the use of its own hospital ship unless the gap had been plugged. The funding agreement had been intended to be linked to an integrated review of defence and foreign policy after Brexit but the delay in agreeing the financial settlement, coupled with the recent departure of Cummings, means the exercise has been pushed back to late January or early February. The final review is expected to see cuts to the size of the British army and a reduction in its use of rarely deployed tanks, plus commitments to invest further in armed drones and upgrading the Trident nuclear weapon system. On Wednesday the government was criticised for failing to extend the £20-a-week uplift to universal credit payments beyond April, despite the pandemic and rising child poverty. Extending the top-up would cost an estimated £9bn. Anna Feuchtwang, chief executive of the National Children’s Bureau, said: “If the government can find significant extra funds for defence then surely they can find money for children in crisis. It’s appalling that hard-pressed families have to rely on food banks to get by, and that the services that might stop them spiralling into further crisis are being cut year-on-year with local authorities facing bankruptcy. “We need the government to take seriously its responsibility to the next generation and have a proper strategy for investing in children.” Torsten Bell, chief executive of the Resolution Foundation, told MPs that ministers were “delaying the semi-inevitable” by refusing to signal whether they would continue with the top-up, which was introduced last April as a 12-month boost for millions of struggling families. Failure to do so would be “madness,” Bell said. Bell said much of the autumn had been spent debating the “relatively small issue” of providing food support for children on free school meals during school holidays – a campaign led by the footballer Marcus Rashford, on which the government eventually U-turned – rather than addressing the central issue of universal credit.