The UK Treasury has yet to conduct a thorough assessment of the financial implications required to meet the nation’s commitment to increase defence spending to 3.5% of GDP by 2035, as per demands from NATO. This revelation came during a recent session of the Treasury and Defence committees, where Chief Secretary Lucy Rigby indicated that decisions regarding future funding would rest with the next administration.
Treasury Under Scrutiny
During a tense exchange in a joint committee session, Rigby faced pointed questions about the Treasury’s lack of preparatory analysis for the required increase in defence funding. Lawmakers expressed concern over the absence of a clear strategy, particularly in light of Labour leader Keir Starmer’s commitment to reaching the 3.5% target by 2035. Rigby acknowledged that while the government has set a preliminary goal of achieving a 3% defence budget in the next parliamentary term, the specifics of how to reach this target remain undefined.
When pressed by Meg Hillier, chair of the Treasury committee, on whether any financial modelling had been undertaken, Rigby admitted, “No, is the short answer.” This admission raised alarms among committee members who pointed out that fulfilling this commitment could necessitate an additional £30-40 billion in spending.
The Cost of Commitment
The potential financial impact of reaching the NATO spending goal could translate to a significant increase in taxation. Bobby Dean, another committee member, highlighted that the funding shortfall could equate to an increase of 3p to 4p on all income tax rates. Rigby responded by emphasising the need for public consent regarding any substantial fiscal changes, which could prove politically contentious.
As the government aims for a 3% defence budget within the next parliament, the specifics of achieving this remain uncertain. Rigby stated, “The prime minister has said that defence will be the number one priority at the next spending review,” which is slated for mid-2027, by which time a new prime minister may take office.
Resignations and Political Fallout
The uncertainty surrounding defence funding has already contributed to significant political upheaval, including the recent resignation of former Defence Secretary John Healey. His departure was reportedly linked to the government’s failure to establish a clear spending trajectory ahead of the contentious defence investment plan, which allocates an additional £15 billion over the next four years, raising the budget to 2.7% of GDP.
While Whitehall departments are currently being directed to scale back investment plans to accommodate this change, Rigby acknowledged that an additional £4.7 billion would need to be identified in the upcoming autumn budget. This situation has drawn comparisons to previous claims of a “black hole” in public finances made by Labour when they assumed power two years ago.
Improving Relations Between Departments
Despite the evident challenges, both Rigby and Luke Pollard, the Minister for Defence Readiness and Industry, maintained that the relationship between the Treasury and the Ministry of Defence has improved. Pollard, with a nod to his naval background, wittily remarked, “I was taught from an early age that the Royal Navy has two enemies, the French and the Treasury. We’re now good friends with the French… and I would say that the process between the Treasury and MoD has been on a journey.”
Why it Matters
The UK’s ability to fulfil its NATO commitments is not just a matter of national pride but has profound implications for its international standing and security strategy. The apparent disconnect between political promises and fiscal reality could jeopardise the UK’s defence capabilities at a time when geopolitical tensions are rising. The government’s next steps will be crucial in determining both public trust and the nation’s readiness to respond to global threats.