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In a recent joint committee session, the UK Treasury revealed that it has yet to analyse how it can fulfil its commitment to increase defence spending to 3.5% of GDP by 2035, as promised to NATO. Chief Secretary to the Treasury, Lucy Rigby, indicated that any decisions regarding additional funding will be left to the next Prime Minister. This uncertainty comes at a time when Labour leader Keir Starmer is attending his final NATO summit in Ankara, where he reaffirmed his party’s commitment to this target.
Treasury’s Lack of Planning Sparks Concerns
During a session with both the Treasury and Defence committees on Wednesday, Rigby faced intense scrutiny over the government’s failure to outline a clear financial path for increasing defence spending. When questioned about whether the Treasury had conducted any analysis on necessary trade-offs to reach the 3.5% target, Rigby acknowledged there had been no such evaluations. Instead, she emphasised that these decisions would fall to the incoming government.
The lack of a defined spending trajectory has been cited as a key factor behind the resignation of former Defence Secretary John Healey. In response to queries about financial assessments, Rigby stated, “These are decisions for the future government to make,” leaving many in the committees frustrated.
The Financial Implications of Defence Spending
Committee members, including Meg Hillier, the chair of the Treasury committee, pressed Rigby for clarity on how the additional £30-40 billion required to meet the 3.5% target would be sourced. Rigby indicated that this could mean significant tax increases, potentially adding 3 to 4 pence to all income tax rates. “There needs to be a public debate about consent for such changes,” she asserted, highlighting the contentious nature of potential tax hikes.
The government currently aims to reach 3% defence spending in the next parliamentary term, but the specific timeline remains vague. Rigby stated that this issue would be addressed in the next spending review, due in mid-2027, at which point Labour’s Andy Burnham is anticipated to be the Prime Minister. She reiterated, “Defence will be the number one priority at the next spending review,” yet acknowledged the complexities involved in allocating the necessary funds.
Challenges Facing Defence Budget Planning
The situation is further complicated by the recent contentious defence investment plan, which proposed an additional £15 billion over four years, raising current spending to 2.7% of GDP. Whitehall departments have been instructed to scale back their investment plans to accommodate this shift, but Rigby admitted that an extra £4.7 billion would still need to be secured in the upcoming autumn budget.
Critics have drawn comparisons between the current financial situation and the so-called “black hole” in public finances that Labour claimed upon taking power two years ago—estimating a £22 billion shortfall due to unfulfilled promises by the previous administration. This has only intensified calls for transparency and accountability in how defence funding is managed.
Navigating Relationships Between Departments
Both Rigby and Defence Minister Luke Pollard addressed the historically strained relationship between the Treasury and the Ministry of Defence. Pollard, who has a naval background, joked about the long-standing rivalry, stating, “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.” However, whether this newfound camaraderie will lead to efficient financial planning remains to be seen.
Why it Matters
The lack of clarity regarding the Treasury’s plans for defence spending could have significant repercussions for the UK’s military readiness and international commitments. As the geopolitical landscape becomes increasingly complex, especially with ongoing tensions in Europe, the government’s ability to effectively manage and allocate defence funding will be crucial. With an election on the horizon, how the next administration approaches these financial challenges will not only shape the future of the UK’s defence policy but also influence public trust in government spending priorities.
