Chancellor John Healey has directed every government department to find 1% cuts in their capital budgets to fill a £4.7bn funding gap in the Defence Investment Plan. These reductions are in addition to the 1% cuts departments were previously asked to make earlier this year to pay for the initial £10.3bn portion of the plan’s total £15bn price tag.
Defence Targets and Capital Budgets
While the plan increases defence spending, the chancellor continues to face pressure regarding how he will meet a further target of spending 3% of national income on defence by 2030. Setting out his Budget, Healey hinted that meeting that goal would require further cuts, telling MPs it would involve looking hard at public spending. Government departments have yet to decide what will be cut from their capital budgets, which focus on long-term investments rather than day-to-day spending. Previous capital cuts earlier this year resulted in the scrapping of major road improvement schemes.
Conservative leader Kemi Badenoch criticized the chancellor for not explaining how he would boost defence funding to 3%, accusing him of only offering a plan to have a plan. The Conservatives have previously urged the government to pay for defence by making cuts to the welfare budget. Meanwhile, Nato secretary general Mark Rutte stated that the UK was on a credible path towards meeting commitments made by all Nato allies. Chair of the Commons defence committee Tan Dhesi warned that some key decisions on defence spending had been lamentably delayed, while former Nato secretary general Lord Robertson told BBC News that the Budget was generally good news for defence.
Alternative Financing and Future Plans
Addressing the House of Commons, Healey confirmed he will set out details at next year’s spending review on how the UK will meet the Nato commitment to spend 3.5% of GDP on defence by 2035, alongside a target date of 3% by 2030. Alongside public spending reviews, Healey plans to use innovative financing with the private sector and international allies. This includes starting treaty negotiations with Finland, Poland, and the Netherlands to establish a multilateral defence mechanism, increasing private investment through public-private partnerships, and directing the National Wealth Fund and British Business Bank to invest £5bn into defence and sovereign capability. The Office for Budget Responsibility estimates the 3.5% GDP target by 2035 will cost £35bn.
Helen Miller, director of the Institute for Fiscal Studies, noted that increasing investment in defence companies may contribute to the target, but questioned how much it would directly increase UK defence capabilities. During his Budget speech, Healey also announced £10bn of economic and military support for Ukraine through loans and export guarantees. This package includes £5.5bn of loans via World Bank guarantees and a grant contribution, plus £3bn through UK Export Finance. Ukrainian President Volodymyr Zelensky welcomed the funding on social media, stating that every step to strengthen Ukraine brings Russia closer to ending the war.
