Rachel Reeves is considering raising taxes to increase the defence budget, as concerns over Britain's military readiness mount. The Chancellor has ruled out borrowing additional funds for the government's multibillion-pound defence investment plan, instead signalling a preference for tax increases to meet rising defence pressures, according to The Independent.
Military on the Brink?
This development follows a warning from the former head of the Royal Navy that Britain's armed forces are on the "brink of disaster" due to insufficient investment. Speaking at the annual Peel Hunt FTSE 250+ Conference in London on Tuesday, Reeves stated: "We are in a constrained fiscal world, and I think we'll be honest about that, and we're going to have to spend more on defence."
She added: "I would argue that despite the pain of higher taxes, better to do that than to get into a situation that we were in before, where we had interest rates climbing and the risk premia for the UK climbing too."
Government's First Duty
Reeves emphasised that "the first duty of the government is to keep its people safe, and in the world in which we live today, it's increasingly clear that the US and other European countries are going to have to spend more on defence, but crucially spend that money better." She stressed that "the money has to come from somewhere, and borrowing cannot always be the answer."
According to The Times, the government has bypassed the Treasury to instruct departments to find 1% cuts to their capital budgets over the next four years, which fund infrastructure and investment, to meet defence commitments.
Defence Investment Plan
The Chancellor's comments come ahead of the publication of the Defence Investment Plan (DIP), which the government aims to release before the NATO summit in Turkey next month. Prime Minister Sir Keir Starmer described the plan as "another step up" in military spending.
The UK could unveil the long-delayed DIP by Friday, though a funding disagreement remains unresolved. The defence industry is pushing for a clear timeline to increase military spending to 3% of GDP, up from the current 2.3%. There is also the ultimate goal of boosting defence expenditure to a new baseline of 3.5% of GDP, as agreed by all NATO allies last year.
