Starmer's Defence Spending Ambition Faces Major Financial Hurdles
Prime Minister Keir Starmer's aspiration to significantly boost the United Kingdom's defence budget is encountering substantial financial and political barriers. The Labour leader has advocated for higher and more sustained military expenditure to counter the threat from Russia, but multiple constraints could limit his government's ability to deliver on this ambition.
The Scale of the Proposed Increase
Current government plans outline a gradual increase in defence spending from 2.3% of gross domestic product (GDP) in the 2024-25 fiscal year, equivalent to approximately £66 billion, to 2.6% by 2028-29. However, Starmer has indicated a desire to accelerate this timeline, with reports suggesting consideration of reaching 3% of GDP by the end of this parliamentary term in 2029.
This ambitious target would require finding an additional £13-14 billion annually, according to estimates from the Institute for Fiscal Studies (IFS) and Capital Economics consultancy. The Office for Budget Responsibility (OBR) has projected an even higher cost of £17.3 billion per year by 2029-30 if the 3% threshold is achieved.
Competing Domestic Priorities
Starmer faces significant pressure from within his own party to address pressing domestic concerns. Many Labour backbenchers are prioritising the reduction of NHS waiting lists and the reform of social care systems, both of which require substantial financial investment. These competing demands create a challenging environment for reallocating resources toward defence.
The government must also accommodate a £6 billion overspend in special needs education by 2029, while the forthcoming report on adult social care by Louise Casey is expected to generate additional budgetary requirements when its recommendations are implemented in the coming years.
Treasury Constraints and Borrowing Limits
Chancellor Rachel Reeves has established strict borrowing limits designed to reduce a persistent spending deficit that has remained at approximately 5% of GDP for several consecutive years. The Treasury's independent economic forecaster, the OBR, has adopted a conservative approach to projecting government finances, refusing to incorporate optimistic assumptions about tax receipts or borrowing costs.
Bee Boileau, a research economist at the IFS, emphasised the limitations this creates: "You cannot find this kind of money from salami-slicing other departments. The extra funds needed equal the total spending by the justice department on courts and prisons. So it will be very challenging to find what is needed from within existing spending limits."
Market Sensitivities and Funding Options
Financial markets are displaying heightened sensitivity to government spending decisions, particularly following years of economic uncertainty. Ruth Gregory, deputy chief UK economist at Capital Economics, warned that debt-financed defence spending could prove problematic: "Debt-financed defence spending is not a big growth- or productivity-enhancing investment. And there is a question of whether investors would tolerate much more debt-financed spending."
Alternative funding mechanisms present their own challenges. Raising the necessary funds through taxation would require approximately 1.5 pence on income tax rates, adding to the burden created by the existing freeze on income tax thresholds, which is already projected to generate tens of billions in additional revenue by 2029.
Economic Context and Timing Considerations
The timing of Starmer's renewed emphasis on defence spending coincides with Chancellor Reeves' upcoming spring statement on March 3rd. Some analysts suggest that recent improvements in economic indicators, including falling gilt yields that have saved the Treasury approximately £1.5 billion annually since November, may have created a more favourable environment for discussing increased expenditure.
However, the OBR's assessment on March 3rd will be crucial in determining the fiscal space available to the government. Boileau cautioned against overreliance on temporary improvements: "The OBR could offer more fiscal space for the chancellor, though it would be a mistake to justify higher spending over many years from a one-off forecast."
Strategic Implications and Future Challenges
Starmer's defence spending ambitions extend beyond mere budgetary considerations to encompass broader strategic objectives. At the recent Munich Security Conference, he argued that "we must build our hard power because that is the currency of our age," emphasising the need for enhanced military capabilities in an increasingly volatile global environment.
The proposed funding would support various military enhancements, including the construction of additional warships, procurement of extra fighter jets, and reversal of long-term declines in military personnel numbers. Yet these ambitions must be balanced against the reality of Britain's fiscal constraints and competing policy priorities.
As the government navigates these complex challenges, the coming months will reveal whether Starmer's defence spending aspirations can be reconciled with the economic realities facing the United Kingdom. The spring statement and subsequent budget negotiations will provide critical indicators of the government's capacity to deliver on its security commitments while maintaining fiscal responsibility.
