UK Treasury lacks plan for 3.5% Nato spending pledge
The British government has admitted it has not analysed how to fund a massive increase in defence spending, raising doubts over its commitment to European security and pointing to future tax rises.
The British government has not conducted any analysis on how to pay for its promise to raise defence spending to 3.5% of GDP by 2035. Lucy Rigby, the chief secretary to the Treasury, told a joint committee hearing on Wednesday that funding the increase would be a matter for "the next prime minister".
Reaching that Nato target would require an additional £30-40bn. Committee member Bobby Dean noted this is the equivalent of adding 3p to 4p to all rates of income tax. Rigby acknowledged that such a shift would require a debate about "public consent".
For European allies and financial markets, the admission exposes a deep uncertainty at the heart of British fiscal policy. The government has set an interim goal of reaching 3% of GDP in the next parliament, but Rigby conceded the Treasury has done "no" analysis of the necessary economic trade-offs. "Money is finite," she said.
This lack of a clear funding path recently triggered the dramatic resignation of Defence Secretary John Healey. Healey stepped down ahead of a defence investment plan that pledged an extra £15bn over four years to reach 2.7% of GDP. To finance this initial step, Whitehall departments must cut their own investment plans, with a further £4.7bn shortfall expected to land in the autumn budget.
Meg Hillier, chair of the Treasury committee, pointed out the contradiction in announcing spending before securing the money. She compared the approach to the "shocking £22bn black hole" the current government previously accused its predecessors of creating. Rigby defended the practice as "not uncommon".
The timeline for resolving these fiscal questions is pushing deep into the political calendar. Rigby indicated the path to the 3% interim target will not be set until a spending review in mid-2027. By that point, Andy Burnham is expected to have replaced Keir Starmer as prime minister, and Rachel Reeves is expected to have been replaced as chancellor.
The hearing also highlighted the historically strained relationship between the Treasury and the Ministry of Defence. Luke Pollard, the minister for defence readiness, noted that the Royal Navy traditionally viewed the Treasury as an enemy alongside the French. "We’re now good friends with the French," he said, adding that relations with the Treasury had merely been "on a journey".
