On Wednesday, UK Treasury chief secretary Lucy Rigby stated that the Treasury has not yet conducted any analysis regarding the necessary funding to meet the 3.5% of GDP defence spending commitment to Nato. This revelation came during a joint session of the Treasury and defence committees, where MPs pressed Rigby for clarity on future spending paths.
Funding Defence Spending: A Political Challenge
Rigby indicated that the responsibility for addressing the additional defence spending would fall to the next prime minister, stating, "These are decisions for the future government to make." Keir Starmer, who is attending his last Nato summit in Ankara, Turkey, has promised that the UK will reach the 3.5% target by 2035.
The lack of a clear spending plan contributed to the resignation of John Healey as defence secretary. Rigby was questioned about whether the Treasury had performed any analysis of the trade-offs required to achieve this ambitious spending goal. She admitted, "No, is the short answer," when pressed on the issue.
Potential Financial Implications of Increased Defence Spending
Committee member Bobby Dean highlighted the significant financial implications of meeting this target, estimating that an additional £30-40 billion would be necessary. This amount could translate to an increase of 3p to 4p on all rates of income tax. Rigby acknowledged that public consent would be essential for any such changes.
The government has set an interim target of 3% for defence spending in the next parliamentary session, but the specific path to achieving this goal remains undefined. Rigby mentioned that the details would be addressed in the next spending review, expected in mid-2027, when Andy Burnham is anticipated to be prime minister.
The Relationship Between Treasury and Defence Ministry
Rigby emphasized the complexity of the decisions ahead, stating, "It’s not straightforward: money is finite." The recent contentious defence investment plan proposed an additional £15 billion for the department over the next four years, raising spending to 2.7% of GDP. To fund this shift, Whitehall departments have been instructed to cut their investment plans.
Rigby also mentioned that an extra £4.7 billion would need to be identified in the upcoming autumn budget. When asked about the relationship between the Treasury and the Ministry of Defence (MoD), both Rigby and Luke Pollard, the minister for defence readiness and industry, claimed improvements in cooperation. Pollard humorously noted, "I come from a naval family where I was taught from an early age [that] the Royal Navy has two enemies, the French and the Treasury."
Despite their claims of progress, Meg Hillier, chair of the Treasury committee, drew comparisons to past financial issues, noting the £22 billion black hole in public finances identified when Labour took power.
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