Key facts
- Sir Keir Starmer claims £22 billion in fiscal headroom is available.
- This headroom is intended to cover a defence funding gap of approximately £1 billion per year.
- The defence funding plan involves cuts to capital budgets in energy and transport.
- Economists have expressed concerns about the state of public finances.
- The Resolution Foundation estimates the fiscal headroom may be as low as £10 billion.
Sir Keir Starmer has asserted that the government possesses sufficient fiscal headroom to address a defence funding shortfall of approximately £1 billion annually. During Prime Minister's Questions, Starmer criticized the Conservatives' reaction to the funding plan, labeling it "faux outrage" and highlighting the £22 billion fiscal headroom as the justification for making spending decisions outside of a formal budget. He stated this increase represents the "biggest sustained increase for 45 years" and is necessary for national security.
However, the Prime Minister’s spokesman declined to confirm if the Defence Investment Plan was "fully funded," only stating it was financed in a "fair and balanced way." Economists have voiced concerns about the precarious state of public finances, particularly if trade through the Strait of Hormuz does not resume promptly. The Resolution Foundation, a think tank, has suggested the available headroom might be as low as £10 billion. Furthermore, the Office for Budget Responsibility has cautioned the government about potentially underestimating the impact of the Ukraine war-induced gas crisis on the UK's budget deficit. A senior Labour peer has also warned against treating the fiscal headroom as a "piggy bank." Of the £15 billion allocated to the armed forces, approximately £10 billion is expected to come from cuts to capital budgets in the energy and transport sectors. Hamish Falconer, a minister in the Foreign Office, expressed concern over a road project in his constituency potentially being abandoned, while other MPs questioned potential cuts to hospital building budgets. Starmer's spokesman declined to provide a list of infrastructure projects that would be scaled back due to the Defence Investment Plan, indicating further details would be released after a change in Prime Minister, which would occur by autumn.