Treasury has not analyzed trade-offs for UK's 3.5% Nato spending pledge

Created at 8 Jul · 3:45 PM1 source↑ Market-relevant

IN SHORT

The UK Treasury has not conducted any analysis on the trade-offs required to meet the 3.5% of GDP defense spending target promised to NATO, according to Chief Secretary Lucy Rigby. She stated that decisions on funding such an increase would fall to the next government.

Key Numbers

3.5%UK defense spending target for NATO

3-4ppotential income tax increase

£30-40bnestimated extra defense spending required

3%interim defense spending target

mid-2027expected next spending review

£15bnadditional MoD funding over four years

2.7%defense spending as % of GDP with current plan

£4.7bnadditional funds needed in autumn budget

£22bnunfunded black hole claimed by Labour

Who's Involved

Lucy Rigby

Chief Secretary to the Treasury

Keir Starmer

Leader attending his last Nato summit in Ankara

John Healey

Former defence secretary who recently resigned

Meg Hillier

Chair of the Treasury select committee

Bobby Dean

Committee member

Andy Burnham

Expected to be prime minister by mid-2027

Rachel Reeves

Expected to be replaced by autumn budget

Luke Pollard

Minister for defence readiness and industry

↳ Why This Matters

The lack of analysis on funding the UK's NATO defense spending pledge raises questions about the government's commitment and fiscal planning, potentially impacting national security and international alliances. It also highlights potential future tax increases or spending cuts in other public services.

Key facts

The Treasury has not analyzed the trade-offs for the UK to meet NATO's 3.5% of GDP defense spending target.
Chief Secretary Lucy Rigby stated that decisions on funding additional defense spending would be for the next government.
Meeting the 3.5% target could require an additional £30-40 billion, potentially necessitating a 3-4p increase in income tax.
The government has an interim target of 3% defense spending for the next parliament.
An additional £4.7 billion needs to be found in the upcoming autumn budget.

The UK Treasury has not yet conducted any analysis on the trade-offs necessary to meet the National Atlantic Treaty Organization's (Nato) target of 3.5% of GDP for defense spending, according to Chief Secretary Lucy Rigby. During a joint session of the Treasury and defense select committees, Rigby stated that decisions regarding how to fund this increased defense expenditure would be left to the subsequent government.

Rigby indicated that the path to achieving the 3% defense spending target for the next parliament would be addressed in the spending review expected around mid-2027. She acknowledged that achieving higher spending levels would involve difficult decisions, emphasizing that "money is finite."

The resignation of John Healey as defense secretary preceded the publication of the Defence Investment Plan, which allocates an additional £15 billion to the Ministry of Defence over the next four years, bringing spending to 2.7% of GDP. Rigby conceded that a further £4.7 billion would need to be secured in the autumn budget. Treasury select committee chair Meg Hillier drew a comparison between this approach and a "black hole" in public finances previously identified by Labour.

Rigby and Minister for Defence Readiness and Industry Luke Pollard, who also appeared, addressed questions about the relationship between the Treasury and the Ministry of Defence. Both claimed improved collaboration, though Pollard humorously noted the historical adversarial relationship, likening it to the Royal Navy's traditional "enemies" of the French and the Treasury.

Frequently asked questions

The UK has pledged to reach a defense spending target of 3.5% of GDP by 2035, as stated by Keir Starmer. The government has an interim target of 3% for the next parliament.

No, Chief Secretary Lucy Rigby stated that the Treasury has not conducted any analysis on the trade-offs or funding mechanisms required to reach the 3.5% defense spending target.

Committee member Bobby Dean estimated that the required increase could amount to an extra £30-40 billion, potentially necessitating a 3-4 pence increase on all rates of income tax.

The current Defence Investment Plan aims to bring defense spending to 2.7% of GDP over the next four years.

What Happens Next

01The next government will need to determine how to fund increased defense spending.

02The next spending review, expected in mid-2027, will likely address the path to the 3% defense spending target.

03The autumn budget will need to identify an additional £4.7 billion in funding.

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Cadence

How It Developed

Chief Secretary Lucy Rigby stated the Treasury has not analyzed trade-offs for increased defense spending.

Rigby said funding decisions for the 3.5% NATO target would be for the next prime minister.

Committee member Bobby Dean noted the required increase could equate to 3-4p on income tax rates.

Rigby acknowledged a debate on 'public consent' would be necessary for such a tax increase.

The government has an interim target of 3% defense spending in the next parliament.

Rigby indicated the path to the 3% target would be addressed in the mid-2027 spending review.

John Healey resigned as defense secretary prior to the contentious Defence Investment Plan publication.

The Defence Investment Plan outlines an additional £15 billion for the MoD over four years.

Sources

Treasury yet to do due diligence on finding extra money for UK’s Nato spendThe Guardian