Key facts
- The UK government has rejected the idea of issuing new defence bonds to fund increased military spending.
- A government spokesperson stated that defence bonds are "just another form of borrowing" and could be more expensive for taxpayers.
- The Labour party, while not fully endorsing defence bonds, has explored options to boost defence procurement.
- Calls were made to increase defence spending to three percent of GDP by 2030.
- The UK is pursuing multilateral agreements with allies for defence procurement.
The UK government has firmly rejected proposals to issue new defence bonds as a means to increase military spending, with a spokesperson stating that such instruments are merely another form of borrowing and could prove more costly for taxpayers. This stance was clarified by a Prime Minister's spokesman, drawing a line under speculation and reinforcing the commitment to "fiscal sustainability".
The debate intensified following a question from Liberal Democrats’ Treasury spokesman Daisy Cooper, who asked if the government was considering new defence bonds to inject an additional £20bn into the armed forces budget over the next two years. While Labour deputy David Lammy, standing in for Sir Keir Starmer, suggested exploring multilateral funding agreements for defence procurement, the official government clarification later dismissed the idea.
Former minister John Healey had previously appeared to support a new issuance scheme, writing to the Prime Minister that credible ways existed to raise defence spending from 2.6% of GDP to 3% by 2030 without cutting other departmental budgets. Healey's call for relaxed borrowing rules drew parallels with Germany, which adjusted its fiscal framework to fund a significant increase in military expenditure. However, Sir Keir Starmer wrote back to Healey, condemning "irresponsible borrowing" proposals and stressing the importance of controlling public finances for national security.
Cooper criticized the government's position, stating that Number 10 and the Treasury "have their heads buried firmly in the sand" regarding military spending. She also pointed out the UK's failure to access the EU's £130bn "Security Action for Europe" fund, a "huge missed opportunity" to bolster both UK industry and defence. Cooper argued that defence bonds could stimulate the regeneration of the Armed Forces and generate economic growth, particularly through investment in research and development.
The UK is actively exploring other avenues to enhance defence procurement, including agreements with NATO allies and EU countries. Finland, the Netherlands, and the UK have committed to a defence financing agreement by 2027. Healey and other defence officials have also urged the government to consider Canada's proposal for a "Defence, Security and Resilience Bank" (DSRB). Gordon Brown, an adviser to the Prime Minister on global finance, has reportedly discussed this bank's creation with Canadian prime minister and former Bank of England governor Mark Carney. Some government advisers and City analysts, including Panmure Liberum's Simon French and Deutsche Bank's Sanjay Raja, have backed plans to attract more British retail investors to buy government bonds ringfenced for defence spending.