By Ahmed Abdelsalam
The UK government is considering using off-the-books borrowing mechanisms similar to those employed during the Gordon Brown era to increase defence spending to 3% of GDP, according to reports.
Chancellor Revives Private Finance Initiatives
Chancellor John Healey has revived a plan to use Private Finance Initiatives (PFI) to fund defence equipment, a method used under Tony Blair and Gordon Brown for hospitals and schools. The approach would keep loans off the government's balance sheet and not count against UK debt. Healey had previously supported the idea as defence secretary but clashed with then-chancellor Rachel Reeves, who opposed it because it still constituted debt.
Defence Bonds and International Defence Bank
The chancellor is also considering defence bonds, another measure Reeves opposed, warning it would break financial rules and increase borrowing costs. The proposals include setting up an international defence bank with allies and allowing private companies to provide upfront funding for new military equipment. Healey announced an "innovative defence financing taskforce" at the Budget to explore these options.
Defence Secretary Distinguishes from Past PFI
Defence Secretary Wes Streeting said the private sector deals under consideration would differ from New Labour's PFI contracts, which were criticized for costly long-term impacts. He suggested other areas of public spending may face cuts to fund the defence increase, stating that other departments and taxpayers are "doing some heavy lifting."
Budget Targets and Timeline
At Wednesday's Budget, Healey filled a £4.7bn gap in the defence investment plan, raising spending to 2.7% of GDP by 2027 and committing to 3% by 2030, en route to the NATO target of 3.5% by 2035. Details on funding sources are deferred to the Spending Review next autumn. Streeting defended the timeline against criticism from Commons defence committee chair Tanmanjeet Singh Dhesi, citing NATO Secretary General Mark Rutte's welcome of the commitments.
Largest Increase Since Cold War
Streeting insisted the government is moving as fast as possible, calling it the biggest sustained increase in defence spending since the end of the Cold War.
