UK Government Signals Tax Increases to Fund Defence Spending Plan

The chancellor stated that taxes may need to increase to pay for a planned rise in defence spending and ruled out additional borrowing for the multibillion-pound Defence Investment Plan. Speaking at the annual Peel Hunt FTSE 250+ Conference in London on Tuesday, the chancellor said the government operates in a constrained fiscal environment and will have to spend more on defence.

The chancellor added that higher taxes are preferable to repeating past conditions in which interest rates and UK risk premia climbed. The chancellor noted that the first duty of government is to keep people safe and that the United States and other European countries will also need to increase defence spending while using funds more effectively.

The chancellor said the money must come from somewhere and that borrowing cannot always be the answer.

The government has said the Defence Investment Plan, which will set out long-term funding and strategy for the armed forces, will be published before the NATO summit in Ankara, Turkey, next month. Last week the prime minister described the plan as another step up in defence spending and called defence the country’s top priority.

According to the Times, No 10 has reportedly instructed departments to find 1 per cent cuts to their capital budgets over the next four years to help meet the defence commitment. The announcement follows warnings from several peers about the state of the armed forces and the need to clarify funding sources for the plan.

The prime minister and chancellor have reportedly argued for a £15 billion package, below the £28 billion over four years sought by defence officials.