The UK government has firmly rejected the idea of issuing new defence bonds to finance an increase in military spending, with a spokesperson for the Prime Minister stating such bonds would amount to "just another form of borrowing." This announcement draws a line under recent speculation regarding innovative funding mechanisms for the armed forces, following calls from opposition parties and some former government advisers.
The Liberal Democrats had been prominent advocates for defence bonds, with their Treasury spokesperson, Daisy Cooper, urging the government to consider the scheme. Ms Cooper proposed that new defence bonds could inject an additional £20bn into the armed forces budget over the next two years, arguing they would "kick-start the urgent regeneration of our Armed Forces" and generate economic growth, particularly in research and development. However, the Prime Minister's spokesperson clarified the government's position, emphasising a commitment to "fiscal sustainability" and suggesting that defence-specific bonds could prove "more expensive" for taxpayers.
The debate around defence funding has intensified amidst broader discussions about national security and the UK's role on the international stage. While Deputy Prime Minister David Lammy had previously indicated a willingness to "explore" multilateral agreements on defence funding, the government's official stance now firmly closes the door on defence bonds as a domestic financing option. This position echoes earlier remarks from the Prime Minister, who had condemned "irresponsible borrowing" proposals, stressing that maintaining control over public finances is crucial for national security.
The rejection of defence bonds also follows internal discussions, including a letter to the Prime Minister from John Healey, who had suggested "credible ways" of increasing defence spending to three per cent of GDP by 2030 without cutting other departmental budgets. Mr Healey's suggestions included relaxing borrowing rules, drawing parallels with Germany's approach to rapidly increase military spending. However, the government has remained steadfast in its fiscal approach, particularly given the UK's public debt as a share of GDP, which stands at around 94 per cent, significantly higher than Germany's 63.5 per cent.
Despite ruling out defence bonds, the UK is actively pursuing other avenues to enhance defence procurement. This includes exploring agreements with NATO allies and EU countries. Finland, the Netherlands, and the UK have committed to working on a defence financing agreement by 2027. Additionally, there have been discussions around joining Canada's proposal for a "Defence, Security and Resilience Bank (DSRB)," which aims to provide low-cost lending to governments for defence purposes. Former Prime Minister Gordon Brown, now an adviser on global finance, has reportedly discussed this concept with Canadian officials.
The government's decision underscores a cautious approach to public spending and borrowing, prioritising fiscal stability even as calls for increased defence investment grow. The focus now shifts to how the UK will achieve its defence spending objectives through alternative means, whether through direct budgetary allocations, international collaborations, or other innovative financing structures that do not involve new forms of borrowing.
Source: Government Spokesperson, Liberal Democrats, City AM