Chancellor proposes off-the-books loans to boost defence spending
Chancellor John Healey is reviving a plan to enhance defence spending by leveraging off-the-books loans, aiming to raise it to 3 per cent of GDP, reports BritPanorama.
Healey previously championed this approach when he served as defence secretary under Prime Minister Sir Keir Starmer, although he initially faced opposition from his predecessor Rachel Reeves, who argued that it would still count as debt.
The current proposal involves utilizing Public Finance Initiatives (PFI), a strategy previously employed during the Tony Blair and Gordon Brown administrations to fund infrastructure projects, according to The Times.
This method would effectively remove the loans from the official national debt calculation. Furthermore, Healey is considering additional measures such as introducing defence bonds, a proposal that had also been opposed by Reeves due to concerns over breaching strict financial regulations.
The initiative emerges as Labour seeks clarity on how it will manage to increase defence spending, having deferred key decisions until the Spending Review next year.
The proposed borrowing mechanism would entail establishing an international defence bank with allied nations and enabling private enterprises to finance new equipment. This information was reported by The Times.
During the recent Budget announcement, Healey indicated that an “innovative defence financing taskforce” would be set up to explore avenues for securing investment from both allies and the private sector.
Defence Secretary Wes Streeting remarked on Sky News that any potential private sector partnerships would differ from the criticized PFI contracts of the past, which were associated with excessive costs for taxpayers.
He also implied that other public spending areas might experience reductions to accommodate the anticipated increases in the defence budget.
Streeting stated, “I recognise that other government departments, as well as taxpayers, are doing some heavy lifting to make sure we prioritise defence. That’s the right thing to do.”
He added that achieving 3 per cent of GDP by 2030 will require a comprehensive review of overall spending during the upcoming budget discussions.
“What the chancellor did at the Budget this week was to give industry, our allies, the same confidence that frankly I’ve had since day one… that we’ll be spending 3% of GDP on defence by 2030, on the way to hitting our Nato target,” Streeting said.
He also addressed concerns regarding the government’s pace in increasing defence funding, emphasizing that substantial progress is being made.
At the recent Budget, Healey addressed a £4.7bn gap in the defence investment plan, committing to raise defence spending to 2.7 per cent of GDP by 2027, with a goal of reaching 3 per cent by 2030 as part of Labour’s NATO obligations.
However, the specifics regarding the sources of this funding will not be available until the Spending Review slated for the autumn of next year.
In response to critiques from Commons defence committee chairman Tanmanjeet Singh Dhesi, who criticized the timing of the review, Streeting defended the approach as both effective and timely.
He noted positive feedback from NATO Secretary General Mark Rutte and other military leaders, reaffirming the government’s commitment to enhancing defence capabilities.
With substantial increases in defence spending on the horizon, the government’s next steps will be crucial in addressing both national security needs and economic stability.
