John Healey is set to announce billions of pounds in new defence investment in Wednesday’s Budget as the Conservatives demand he resign unless he commits to spending three per cent of GDP on the military by 2030.
The chancellor is expected to channel additional funding through the National Wealth Fund and British Business Bank, backing British defence manufacturers and military technology firms while seeking to boost domestic jobs.
The investment will be financed through long-term borrowing rather than spending cuts, the Sunday Times reported, with drone manufacturers and artificial intelligence companies among those expected to benefit.
The approach would allow the Treasury to increase defence investment without breaching its fiscal rules, as funding provided through public financial institutions is treated differently from conventional government spending where it is expected to generate financial returns.
It would also count towards Nato’s defence spending targets, offering Healey a way to increase military investment while facing pressure to balance the public finances.
The announcement comes four months after Healey resigned as defence secretary under former prime minister Keir Starmer, arguing that the government had failed to commit sufficient funding to the armed forces.
He had demanded a timetable to increase defence spending to three per cent of GDP by 2030, ahead of Nato’s wider target of 3.5 per cent by 2035.
However, the chancellor has since said that a full timetable for reaching the target will not be published until next year’s spending review.
Tories demand Healey’s resignation
Shadow chancellor Andrew Griffith has called on Healey to resign unless Wednesday’s Budget sets out a fully funded plan to reach the three per cent target.
“By the end of his Budget statement, John Healey must have fully funded three per cent defence spending, or resign”, Griffith said.
“We are living in an era of extraordinary threats, and yet the Chancellor is dithering over finding the money to pay the country’s insurance premium”.
The Office for Budget Responsibility (OBR) has estimated that reaching three per cent of GDP would require an additional £17.3bn in 2029 to 2030.
Conservative shadow defence secretary James Cartlidge welcomed the proposed investment but accused Labour of adopting a policy previously put forward by his party.
“I welcome Labour copying our idea, particularly if that means getting more cash to UK start-ups and defence tech businesses”, he said.
However, Cartlidge warned that investment in emerging technologies would not remove the need for additional funding for military training, equipment and ammunition.
Defence secretary Wes Streeting rejected the criticism, accusing the Conservatives of leaving the armed forces underfunded.
“Kemi Badenoch’s Conservatives shrunk the British Army to its smallest size since the Napoleonic era and left a £17 billion hole in the equipment plan”, he said.
“Their fantasy economics won’t keep Britain safe, just as their reckless hollowing out of our armed forces didn’t when they were in power”.
The row follows a warning from Streeting that Britain must be prepared for the possibility of conflict by 2030 as Russia expands its military capabilities.
Writing in The Telegraph on Saturday, he said the UK had “a little over 1,000 days” to ensure it could defend itself alongside Nato allies. “To prevent the worst, we have to prepare for it”, he said.
The Treasury is reportedly preparing to provide £20.4bn in additional support to the National Wealth Fund and British Business Bank from 2028-29, although the amount ultimately directed towards defence has not been confirmed.