OPINION
Keir Starmer and Rachel Reeves only have one option (Image: PA)
In the face of an increasingly uncertain world, in which Europe is going to have to shoulder more responsibility for its own security, the Government has done the right thing in committing to an increase in defence spending. Funding the initial rise by redirecting overseas aid may have generated criticism and a ministerial resignation in Westminster – but attracts support from around two-thirds of the public according to one major pollster. Far bigger political challenges lie ahead, as the Government will need to grapple with the trade-offs in public spending required for further increases. Meeting its longer-term pledge to boost defence spending to 3% of GDP needs something in the region of an extra ￡20 billion a year – and even this may not prove to be enough.
Taxes are already at levels comparable to those seen during the Second World War, with Reeves’ plans set to see the tax take hit an historic high of 38.2% of GDP by 2029/30. Understandably, people have little appetite or ability to pay more. Even those who do say they would pay more, typically are only willing to contribute around ￡1 extra each week. On top of this, we’ve seen that Reeves’ existing tax rises are already strangling the Government’s much publicised quest for growth. Even higher taxes would damage that project yet further, and hit the finances and prospects of hardworking families. So what are the alternatives?
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Historically, in the case of major eternal events governments often turned to borrowing. But the impact of two “once in a lifetime” economic shocks in little over a decade – the 2008 financial crisis and the COVID-19 pandemic – means that the UK’s national debt is already around 100% of GDP and recent bond market turmoil suggests relying on further browning would be increasingly risky.
In the first instance the Government should seek to make efficiencies and eliminate waste. As a special adviser in the Department of Health and Social Care I worked with a Secretary of State who was able to reduce the number of civil servants in his department by one-in-six, meaning I am confident this could be repeated across government – providing significant cost reductions.
Equally, the numerous DOGE-inspired projects that have sprung up in the UK are doing valuable work in highlighting what could be relatively pain-free savings.
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However, it would be disingenuous to suggest that such efforts will be enough to meet all the promised increases in defence spending – which are in excess of the entire budget of some government departments – alongside other major costly challenges like an aging population and a rising demand for healthcare.
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Instead, the upcoming spending review will need to be the beginning of a real conversation about what we want to prioritise and what the taxpayer should, or should not, be taking responsibility for.
There is a growing consensus that the rapid increase in working-age health-related benefits since the pandemic – with one in eight people set to be claiming by the end of the decade – is an area ripe for review.
It is, of course, always politically very difficult to reduce existing programmes and so ministers may find it more palatable to also look to redirect some future spending rises instead – remembering that the last budget contained ￡74 billion in additional spending.
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There are no easy answers here. The “peace-dividend” of the latter half of the twentieth century and associated falls in defence spending allowed successive governments to expand social programmes without increasing the size of the state.
We are now facing the reverse, and politicians of all stripes will need to become more willing to articulate these trade-offs to ensure we can meet the rising, but vital, long-term costs of keeping our country safe.