<\/p>\n
Keir Starmer has few options if he wants to increase annual defence spending by up to \u00a314bn before the end of this parliament.<\/p>\n
In last summer\u2019s spending review<\/a>, the government set out plans to increase defence spending from 2.3% of national income, or gross domestic product (GDP), in 2024-25 \u2013 about \u00a366bn, to 2.6% in 2028-29.<\/p>\n But now there are hints that the embattled prime minister wants to go much faster. At the Munich Security Conference at the weekend, Starmer argued for higher and more sustained defence spending to meet the threat from Russia.<\/p>\n \u201cWe must build our hard power because that is the currency of our age,\u201d he said. \u201cWe must spend more, deliver more and coordinate more.\u201d<\/p>\n The BBC said No 10 was considering an increase to 3% of GDP by the end of this parliament in 2029 to meet Starmer\u2019s ambition, although it is unclear if this will turn into a concrete plan given the many obstacles.<\/p>\n Labour backbenchers have other ideas as many seek to remedy more prosaic, though no less costly headaches, such as NHS waiting lists and social care.<\/p>\n And then there are the Treasury borrowing limits. These have been put in place to bring down a spending deficit that has remained stuck at 5% of GDP for several years.<\/p>\n To achieve lower borrowing, Rachel Reeves was accused of sleight of hand in her November budget<\/a>. The chancellor has pencilled in tight spending limits between 2027 and the summer of 2029, when the next general election must be called by.<\/p>\n Reeves hopes that strong economic growth will bail her out. A calmer global economy, with Donald Trump distracted by more domestic concerns, could mean most western governments also enjoy lower inflation than expected and reduced borrowing costs.<\/p>\n A recent assessment by Bloomberg of gilt yields \u2013 the interest rate paid by the Treasury on government debt \u2013 shows they have fallen since last November, saving about \u00a31.5bn a year.<\/p>\n That may help explain the curious timing of Starmer\u2019s sudden enthusiasm for higher defence spending, with Reeves due to give her spring statement on 3 March.<\/p>\n However, the Office for Budget Responsibility (OBR) has taken a tough stance. The Treasury\u2019s independent economic forecaster has insisted on calculating Whitehall spending without recourse to optimistic predictions for tax receipts and government borrowing costs.<\/p>\n Bee Boileau, a research economist at the Institute for Fiscal Studies (IFS) thinktank, said Labour, in order to stay aligned with OBR projections, had pencilled in only small increases in government spending in the years after 2027, limiting the scope for Starmer to take from rival Whitehall departments to feed the Ministry of Defence.<\/p>\n \u201cYou can\u2019t find this kind of money from salami-slicing other departments,\u201d she said. \u201cThe extra funds needed equal the total spending [by the justice department] on courts and prisons. So it will be very challenging to find what is needed from within existing spending limits.\u201d<\/p>\n The OBR said in March last year that increasing defence spending to 3% of GDP would cost an additional \u00a317.3bn a year by 2029-30.<\/p>\n