John Healey sets 1% capital-cut target to fill defence funding gap

Healey announces £10bn in loans and export guarantees for Ukraine

A Press Association image showed members of the Finnish army and British army on a training exercise on NATO’s border with Russia. In his Budget, Chancellor John Healey told every government department to find 1% cuts in capital budgets to fill a £4.7bn hole in Defence Investment Plan funding. The reductions would come on top of the 1% cuts departments were asked to make earlier this year for the initial £10.3bn of the plan’s overall £15bn price tag.

The plan had boosted defence spending, but government departments have yet to decide what will be cut from their capital budgets. Those budgets focus on long-term investments rather than day-to-day spending. Earlier this year, a number of major road improvement schemes were scrapped to help pay for increased defence spending.

Healey told the House of Commons on Wednesday: “At the spending review next year, I confirm that I will set out the details of how we will meet our NATO commitment to spend 3.5% of GDP on defence by 2035, with a target date for 3% in 2030. And today, I am getting work under way to get there in a fiscally sustainable way.” He had also told MPs that reaching the 3% goal would involve “looking hard at public spending.”

NATO Secretary General Mark Rutte said the UK was on “a credible path towards meeting the commitment made by all Nato Allies in The Hague - to ensure we’re all investing what’s needed to remain ready & able to deter aggression and defend our freedom and security.”

Conservative leader Kemi Badenoch accused Healey of offering only “a plan to have a plan” and added: “I bet [Vladimir] Putin’s really scared now.” She criticised Healey for failing to explain in his Budget how defence funding would reach 3%, saying: “He is the man who is making our country less safe. He has failed his own test. This is on him, and no one will ever forget.” The Conservatives have previously urged the government to pay for defence by making cuts to the welfare budget.

Earlier this year, Healey resigned as defence secretary, accusing then-Prime Minister Sir Keir Starmer of not providing enough money to keep the UK safe. He had specifically emphasised the importance of reaching the 3% target by 2030.

Healey said he wanted to use “more innovative financing alongside the private sector and our international allies.” His proposals included beginning treaty negotiations with Finland, Poland and the Netherlands to establish a “multilateral defence mechanism” that would allow allies to share resources; increasing private investment through public-private partnerships; and directing the National Wealth Fund and British Business Bank to put £5bn into “defence, dual-use technology and sovereign capability.”

The Office for Budget Responsibility estimates that the UK government’s target to increase defence spending to 3.5% of GDP by 2035 will cost £35bn. Helen Millier, director of the Institute for Fiscal Studies, said: “Increasing investment in defence companies may contribute to the target but it is unclear how much this will lead to an increase in UK defence capabilities.” She added: “There is much further to go to get to 3% of GDP on defence and it is hard to believe that this government will want to get there without topping up spending totals.”

Healey also announced £10bn of economic and military support for Ukraine in loans and export guarantees. The package included £5.5bn of loans through World Bank guarantees and a grant contribution to the World Bank International Development Association’s crisis facility. A further £3bn would be available through loans facilitated by UK Export Finance, a government export credit agency.

Healey told the House of Commons that the week had started with Russia launching a “brutal ballistic missile attack” and that the extra money would send “a clear message to Moscow.” He said President Volodymyr Zelensky told him during a phone call: “You’ve made my day.” Later on social media, Zelensky said: “Every step to strengthen Ukraine brings Russia closer to realising that it must end this war of its own making.” The new money came on top of the UK’s pledge to provide Ukraine with £3bn of military support until at least 2030-31.