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Sir Keir Starmer has promised to “spend more” on defence, even as the Treasury told ministers running other departments to model for budget cuts of up to 11 per cent in the coming months.
“Part of my message to our European allies is that we’ve all got to step up on both capability and on spending and funding,” the UK prime minister said on Monday. “That includes the UK, which is why I’ve made that commitment to spend more.”
Starmer has vowed to set out a “pathway” to increase defence spending from 2.3 per cent of GDP to 2.5 per cent, but has refused to say when that target will be achieved.
His problem — shared with other European leaders who gathered in Paris on Monday for a crisis meeting on Ukraine — is that public finances are already strained to breaking point.
UK chancellor Rachel Reeves wants to delay increasing defence spending to 2.5 per cent — at an additional annual cost of about £5bn-£6bn — for as long as possible to ease pressure on public finances ahead of an expected election in 2029, according to people briefed on her thinking.
Starmer has told defence chiefs that while he will ultimately hit the 2.5 per cent target, he will not meet their demands to raise spending by a further £4bn to 2.65 per cent, as revealed by the Financial Times.
In a sign of the chronic squeeze on the public finances, the Treasury has told most government departments to model for three different scenarios in the forthcoming spending review.
The cuts range from 2-11 per cent over the three-year spending review period, the latter figure first reported by Bloomberg. The exercise is a standard Treasury process to force ministers into identifying potential cuts.
Starmer has promised there will be “no return to austerity”, but there is growing concern across Whitehall that the spending review will produce severe cuts in many areas. The review will be concluded in June.
As the economy flatlines, Reeves’ problems have been exacerbated by dismal data that have wiped out a £10bn cushion against breaking her own fiscal rules.
Referring to the Treasury’s modelling exercise for potential cuts, one person involved in the spending review process said: “It’s totally unrealistic unless you want huge cuts to actual services.
“But we are all taking the modelling seriously because we can see there’s no money as all the headroom they had has been swallowed up. It is going to be catastrophic though.”
One government insider said the scenarios for cuts presented to departments were “the kind of thing you see at the start of every spending review”.
The Treasury said: “The chancellor has asked all departments to deliver savings and efficiencies of 5 per cent of their current budget as part of the first zero-based spending review in 17 years and every pound of government spending is being interrogated, to root out waste and get the best value for taxpayers.”
It added that the spending scenarios assigned to government departments were not final allocations.
