1st November 2026
The Chancellor's announcement that Britain intends to increase defence spending to 3% of Gross Domestic Product (GDP) by 2030 sounds like a substantial commitment. It is also intended to demonstrate Britain's determination to strengthen its armed forces and meet its obligations to NATO.
But there is a question that deserves rather more attention. How much money will 3% actually represent, and what happens if the economy does not grow as expected?
Using a percentage of GDP as a spending target is not unusual. Governments use it for defence, overseas aid and other international commitments. It provides a way of comparing spending between countries of different sizes.
However, it can also obscure the actual amount of money involved. Three per cent of a growing economy is worth more than 3% of an economy that is stagnating or contracting.
The distinction matters because the government is making a commitment to a percentage rather than announcing a fixed sum that will be available to the Ministry of Defence.
What has the Chancellor promised?
In the Budget on 28 October, the Chancellor confirmed a target of spending 3% of GDP on defence by 2030, followed by the longer-term NATO commitment of 3.5% by 2035.
However, the detailed arrangements for reaching these targets will not be set out until next year's Spending Review.
The Office for Budget Responsibility estimates that reaching the 3% target will require an additional £17.3 billion in 2029–30.
That is a considerable amount of additional expenditure, particularly when the government is already facing pressure on public services, welfare spending and the national debt.
The Chancellor says the increase will be achieved in a fiscally sustainable way. He has indicated that this will involve examining other public spending, working with private investors and exploring international financing arrangements.
But the precise funding arrangements remain to be explained.
What happens if GDP does not grow?
This is perhaps the most important part of the debate.
Suppose the UK economy was worth £3 trillion. Three per cent of that would mean annual defence spending of £90 billion.
But suppose the economy was worth only £2.8 trillion. The same 3% commitment would then amount to £84 billion.
The government could still meet its percentage target while spending £6 billion less than in the first example.
These are illustrations rather than forecasts, but they demonstrate the problem.
If economic growth falls short of expectations, the amount of money represented by the target falls too. The government could therefore achieve its stated percentage without providing the armed forces with the amount of money originally anticipated.
There is a further complication. GDP is also affected by inflation. The economy can grow in cash terms even when real economic growth is weak.
Defence equipment, ammunition, ships, aircraft, technology and personnel all have costs that can rise. If the cost of military capability increases faster than the economy's ability to pay, the headline percentage may not translate into the improvements that the armed forces need.
In other words, meeting a spending target and delivering the military capability required are not necessarily the same thing.
Where will the money come from?
The Chancellor has already demonstrated that finding money for defence involves difficult decisions elsewhere.
The Budget confirms that £4.7 billion of the Defence Investment Plan will be funded through reductions in other departmental capital budgets and the use of Treasury capital reserves.
Departmental capital budgets will be reduced by 1% between 2027–28 and 2029–30 to raise £3 billion, with a further £1.7 billion coming from unallocated Treasury capital reserves.
The government is also establishing an Innovative Defence Finance Taskforce to explore private and international investment.
There is nothing inherently wrong with private investment in defence manufacturing or infrastructure. It could help expand industrial capacity and bring forward projects that might otherwise take longer.
But private finance is not free money. Investors expect a return, and where public-private partnerships are used, taxpayers may ultimately meet costs through future payments.
The government must therefore explain whether these arrangements represent genuine additional investment or simply change the way expenditure is financed and recorded.
There is also the question of borrowing. If the government decides that defence spending must rise regardless of economic performance, it may have to borrow more, raise taxes or reduce spending elsewhere.
None of those options is without consequences.
The IFS raises questions about affordability
The Institute for Fiscal Studies (IFS) has also examined the government's defence spending ambitions and raised questions about how they will be financed.
Its analysis estimates that reaching 3% of GDP on defence by 2030–31 could require around £11 billion more in annual spending than under existing plans.
The IFS points out that this money has to come from somewhere. If the government protects NHS spending and increases defence expenditure without increasing overall departmental budgets, other public services could face real-terms cuts averaging around 2% a year between 2027–28 and 2030–31.
The alternative would be higher taxation or additional borrowing, both of which carry their own consequences.
The figures illustrate the difficulty facing the Chancellor. Defence spending may be a national priority, but announcing a percentage target does not resolve the question of how it will be funded.
As the IFS analysis makes clear, the government cannot avoid the choices involved simply by announcing an ambitious target. Taxpayers deserve to know what those choices will mean for the rest of public spending.
What exactly counts as defence spending?
Another issue is the definition of defence expenditure.
NATO has agreed broader spending categories, allowing certain security-related expenditure and other qualifying activities to count towards its targets.
This makes international comparisons possible, but it also means that the headline percentage does not necessarily represent money spent directly on the armed forces.
Taxpayers will reasonably want to know how much is going towards ships, aircraft, equipment, ammunition, military personnel and training, rather than wider activities that qualify under the accounting rules.
There is a difference between increasing a budget on paper and improving the country's ability to defend itself.
The public deserves more than a percentage
Britain faces genuine security challenges. The war in Ukraine, tensions involving Russia, instability in the Middle East and uncertainty about the future of American commitments to European security all make defence spending an important issue.
There is a reasonable argument that Britain needs to invest more in its armed forces and defence industry.
But that does not remove the need for financial transparency.
The government should publish the expected annual cash cost of reaching 3% and 3.5% of GDP, alongside the percentage targets. It should also explain how those figures would change if economic growth were weaker than forecast.
It should identify how much will come from existing budgets, how much from additional taxation or borrowing, and how much depends on private finance.
Most importantly, it should explain what additional military capability the spending is expected to deliver.
A percentage target is useful for international comparisons, but it is not a cheque. It does not guarantee a particular amount of money, and it certainly does not guarantee that the armed forces will receive everything they need.
The Chancellor has announced the ambition. The public now needs to see the financial plan.
Three per cent of GDP may be a useful target, but taxpayers deserve to know what that means in pounds and pence.
IFS Defence spending Challenges for the budget and beyond