Chancellor Orders 1% Department Cuts to Fill £4.7bn Defence Hole

Chancellor John Healey has ordered every government department to find 1% cuts in their capital budgets to plug a £4.7bn hole in the Defence Investment Plan. The reductions stack on top of the 1% cuts departments absorbed earlier this year to cover the initial £10.3bn of the plan's £15bn total price tag.

Departments have not yet decided what gets cut. Capital budgets fund long-term investment, not day-to-day spending. When departments made similar cuts earlier this year to fund the first defence spending rise, several major road improvement schemes were scrapped.

The takeaway: another £4.7bn is now coming out of Britain's long-term investment pipeline, and the specific casualties remain unknown.

How will the UK reach 3% of national income on defence?

Healey faces sustained pressure to explain how he'll hit 3% of national income spent on defence by 2030. Setting out his Budget, he told MPs the goal would involve "looking hard at public spending," and promised details at next year's spending review — covering both the 3% target by 2030 and 3.5% of GDP by 2035.

The Office for Budget Responsibility puts the cost of the 3.5%-by-2035 target at £35bn.

Conservative leader Kemi Badenoch accused the chancellor of offering only "a plan to have a plan," adding: "I bet [Vladimir] Putin's really scared now." She criticised him for not using the Budget to explain the route to 3%. "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," she said. The Conservatives have previously urged the government to fund defence through welfare cuts.

Nato Secretary General Mark Rutte took a different view, saying 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."

Tan Dhesi, Labour MP and chair of the Commons defence committee, said "some of the key decisions on defence spending have lamentably been delayed until next year's spending review." He added: "There is a cost to inaction. Investment in our nation's defence and security cannot be kicked into the long grass."

The political irony is sharp: 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. His resignation letter stressed the importance of the 3%-by-2030 target.

Where will the money come from?

Beyond spending cuts, 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 said he wants to use "more innovative financing alongside the private sector and our international allies," specifically:

• Starting treaty negotiations with Finland, Poland and the Netherlands to set up a "multilateral defence mechanism" allowing allies to share resources
• Increasing private investment in defence through public-private partnerships
• Directing the National Wealth Fund and British Business Bank to put £5bn into "defence, dual-use technology and sovereign capability"

Helen Millier, director of the Institute for Fiscal Studies, questioned the approach: "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. 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."

What does the Budget give Ukraine?

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

Healey told MPs the week had begun with Russia launching a "brutal ballistic missile attack" and that the extra money would send "a clear message to Moscow." When he informed President Volodymyr Zelensky by phone, the Ukrainian leader said: "You've made my day." Zelensky later posted: "Every step to strengthen Ukraine brings Russia closer to realising that it must end this war of its own making."

The new money sits on top of the UK's pledge of £3bn in military support for Ukraine until at least 2030-31.

With departmental cuts unspecified and the 3% roadmap deferred to next year's spending review, the fiscal arithmetic behind Britain's defence build-up — and who pays for it — stays open.