Defence Spending Increase Announced

Prime Minister Keir Starmer has announced plans to increase the UK’s defence spending to 2.5% of GDP by 2027, with a longer-term ambition to reach 3% in the next parliamentary term. This increase, expected to total around £6bn annually, will be funded by cuts to the overseas aid budget. The announcement, made in the House of Commons on Tuesday, comes just days before Starmer meets President Trump in Washington on Thursday.

This announcement has been carefully timed for maximum impact, both domestically and internationally. It signals a robust commitment to military readiness, particularly in response to the war in Ukraine and growing concerns over global instability. While the decision is likely to be welcomed by the defence sector and NATO allies, it will spark debate about the trade-offs between defence and international aid—even among defence advocates. The UK’s aid sector, already struggling following disruptions in USAID funding, will take another major hit, reinforcing a decade-long shift in the UK’s foreign policy priorities.

Additionally, folding the national security services budget into the defence budget serves both a practical and political purpose—recognizing the increasing overlap between security and defence, while also allowing the government to present a higher overall spending figure.

The Strategic Defence Review and Service Chiefs will publicly dictate spending priorities, but behind the scenes, Defence Secretary John Healey’s procurement reform efforts will face serious scrutiny. The challenge will be absorbing the extra funds effectively, ensuring that spending meets the needs of the armed forces, satisfies the Treasury, and reassures taxpayers.

The government also sees defence spending as an opportunity for domestic economic growth. The upcoming Defence Industrial Strategy, tied to a wider industrial policy, is expected to prioritize sectors such as aerospace, maritime defence, and cyber and digital technologies.

The path to 2.5% of GDP on defence has been heavily speculated since Labour’s election victory in July 2024. But the announcement is as much about diplomacy as it is about defence.

Starmer’s meeting with President Trump on Thursday will be easier given this announcement, but whether it fully satisfies Trump’s expectations for allied defence spending remains to be seen. Beyond defence, Starmer has two key objectives in Washington: securing a security guarantee for Ukraine to accompany any potential peace deal, and shielding the UK from new US tariff threats, particularly those targeting digital services taxes and VAT calculations. To sweeten the deal, Starmer is expected to offer deeper UK-US cooperation on tech, AI, and security in exchange for trade concessions.

European leaders will also be watching closely. French President Emmanuel Macron’s tense meeting with Trump this week underscores the uncertainty surrounding Europe’s role in upcoming negotiations with Russia. European leaders will meet on 6 March at a special European Council summit to assess their own defence spending commitments and formulate a response to US demands.

Starmer’s defence spending announcement is as much about geopolitics as it is about military capability. The funding source will be controversial, but the move will play well with key voter groups and strengthen the UK’s position on the global stage. The real test will be whether the government can translate this financial commitment into meaningful military improvements while navigating diplomatic and economic challenges in Washington and Brussels. The outcome of Starmer’s meeting with Trump will be an early indicator of whether this gamble pays off.