Healey tells departments to make 1% cuts to fund defence

Healey orders departments to trim 1% to help pay for defence

Chancellor John Healey has instructed all government departments to identify 1% reductions in their capital budgets to help cover a £4.7bn shortfall in financing the Defence Investment Plan.

These cuts are in addition to the 1% reductions departments were asked to make earlier this year to help fund the first £10.3bn of the plan’s total £15bn cost.

The plan increased defence spending, but the chancellor remains under pressure to explain how he will meet a further commitment to spend 3% of national income on defence by 2030.

Conservative leader Kemi Badenoch said the chancellor was offering only "a plan to have a plan", adding: "I bet [Vladimir] Putin's really scared now."

While presenting his Budget, Healey suggested that reaching that target would mean further spending cuts, telling MPs it would require "looking hard at public spending".

He said he would explain how the UK would achieve the 3% target by 2030, and 3.5% of GDP by 2035, at next year’s spending review.

Government departments have not yet decided what will be removed from their capital budgets.

Capital budgets are used for long-term investment rather than everyday spending. Earlier this year, when departments were required to cut capital budgets to help pay for the initial rise in defence spending, several major road improvement projects were cancelled.

Badenoch attacked Healey for failing to use his Budget to set out how he would raise defence funding 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 already called on the government to finance defence by cutting welfare 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".

Tan Dhesi, chair of the Commons defence committee and a Labour MP, 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."

Earlier this year, Healey stepped down as defence secretary, accusing then-Prime Minister Sir Keir Starmer of failing to provide enough money to keep the UK safe.

In a sharply critical resignation letter, he singled out his view that reaching a 3% target by 2030 was essential.

Now chancellor, 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."

Alongside reviewing public spending, Healey said he also wanted to use "more innovative financing alongside the private sector and our international allies".

He said this would include: opening treaty talks with Finland, Poland and Netherlands to establish a "multilateral defence mechanism" that would let allies share resources increasing private investment in defence through public-private partnerships directing the National Wealth Fund and British Business Bank to invest £5bn in "defence, dual-use technology and sovereign capability"

The Office for Budget Responsibility estimates that the UK government's goal of lifting 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.

"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."

In his Budget speech, Healey also announced £10bn of economic and military support for Ukraine, delivered through loans and export guarantees.

That package includes £5.5bn of loans via World Bank guarantees and a grant contribution to the World Bank International Development Association's crisis facility.

Another £3bn will be made available to Ukraine through loans arranged by UK Export Finance, the government export credit agency.

Healey told the House of Commons that the week had begun with Russia carrying out a "brutal ballistic missile attack" and said the extra funding would send "a clear message to Moscow".

He said that when he informed the Ukrainian leader about the extra support in a phone call, President Volodymyr Zelensky replied: "You've made my day."

Later on social media, Zelensky welcomed the funding, saying: "Every step to strengthen Ukraine brings Russia closer to realising that it must end this war of its own making."

The money comes on top of the UK's pledge to provide Ukraine with £3bn of military support until at least 2030-31.