Treasury Admits No Analysis on Nato Defence Spending Trade-offs

The Treasury has as yet carried out no analysis of the trade-offs necessary for the UK to hit the 3.5% of GDP defence spending promise made to Nato, the department’s chief secretary has said.

Under robust questioning in a joint session of the Treasury and defence committees on Wednesday, Lucy Rigby repeatedly said funding additional defence spending would be a matter for “the next prime minister”.

Keir Starmer, who is attending his last Nato summit in Ankara, Turkey, has promised the UK will hit the 3.5% target by 2035.

The failure to set out a future spending path was among the reasons for the dramatic resignation of John Healey as defence secretary.

Asked if the Treasury had done any number-crunching , Rigby said: “These are decisions for the future government to make.”

The Treasury committee chair, Meg Hillier, reminded Rigby: “You are the chief secretary of the Treasury. You’re the one in the government who oversees all the public spending.”

Asked if she had “done an analysis of the trade-offs that would need to be done, in the short or long term”, Rigby first deferred to the Treasury official appearing alongside her, and when pressed again, responded: “No, is the short answer.”

One committee member, Bobby Dean, pointed out the scale of the shift that would be necessary: “You’re talking about £30-40bn extra, equivalent to 3p to 4p on all rates of income tax.” Rigby said there would have to be a debate about “public consent” for such a change.

The government has an interim target of spending 3% on defence in the next parliament, but the path to that has not yet been set out – a question Rigby said would be left for the next spending review, due in mid-2027, by which time Andy Burnham is expected to be prime minister.

“We’ve said for the next parliament, we will get to 3%. And I understand that the question is being asked when in the next parliament. And I come back to the fact that the prime minister has said that defence will be the number one priority at the next spending review,” she said.

Rigby repeatedly stressed the difficult decisions in prospect, however, saying: “It’s not straightforward: money is finite.”

Healey resigned in the run-up to the publication of the contentious defence investment plan, which set out an additional £15bn of funding for the department over the next four years, taking it to 2.7% of GDP.

Whitehall departments have been asked to cut investment plans to fund the shift; but Rigby conceded that an extra £4.7bn will also have to be found in the autumn budget – by which time Rachel Reeves is expected to have been replaced.

Rigby said the approach of announcing projects and then funding them at subsequent fiscal events was “not uncommon”.

But Hillier compared the approach to the “black hole” in the public finances that Reeves claimed to have identified when Labour came to power two years ago.

“There were projects that had been promised that hadn’t been fully funded in the normal way, as you’ve just described, but that was described as a shocking £22bn black hole unfunded by the previous government,” she said.

Rigby and the minister for defence readiness and industry, Luke Pollard, who appeared alongside her, were repeatedly asked about the fractious relationship between the Treasury and the Ministry of Defence.

The pair both claimed the two departments were now working better together. But Pollard, the MP for Plymouth Sutton and Devonport, joked: “I come from a naval family where I was taught from an early age [that] the Royal Navy has two enemies, the French and the Treasury. We’re now good friends with the French … and I would say that the process between the Treasury and MoD has been on a journey.”