UK Defence Spending Plan Faces Tax Rise Talk, June 10

Chancellor Rachel Reeves has signalled the government may raise taxes to fund higher defence spending. The UK is finalising a defence investment plan after months of disputes between the Treasury and Ministry of Defence over how to pay for £28 billion in additional military commitments. Defence Secretary John Healey announced plans to favour British firms in defence contracts. Armed Forces personnel will receive a 3.6% pay rise, their third consecutive above-inflation award.

The Funding Gap Widens

Prime Minister Keir Starmer agreed in February 2026 to raise defence spending to 2.5% of GDP. The government initially allocated nearly £20 billion extra for the Ministry of Defence over five years. Within months, defence officials said they needed another £28 billion over the next four years to meet commitments in the strategic defence review. Chancellor Reeves has now opened the door to raising taxes to fund defence spending. The government confirmed defence spending will rise to 2.6% of GDP by 2027.

Cabinet Tensions Over Months of Delays

The defence investment plan has triggered severe infighting within government. Rows over the plan have badly harmed cabinet relations, according to Whitehall sources. The Ministry of Defence initially told departments its plans were fully costed, then later requested billions more. The Treasury resisted additional spending, prolonging the dispute for months. Ministers are now putting final touches on the plan, which is expected to be published in coming weeks. Departments agreed to cut their capital budgets by about 1% to help pay for military spending.

British Firms Get Priority in Defence Contracts

Defence Secretary John Healey announced the government will use national security exemptions to prioritise British companies in defence procurement. The approach will give credit to British-based firms with genuine presence in Britain and long-term commitments to UK supply chains. Large defence contracts will require significant sub-contracts to go to UK-based companies or guarantee competitions so British competitors are not shut out. The exemptions come from the Procurement Act 2023. Healey described the approach as unashamedly pro-Britain, responding to Chancellor Reeves’ frustration that too many government contracts go abroad.

Armed Forces Pay Rises Continue

Armed Forces personnel will receive a 3.6% pay rise effective from 1 April 2026, bringing average salaries to around £45,710. This is the third consecutive year service personnel have received above-inflation pay awards, following 4.5% in 2025 and 6% in 2024. The cumulative pay award since July 2024 totals 14.1%. Defence Secretary Healey said the award recognises the extraordinary sacrifices of military personnel as demands on defence rise. The government accepted the independent Armed Forces Pay Review Body’s recommendations in full.

Final Thoughts

The government faces a choice between raising taxes or cutting spending elsewhere to fund its defence commitments. With the investment plan expected within weeks and defence spending rising to 2.6% of GDP by 2027, the path forward will shape the UK’s fiscal position and military capability.

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