Raise defence spending to 3 percent: calculation note

Central fiscal result

+£19.0bn - Net fiscal impact in 2028-29

Low case: +£12.0bn. High case: +£30.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Model defence spending at 3 percent of GDP in 2028-29.
• Central cost compares with £73.5bn planned departmental spending.
• GDP and NATO-definition uncertainty widen the range.
• Aid and welfare offsets are not netted here.

Affected population

• Affected population is defence forces, suppliers and taxpayers.
• Direct beneficiaries include MOD, contractors and defence workers.
• Indirect exposure includes engineering labour markets and regional supply chains.
• Public-service opportunity costs are outside the direct line.

Gross impact

• Central gap to 3 percent target: about £19bn.
• Low case assumes current plans already close much of the gap.
• High case assumes GDP definition and equipment inflation raise cost.
• No multiplier or innovation dividend is booked fiscally.

Fiscal build-up, central case

• Additional defence spending: +£19.5bn
• Tax receipts from activity: -£0.4bn
• Procurement administration: +£0.1bn
• No offsetting aid cuts here: -£0.2bn

Central net impact: +£19.0bn in 2028-29.

Behaviour and pass-through

• Low case assumes lower GDP and more existing defence-path coverage.
• Central case assumes 3 percent target versus spending-review baseline.
• High case assumes higher nominal GDP and procurement inflation.
• Supply constraints can raise prices before capability.
• Innovation spillovers are possible but not guaranteed.

Phasing

• 2026-27: +£1.9bn. Preparation or partial implementation.
• 2027-28: +£10.5bn. Main ramp-up year.
• 2028-29: +£19.0bn. Target-year central estimate.
• 2029-30: +£19.0bn. Continuation at steady-state assumptions.

Main source groups

• House of Commons Library, "UK defence spending" (2025): Defence spending was £60.2bn in 2024-25 and is forecast to rise to £73.5bn in 2028-29; anchors the cost of moving faster to 3% of GDP.
• House of Commons Library, "UK aid: Reducing spending to 0.3% of GNI by 2027/28" (2026): The government plans to reduce aid to 0.3% of GNI, yielding large defence-funding savings; shows the baseline already includes aid cuts.
• Office for Budget Responsibility, "Economic and fiscal outlook: March 2026" (2026): The OBR forecast sets the macro, borrowing and receipts baseline used for broad fiscal context; prevents treating tax cuts or spending changes as self-financing.
• Ramey, "Can Government Purchases Stimulate the Economy?" (Journal of Economic Literature, 2011): Evidence on government spending multipliers is mixed and depends on slack, monetary policy and financing; useful for defence, policing and public-sector cuts.
• Moretti, Steinwender and Van Reenen, "The Intellectual Spoils of War? Defense R&D and Innovation" (Quarterly Journal of Economics, 2023): Defence R&D can generate innovation spillovers, but effects depend on procurement and technology choices; relevant to higher defence spending and a sovereign defence fund.
• Barro and Redlick, "Macroeconomic Effects from Government Purchases and Taxes" (Quarterly Journal of Economics, 2011): Government purchases can raise output temporarily, but multipliers vary and taxes create offsetting costs; relevant to public spending cuts, defence and policing.
• Conservative Party, "Our Plan for Britain" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.