Raise defence spending to 3% of GDP: calculation note

Central fiscal result

+£10.0bn - Net fiscal impact in 2029-30

Low case: +£4.0bn. High case: +£18.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Defence reaches 3% of GDP within six years.
• Baseline includes current 2.5% by 2027 commitment.
• Costs use broad NATO-style defence spending terms.
• No offsetting aid cut is included here.

Affected population

• Affected units are MoD budgets, personnel and defence suppliers.
• UK taxpayers fund the increase.
• Industrial regions with defence supply chains gain demand.
• Other departments face possible crowding-out.

Gross impact

• A 0.5 percentage-point GDP uplift is a large commitment.
• Central extra cost is £10bn by 2029-30.
• Low case assumes baseline already moves near 3%.
• High case assumes higher GDP and broader definitions.

Fiscal build-up, central case

• Extra personnel and equipment spending: +£10.5bn
• Tax receipts from defence wages: -£0.8bn
• Procurement inflation and transition: +£0.3bn
• Administration and uncertainty: +£0.0bn

Central net impact: +£10.0bn in 2029-30.

Behaviour and pass-through

• Low case assumes current policy funds much of the increase.
• Central case assumes a clear 0.5% GDP gap remains.
• High case assumes procurement inflation and broader spending.
• Domestic multipliers are not scored as self-financing.

Phasing

• 2026-27: +£2.0bn. Preparation or partial implementation.
• 2027-28: +£4.0bn. Main scenario year.
• 2028-29: +£7.0bn. Behaviour and pass-through develop.
• 2029-30: +£10.0bn. Steady-state uncertainty persists.

Main source groups

• Auerbach and Gorodnichenko, "Measuring the Output Responses to Fiscal Policy" (American Economic Journal: Economic Policy, 2012): Government-spending multipliers are larger in downturns and smaller in expansions; relevant to GDP effects from higher defence procurement.
• Ramey, "Identifying Government Spending Shocks" (Quarterly Journal of Economics, 2011): Spending shocks can have moderate output multipliers and can crowd out consumption or private activity; supports caution that defence spending is not a free growth policy.
• Office for Budget Responsibility, "A brief guide to the public finances" (2026): The OBR expects public receipts of about £1,235bn in 2025-26; scale check for large packages.
• Reform UK, "Our Contract with You" (2024): The Contract claims large savings from departments, QE reserves, aid, welfare and net zero; defines scenarios but needs caution.
• House of Commons Library, "UK defence spending" (2025): Used to size the affected population, baseline economic quantities and sectoral exposure.
• Ministry of Defence, "Strategic Defence Review 2025" (2025): Used to support the baseline, affected-population sizing or behavioural assumptions in the illustrative scenario.
• Reform UK, "Our Policies" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.