Raise defence spending to 2.6 percent

Policy baseline

Government plans lift defence and intelligence spending toward 2.6 percent of GDP by 2027. The cost depends on GDP, classification and procurement profile.

• Targets defence, intelligence and industrial capacity.
• Capital-heavy spending has long lead times.
• Opportunity costs are large.

Core trade-offs

The direct beneficiaries are defence suppliers and national-security capacity. The costs fall mainly on taxpayers and lower-priority departments. The main economic question is procurement capacity may waste money.

• Defence suppliers and national-security capacity gain most directly.
• Costs fall mainly on taxpayers and lower-priority departments.
• Key risk: procurement capacity may waste money.

Fiscal impact by 2028-29

+GBP 4.0bn to +GBP 13.0bn. Central estimate: +GBP 8.0bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Defence-sector jobs rise, but labour and engineering capacity may be diverted.
• Wages: Skilled defence wages may rise; taxpayers fund the expansion.
• Prices: Defence procurement inflation risk is material in constrained supply chains.
• GDP / productivity: Security value may be high; measured productivity can fall if procurement is inefficient.

Assessment

This is a real trade-off, not a free gain. Defence suppliers and national-security capacity benefit, while taxpayers and lower-priority departments bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Procurement overruns: Large defence programmes have high cost and schedule risk.
• Opportunity cost: Engineers and capital may be diverted from civilian investment.
• Strategic uncertainty: Security benefits depend on threats and alliance commitments.

Safeguards

• Use independent procurement gateways.
• Publish industrial capacity plans.
• Separate security needs from regional subsidies.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for raise defence spending to 2.6 percent Internal - PolicyLens, 2026
• Budget 2025 UK government budget - HM Treasury, 2025
• UK defence spending Parliamentary briefing - House of Commons Library, 2025
• Quantifying Wider Economic Impacts of Agglomeration Academic review - Graham and Gibbons, Journal of Transport Economics and Policy, 2019
• Climate Change: The Ultimate Challenge for Economics Academic article - Nordhaus, American Economic Review, 2019
• Spending Review 2025 UK government spending review - HM Treasury, 2025
• Change: Labour Party Manifesto 2024 Party policy source - Labour Party, 2024

Other Labour policies

• Raise employer National Insurance
• Apply VAT to private school fees
• Replace non-dom tax status
• Raise capital gains tax rates
• Extend the Energy Profits Levy
• Capitalise the National Wealth Fund
• Capitalise Great British Energy
• Expand the Warm Homes Plan