Rachel Reeves considers war bonds to fund £17.6billion defence spending push

Joe Sledge
Mon, 20 Apr 2026 11:58:25 +0000

Rachel Reeves is considering issuing war bonds as a way to finance Britain's defence spending commitments, according to reports.

The Chancellor is examining whether the approach could help secure £17.6billion needed to meet the Government's pledge to raise military expenditure to three per cent of GDP by 2029-2030.

Under the proposal, individuals and financial institutions would be able to purchase bonds specifically allocated to national security funding.

Defence Secretary John Healey is reported to support the idea, which has been discussed in private meetings in recent weeks.

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The approach is viewed as less contentious than alternative funding options, including potential welfare cuts that some senior military figures and ministers have supported.

Lord Hain, a Labour peer and former Cabinet minister, has promoted the proposal to senior members of Government.

He is understood to have raised the idea with both the Chancellor and the Prime Minister.

Lord Hain said: "The Government should promote extra borrowing solely for defence purposes by issuing a special purpose vehicle in the form of a defence bond up to set limits."

He pointed to the Second World War as a precedent, noting that fiscal rules were adjusted during that period in response to national security pressures.

The Treasury believes such bonds could attract investment at lower cost than conventional gilts by appealing to public support for defence.

Sir Ed Davey, leader of the Liberal Democrats, has also backed the concept, arguing earlier this year that Britain needed to increase defence spending more rapidly.

He said the public could "support patriotically our defence" through bonds running over two to three years, paying interest in line with standard government bonds.

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The Liberal Democrats estimate such a scheme could raise up to £20billion for defence.

Treasury officials believe issuing dedicated defence bonds would not breach the Chancellor's fiscal rules.

Ms Reeves has ruled out raising taxes or increasing borrowing to meet Labour's defence commitment, while also rejecting changes to the triple lock on pensions.

The debate over defence funding has highlighted divisions within Government.

Lord Robertson, a former Nato chief and Labour defence secretary, said the military could not be adequately funded alongside an "ever-expanding welfare budget".

Health Secretary Wes Streeting has also suggested welfare reductions may be required to support defence spending.

However, Sir Keir Starmer is not expected to pursue this approach following opposition from Labour MPs to previous proposals to reduce the benefits bill.

The Prime Minister pledged to publish a 10-year defence investment plan six months ago, though it has yet to be released amid ongoing discussions between the Ministry of Defence and the Treasury.

Lord Robertson said delays to the plan risk undermining national security planning.