Budget to commit billions to defence and set NATO spending path

Billions of pounds in new defence spending will be a key commitment in this week's Budget, with Chancellor John Healey expected to set out a clear path towards NATO's targets of 3.5% of GDP by 2035 and 3% by 2030. The government is presenting the plan as a break with more than half a century of declining defence commitments, but the money will have to be found through tough trade-offs and will face questions about how it is spent.

Defence Secretary Wes Streeting spent the day with European counterparts in Paris for his first E5 meeting. He said his allocation would rise on Wednesday and that more would follow at the spending review next year. Streeting said the path would go not just to the 3.5% required by NATO for 2035 but to 3% along the way. He said defence spending sat at 2.3% of GDP when the government came into office, would reach 2.7% as a result of decisions taken, and that there would be more to come.

The Chancellor is under pressure to show how the commitment can be afforded. Ministers plan to invest in British defence companies, including drone manufacturers and technology firms, hoping to create jobs and income for the Exchequer while improving the UK's defensive capabilities.

Tekever is one example. The company used to be a civilian business working for the European Maritime Agency and the Home Office, but it is now expanding into warfare. Its turning point was the 2022 invasion of Ukraine, and it says Ukraine has shown that innovation and speed are needed. Last month it was awarded a £400 million MOD contract and is hiring hundreds of people in Swindon and West Wales. Youth unemployment in that part of West Wales is higher than the national average and earnings are significantly lower.

A remote pilot, identified only as Lucy for security reasons, said she had come into the job from no aviation background and now works as a pilot in command on the AR3 system. Jobs like hers could boost regional supply chains and help Andy Burnham's ambitions of growth in every postcode.

But the scale and speed of the increase remain in question. In the summer, John Healey said current defence investment plans were falling well short. He cited a rise of 0.08% from next year to 2030, no date for reaching 3%, and no path to 3.5%. He felt strongly enough to resign as Defence Secretary. Now as Chancellor, his Budget numbers will be scrutinised.

The UK currently spends £68 billion on defence. Over the next four years, that is due to rise to 2.7% of national income. The Chancellor wants to find money that he says fell well short under Rachel Reeves. That adds around £4.7 billion. To get to 3%, an extra £11 billion is needed. The OBR numbers on Wednesday will be watched for the detail.

Praful Nagand, an advocate for Healey's defence drive, said the question is not only when the money is spent but how. He argued that extra money cannot just go to large companies. It must reach smaller firms, challengers and innovators, including by making it easier for smaller firms to bid for contracts and forcing larger companies to treat their supply chains better.

Not everyone accepts that higher defence spending will produce an industrial revival. One critic described it as a new age of transferring public wealth to the MOD, military contractors and the United States, and said it was not a sustainable way to industrialise the country. There have also been a string of procurement failures at the MOD that have cost tens of billions over the years, with many based on supposedly revolutionary technology that ended up speculative and did not work.

The shift means more money for defence after decades of decline, but also hard choices for the taxpayer. The Chancellor's hope is that business wins can offset the cost and help get the UK out of its economic difficulties.