The Zhitong Finance App learned that British Chancellor of the Exchequer John Healy said that the British government will announce a “clear path” to increase defense spending during the expenditure review next spring. In an interview at the Group of Twenty (G20) summit in North Carolina, Healy said, “We will clearly explain for the first time in this spending review how to fulfill NATO's promises to raise defense spending to 3.5% of gross domestic product (GDP) by 2035.” “As part of developing this path, we will also set specific dates to achieve the 3% target.” He added that defense will “take center stage” in next year's spending review.
Healy has been Minister of Finance since July of this year. Prior to that, he was Minister of Defense in the previous administration, but he later resigned as Secretary of Defense due to failure to receive financial support to achieve the goal of raising defense spending to 3% of GDP by 2030. He said at the time that given the current “dangerous times”, Britain “must set” this goal. Healy will hold its first budget on October 28 and has promised to abide by the borrowing rules inherited from former Chancellor of the Exchequer Rachel Reeves.
Currently, outsiders are speculating when Britain will reach the targets set by NATO. In a list comparing the increase in military spending of NATO allies from 2014 to 2025, the United Kingdom ranked third to last. This performance is only superior to France and Iceland, which has no military, and actually means that Britain is in the penultimate position. Since the military spending target was introduced, Britain's military spending has increased by less than 35%, while most NATO member states have more than doubled. Measured as a share of gross domestic product (GDP), the UK's defense spending has almost stagnated, rising only slightly from 2.17% to 2.35%.
According to data from the UK Budget Accountability Office, increasing defense spending to 3% of GDP by 2030 will cost the government an additional 17.3 billion pounds (about 23.4 billion US dollars). In order to meet the requirements of the existing Defense Investment Plan, Healy will also need to fill a funding gap of 4.7 billion pounds.
According to reports, Britain's “Defense Investment Plan” was officially announced on June 30. The plan clarifies the Labor Party's road map for strengthening national security, and also marks Britain's official entry into a new era of military development. In the next four years, Britain will increase defense spending by 15 billion pounds, bringing the total defense spending close to 300 billion pounds. Defense spending will account for 2.68% of gross domestic product (GDP) by 2030.
The report said that traditional defense equipment such as ground forces and manned tanks will make way for unmanned systems. These unmanned systems have shown great power on the Ukrainian battlefield. The Navy will be transformed into a “hybrid navy.” The Royal Air Force and Army will also carry out similar reforms. The plan will invest 5 billion pounds to develop unmanned land, sea and air systems. Future operations of the three armies will be dominated by artificial intelligence. The Navy's hybrid fleet will be equipped with Type 91 unmanned missile ships and Type 93 unmanned submarines. The plan will also spend £230 million to develop an “autonomous” submarine warfare system.
However, the plan will add 15 billion pounds of defense spending over the next 4 years, partly by cutting funding in other fields, and it was later revealed that one-third of them still have no source of funding. More importantly, the plan was criticized by opposition politicians and senior former military officials, accusing it of not specifying when defense spending will reach 3% of GDP, and this is the midpoint in the UK's fulfillment of its promise to reach 3.5% of GDP by 2035.
Therefore, the British government's announcement of a “clear path” to increase defense spending in the next spring may help resolve concerns from the outside world, and may also be a benefit for European defense stocks. For example, the UK plans to build up to 12 next-generation SSN-A nuclear-powered attack submarines, built by BAE Systems and supplied by Rolls-Royce. However, some investors are concerned about how much defense spending promised by NATO governments, including Britain, can actually be implemented. If there is a huge gap between the government's defense spending promises and the actual execution of contracts, it may instead hinder European defense stocks.