The solution to how we unlock greater defence investment can be found in the former Defence Secretary’s letter of resignation. John Healey argued there are credible ways of meeting the funding challenges posed by a more dangerous world through working multi-nationally with other countries. He was right.
For too long, our defence debate has focused on spending targets: percentages of GDP, Treasury settlements and fiscal rules. These matter, but they are not enough. We also need to ask how we finance the industrial expansion required to deliver the capabilities our Armed Forces need.
Budgets do not build factories. Industrial capacity does.
This is why I have spent the past 18 months leading the campaign in Parliament for the UK to co-found the Defence, Security and Resilience Bank.
Next month, Canadian Prime Minister Mark Carney is due to convene our allies to sign the Charter establishing the DSRB at the NATO Summit. If they do, it will become one of the most significant new institutions in transatlantic security for a generation. Britain should be there at the table.
Some have portrayed the DSRB as little more than an SME finance initiative. That misses the point. The Bank may begin with SMEs, but its purpose is to strengthen the whole defence industrial ecosystem, from start-ups and specialist manufacturers through to prime contractors and governments. Its mandate spans research and development, industrial expansion, credit guarantees, private capital mobilisation and sovereign lending.
In short, it is designed to turn political commitments into industrial output.
Across the defence sector, companies face two linked challenges: access to capital, and confidence in future demand. Without finance, firms cannot expand. Without demand, they will not. Some will point to initiatives such like the Multilateral Defence Mechanism, which is important because they help coordinate procurement and signal demand with our allies. But they do not solve the finance problem. The DSRB does. Britain needs both: clearer demand, and the capital to turn it into real defence capacity.
Together, they create the conditions for more factories, jobs, exports, innovation and resilient supply chains. That is not merely defence policy. It is industrial policy.
The DSRB is being created by sovereign nations for sovereign nations. Its financing will be directed towards companies domiciled within participating member states. Countries contributing capital will expect that capital to support jobs, investment and growth within the nations that have chosen to join.
The risk for Britain is obvious. If we are left outside this institution, British companies will be shut out of a growing pool of allied defence finance. Factories financed by the Bank, production lines expanded through its lending and technologies brought to market through its investment will increasingly be concentrated within member nations.
At a moment when the Government is searching for growth, voluntarily excluding British firms from a new ecosystem of allied defence investment would be an extraordinary decision we would regret. The frustration Britain has already experienced from limited participation in the European Union’s SAFE programme should serve as a warning. When new institutions are created, the rules are shaped by those at the table.
The terms are favourable. Britain’s contribution would be €1 billion over three years – about €500 million below what it would have been with the standard GDP-based formula, following a G7 discount secured during the Charter negotiations. Participation in the DSRB is an investment. Britain would be purchasing equity in a new multilateral bank designed to finance allied industrial growth, defence production and economic resilience. It is exactly the kind of strategic investment our National Wealth Fund was created to make. The UK’s paid-in contribution could be provided through the Fund in exchange for an ownership stake in the Bank. There would be no need for further departmental cuts or additional borrowing to fund out capital contribution.
Some critics will still argue that borrowing is borrowing. That misunderstands another important feature of DSRB. The United Kingdom can already borrow through the gilt market. But every additional pound of borrowing adds pressure to the same financing channel.
The DSRB creates something different: a AAA-rated multilateral borrowing platform backed by multiple allied governments rather than the UK alone. In effect, it creates a new allied defence financing yield curve alongside the UK’s own gilt market. It gives Britain access to another source of long-term capital, with more options, flexibility and potentially lower financing costs.
If we seize this opportunity now, we can also secure wider benefits. As one of the largest economies involved, Britain could secure an operational presence within the bank, exert real influence over the institution’s strategy and direction, and reinforce London’s role as a global financial centre.
This investment would be a significant show of strength to our enemies and a commitment to our allies. But is also foundation for a defence industrial policy that delivers national security and boost growth.
More factories.
More jobs.
More exports.
More innovation.
The obvious question is how Britain can afford to participate.
The better question is whether Britain can afford not to?
This article is the opinion of the author and not necessarily that of the UK Defence Journal. If you would like to submit your own article on this topic or any other, please see our submission guidelines.
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Its debt, the bond markets wont care whoever lends the money. Its still a liability and it will only increase the cost of borrowing. That’s ignoring the inflationary effect of more borrowing. The only way more can be spent on defence is politically painful cuts elsewhere.
Nonsense Ron. It is perfectly normal for countries to borrow for capital projects.
Once again for the hard thinking. The bond markets don’t care what the money is spent on. It looks at the balance sheet and sees a higher liability and a greater risk of default. Its will respond by demanding a higher coupon for lending on the 125 billion a year the government is borrowing. Debt intrest is already the 3rd biggest expense to the government, its over twice the defence budget. See the Liz Truss budget or the 1976 Sterling crisis for what happens when you go on a borrowing spree.
Ron. The Bond market will see the UK boosting their expenditure on defence and it’s companies position as a major player in the emerging arms markets plus a boost to associated industries. They will see this as a Country worth lending money too because they wish to make a long term profit.
Yeah Liz Truss made the same argument about borrowing to fund tax cuts. How did that go? Once again, the bond markets don’t care about what the money is spent on. They only care about the ability to pay the debt. The more you borrow, the greater the risk, the greater the risk the more you pay in intrest. The bond markets view the UK as a greater risk than Italy despite Italy’s economy being flat for 25 years.
A lot of the bond market sentiment is down to the instability of politics and total lack of leadership combined with fiscal incontinence.
The effect of not pushing through even the £5bn of welfare cuts that Starmite tried to make and then U turned on would have been significant as it would have been perceived as a clear marker that moved the needle on the possible. Especially if it was backed by a policy of using the existing budgets to get people back into work rather than warehousing them under various dubious headings. It didn’t happen. So the markets know that cuts in the big budgets of welfare and NHS are not possible so nothing serious is going to happen to deal with the debt situation.
If there was a clear direction of travel on welfare going downwards then borrowing a set amount for defence wouldn’t spook anyone.
The problem, as it stands, is that money may be thrown around by an increasingly decision happy PM – Oh what the would have done for him 18 months ago if he was firing out decisions as fast as he is now: that would have bought him manoeuvring space.
I was having breakfast with one of the biggest bond market guys and that was his take.
The country owes the best part of 3 trillion quid and are borrowing 135 billion a year. The tax burden is the highest in 80 years and the deficit is growing not shrinking. You can’t keep borrowing more and more money. The government needs an additional 12 billion per year to hit 3% of GDP. 5 billion wont even cover half the bill
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Not at the stage we are at it isn’t. We’re on the verge of a financial crisis right now. Debt to GDP is 100%. 25% plus of our Gilts issued are Linkers so theres no inflating away the debt. Bond yields are rising all the time, same level as when Liz Truss was meant to crash the economy. Growth is static ( been pathetic since 2008), inflation is way above the target. Taxation is at 75 year highs. The only way to get out of this mess is reducing spending. The state is grossly incompetant, productivity is going down while headcount has gone up. You can’t and never could tax an economy to prosperity.
I agree Rob, the concept of war bonds, multilateral pulling mechanisms or private finance seems to be totally lost on service chiefs and the “main stream media” and it’s never ending chorus of talking heads who all seem to think they have the perfect solution.
The UK has one of the highest credit ratings in the world, the higher cost of GBP funding relative to other G7 economies is almost entirely due to inflation forecast not credit worthiness. The last UK gilt auctions had near record numbers of subscribers. Plenty of people want to lend money to the UK government and if we wanted more we can easily funnel UK bank capital or pensions into the cash flows like Germany does. The UK is the second biggest holder of US debt in the planet.
But it’s all just debt. We should not be borrowing in peace time to fund defence budgets, we should be paying our way by cutting welfare including pensions, cutting inefficient government spending and raising taxes where needed. Running a 4% budget deficit now is criminal.
The treasury are not daft, all the hype from the MoD and the Media about how dangerous the world is won’t work on them because it’s largely a media generated fantasy.
Arguing for the same budgets we had to face off against the Warsaw pact and the Soviet Union or Nazi Germany won’t work because Russia sent a mini sub to try and inspect a telephone cable near Shetland.
The UK Allie’s on Europes eastern boarder have serious security worries, the UK obligations under Article 5 are overshadowed by the obligations of Eastern Europe under Article 3. That’s why these countries can and should be out spending us, especially after they spent decades not spending on defence and enriching Russia via gas purchases.
The “need” for major UK spending boosts has everything to do with a desire by the British establishment to remain diplomatically relevant in the world and especially with the USA. It’s has very little to do with any direct threat to the UK.
If we want a national consensus on spending much more then we need to be honest with people about why we are doing it.
Of all the new systems and capabilities the MoD wants to purchase, almost none are for UK mainland Defence.
Again the treasury knows all this which is why they are not being swayed.
Let’s not pretend their is some magic way to borrow money for defence that don’t just leave us saddled with more debt.
The UK credit rating was cut after 08, and we are paying more to borrow money than Italy. The UKs debt to GDP ratio stands at 93%. When you include PFI that hits 101%. There’s no more borrowing that can be afforded.
But there is more borrowing, in April alone we borrowed £24.3 billion. A billion every working day. The DIP is short of about 1 week of borrowing. This is a case of borrowing for different reasons and cutting some of what that borrowing is servicing. Despite Cameron’s so called austerity, we never eliminated the deficit, been with us since the year 2000, no government has ever had the balls to try and genuinely balance the books and structural issues will see this get worse.
Too be fair Blair was handed a balanced sheet there was no deficit and he then continued to borrow even when the economy was booming
Hi Tim, sorry but that’s inaccurate, it’s a nice story told about how bad Tony Blair was at spending money but the reality is the UK government did not enter a surplus until 1998/99 and Blair came to power in 1997.
Brown had to make some significantly difficult choices in that year, one of them being to stick with the BoE independence when the media stream media and the Tory’s were screaming that interest rates dropped control should be returned to the Treasury.
Jim, I think you’re technically right that the UK did not enter surplus until after Blair came to power, but that misses the more important point about why it happened.
Labour’s 1997 manifesto explicitly committed the incoming government to stick to the previous Conservative spending plans for the first two years. So the improvement in the public finances that showed up in 1998/99 was not some instant act of fiscal genius by Blair or Brown. It was largely the result of the inherited trajectory: tight spending plans, economic growth, rising tax receipts and the normal lag between policy decisions and the public finance figures.
In other words, yes, Tim is slightly loose on the timing, but the substance of his point is fair: Labour did not create that early surplus from scratch. They benefited from the fiscal consolidation and spending restraint already baked in before they arrived.
Brown deserves credit for some early decisions, including Bank of England independence, but the idea that the late-1990s surplus was principally a Blair/Brown achievement is a stretch. Once the initial restraint gave way to the post-1999 spending settlement, public spending rose significantly and the overall budget moved back into deficit from the early 2000s. The surplus was inherited in motion, not conjured up by New Labour.
No the DIP is an additional 12 billion not 1 billion.
I said 1 week of borrowing not one day, so about 8 billion, my assumption was that the DIP is about 8bn short, but yes indeed, 12bn sounds more likely.
Almost Everyone’s credit ratings were cut in 08. Credit ratings have little impact on major government borrowing rates, the UK currently pays about 0.79 more on the ten year than Italy, that’s almost all inflation expectation. Italy has a declining population which leads to lower inflation, this is why the Eurozone and Japan have much lower interest rates than countries like Australia, the UK and the USA.
It’s not a sign of economic strength.
@Ron Swanson
You’re absolutely 100% correct.
This is unsecured debt. Lenders are only concerned about 2 things; firstly, the interest rate and secondly, will they get their money back. They don’t care what Kier borrows it for, whether for a new tank, an MRI machine or his old dad’s gender reassignment.
It is pure nonsense to suggest markets view debt more favourably because it’s for a good cause or it’s use is well intentioned.
Whilst I do agree that we should borrow money for capital investment I don’t feel we need to borrow from an international defence bank. That doesn’t make sense for a country like ours. The Bank of England should be able to loan the country any funds it needs for defence and any national emergency funding such as a war, medical outbreak, etc.
Indeed I would suggest that the UK should be able to set up a bank for other countries to borrow money for defence spending. Even if it did so as part of a consortium. When it comes to war the UK normal starts on it’s own.
The Bank of England doesn’t loan money. The money comes from the bond markets. Domestic Private Financial Institutions, eg pension funds, own roughly 40%. Overseas Investors own another 30%. The rest is QE from the credit crunch but thats being slowly sold off.
QE is effectively a BoE loan mechanism, even though not officially. The Treasury borrows from the markets and the BoE buys the debt back. I would argue that a direct mechanism would be more efficient.
BoE has no money to lend. Money printing worked out so well for Argentina and the Weimar Republic. QE only worked because of the deflationary environment. Trying doing QE now or outright money printing you will only get inflation. See the 1976 Sterling crisis for what happens when you go on a spending spree with inflation already high. If you want more money for defence, the only way to get it is by making cuts.
It’s not how you get the money – all new money is “printed” – it’s what you do with it that causes or doesn’t cause inflation (too much money chasing too few goods). You put your finger on it: going on a spending spree. Oddly, the same economists that believe QE will get you inflation are often in favour of reducing interest rates to allow the commercial banks to print more money instead and lend it into the market. They also believe in aggregate demand, so they should think it has the same effect. Their logic doesn’t seem to stretch that far.
So will there be some inflation if you spend more in a concentrated area? Probably. But Weimar or Zimbabwe levels? Not a snowball’s chance in hell.
OMG Ron get a grip. Get a £10 note out of your wallet and read the part where is says “I promise to pay the bearer …”
It is all a loan on the basis of confidence in the UK. As long as there is confidence in the UK everything is fine.
The strength of the UK armed forces and the rest of NATO dictates the continuous strength of the western economies. Without which what would the bond markets have?
Im not the one with that thinks that the BoE lends money.
Hi mark it says promise to pay the bearer but that £10 note is not a loan to the British government.
The Bank of England doesn’t have any money to lend the British government unless its uses QE.
The British government borrows money via the DMO (Debt Management Office) which is an agency under the treasury. The BoE is not involved in process unless purchasing bonds onto its own balance sheet via QE.
The BoE sets interest rates but these are not government bond rates. They are the rates the BoE charges to other banks to lend. The often reflect government bond rates but they don’t set them. The DMO sets rates via an auction price.
I wasn’t always this way the BoE use to lend the British government money but it was stopped in 1998 when the bank was given independence and it was replaced by the DMO.
All of that’s true (perhaps the DMO might have actually started functioning a year or two later that you suggest). But as I pointed out, QE is effectively a loan to the government, as BoE buys up government debt and holds it with the money it has printed. If I sell into the market knowing you will buy from the market, that’s effectively me selling to you.
Hi Jim,
The BOE is the British State (from a financial perspective). A bank note is a promise from the state to whomever has a Bank Note that the state holds something of worth to back up the value of the note. This used to be gold but not so much any more. Each state has it’s equivalent. Basically the work or goods provided by it’s population give it’s currency worth. In essence you have to buy the currency to pay the UK workforce for what you want. That requires buying sterling and paying the going rate.
Some Countries deal in US dollars for their domestic funds for the simple reason that their local currency is worthless for any number of reasons. Sterling is a strong currency because people believe in the UK. Being unable to maintain our defences is an indication of weakness and would not help the value of sterling. The US can print dollars as long as they want providing confidence in the currency remains strong. Same for the UK.
I’m far from a finance expert but surely this all comes back to priorities? We can fund dramatic increases to defence spending but there is simply a lack of willingness from this government to do so.
I don’t see how joining the DSRB really changes that.
Please feel free to correct me.
You are correct. Politicians want their cake and eat it. They make noises about defence but don’t want to make unpopular cuts to fund it. Magic money tree borrowing isn’t going to work.
Alex is a politician Ron and to be fair to her she has got herself elected and is trying the best for her constituents.
I agree that buying on the never never rarely works. This doesn’t mean that the Government has no options.
The option is to cut the NHS and/or the state pension. Those are the two biggest ticket items. Good luck getting elected on that.
You are thinking in two dimensions Ron. You need to think out of the box.
In a sense you are correct there are priorities. There are also costs which are not really optional. Defence is one of those costs. We either have sufficient assets to defend ourselves if necessary or we don’t. We have, as a Country, become complacent and think that war is never going to come our way ever again. If we think like that it will and many will die.
A defence bank will suit many smaller countries but we are economically massive and should if anything be loaning money to other countries.
We need to get a grip on our discretionary spend I afraid. We need to spend money but we need to do better than we are.
I agree Mark. Whilst i appreciate the need for the Welfare state i would argue it’s clear a change of direction is needed none more so than what the government spends our money on.
A lot of defence spending is optional. Spain spends 6X less than us and no one is invading them. That suggest the UK could spend 6X less and be fine. The vast majority of our spending is on expeditionary capability designed to defend others, primarily with the aim of promoting our own security but again much of it’s optional.
You could easily guard the UK with a couple of squadrons of Typhoons and a handful of frigates. We live in a very safe neighbourhood and we are in island. We primarily live in a safe neighbourhood because we spent the last 300 years pushing out our security umbrella with expeditionary warfare and Allie building. It didn’t happen by accident obviously.
I don’t want us to just have a defence force but we should pretend it’s not an option.
It isn’t an option though, the UK isn’t Spain and never will be. We get involved on the world stage, up till the last 10 years as a force for the good of the west. We were ready to get involved, bad countries feared us and others asked us to help. If we are going to be a global force with PM’s trying to big it up internationally then we need to stump up the cash.
It may be others directly threatened by Russia but don’t forget our citizens will be there fighting if it all kicks off and NATO goes article 5. At that point Russia wouldn’t be above attacking our economy or homeland in limited ways.
Spain is a poor example. Russia, for example, would need to invade most other Western European countries to get to Spain. Spain is a NATO member so would obviously be defended by other NATO members as well as the Franco British nuclear shield. Spain will need to beef up it’s defence spending along with everyone else.
I think you have got things backwards really Jim, Spain are suffering badly from infiltration from other countries such as China. They are not really defending themselves at all.
Alex it appears to me that, as is normal with Labour politicians, that you have forgotten that the first responsibility of any Government is defence.
The Country is spending too much on other stuff which must ultimately be reigned in.
Once you get to a point where there is too much support going on something needs to change. If you are a politician you need to enable a position where you get more and more people standing on their own two feet so everyone can share the load of the few remaining.
Defence is not an inconvenience draining the Government pot. It is a necessity without which the Country would be Governed by people who do not care if we live or die.
Ultimately we, as a Country, we must pay for everything. We need to invest in kit and people, get on with providing that. The treasury know where to get the money and where to save money. Get on with it.
People say the first priority of any government is defence but it’s not actually written down anywhere and for a small island in the North Atlantic actual defence could be done on a fraction of what we spend.
We spend 13X more than Finland which has a much much more dangerous security situation than us.
We have an expeditionary armed forces largely to fight other people’s wars which in turn promotes our own security.
We spend £70 billion a year which is a vast sum of money but very little of that is for the defence of the UK, almost all of it is our contribution to the collective west and its global security order which certainly benefits us but not really anymore of less than anyone else.
It’s simply common sense that defence is the first duty of the government because existential threats make everything else irrelevant.
You need to watch any of a Sarah Paine’s excellent lectures on Maritime Powers v Continental Powers to understand why we spend money to ensure freedom of navigation and expeditionary warfare.
Hi Spock, the problem is all the straw man arguments put up especially by people like Sarah Paine (who does have some good insight) is that they are all firmly grounded in the 19th and 20th century.
Britain’s maritime trade in the 21st century is almost exclusively between Dover and Calais on car ferries and the channel tunnle. Other than Qatar and American LNG which we can soon replace the only thing coming to us from across the oceans is our supply of Chinese made iPad’s and Chinese EV’s. All of which we can do without.
And as we seen with the Somali pirates and now the USN in the Gulf, navies are of little use to open sea lanes. What does work is the rule of law that we spent 300 years setting up for everyone’s benefit and as everyone benefits the onus is on them to keep the sea open.
“Britain’s maritime trade in the 21st century is almost exclusively between Dover and Calais on car ferries and the channel tunnel”
No true.
“Chinese made…. All of which we can do without.”
Wrong.
“What does work is the rule of law that we spent 300 years setting up”
Which we set-up using, and ensure using navies. Which is how the Somali piracy issue has been greatly reduced from its peak.
(The problem with the USN in the Gulf is that Trump is frightened of incurring casualties or prosoners of war.)
The way to fund our defence is to do what every other country on the planet is already doing; USE or TRADE our natural resources. We have abundant reserves of coal, oil and gas but most of those reserves lie undisturbed where providence was kind enough to place them.
By far the easiest resource to exploit is shale (oil and gas), we do not need a new bank to do this.
Good luck with the NIMBYS, the planning permissions, impact reviews, and legal challenges, will see any production pushed into the 2030s.
What’s the break even on UK shale. The Texas shale oil break even point is $58 a barrel. UK shale formations are twice as deep as Texas. Balance sheets exist, you can’t handover them away.
I live near a large shale formations in Scotland, I can guarantee you there will be riots if anyone starts drilling. Jim Radcliffe previously bought the rights for Inneos and never used them, we don’t have enough water for fracking and people live everywhere in the UK.
I don’t think people in the UK who advocate for fracking know the first thing about the technology but in the US they are using it in places hundreds and thousands of miles away from big cities, coal is an even bigger laugh. Just look at the state of north Germany on Google map. Anyone think we are opening up half of Yorkshire for strip mining any time soon?
Give me wind turbines and solar panels in my backyard any day of the week over fracking and strip mining.
Unfortunately the Chilterns don’t have any coal but I would love to see how anti renewable energy everyone in the home counties was if the alternative was and not Blackpool or Sheffield being fracked or open cast mined but Surrey or Hertfordshire being dug up.
So this is like back in the 90s, when the most profitable part of large IT companies (eg IBM, HP) was the Financing Unit. The unit loaned money to potential customers so that they could buy the hardware from the company. Essentially high-purchase for corporations. The interest was greater than the actual profit on the hardware sold. But that wasn’t the point, it drove hardware sales.
The DSRB will allow nations to borrow money to buy arms from those armament companies based in the founder-nations of the DSRB. Significantly, because the DSRB is rated AAA- the cost to the nations taking out loans will be cheaper than them issuing their own bonds (gilts in U.K. terms).
Once set-up and running, unless it occurs lots of bad-debts, the DSRB will be self-sustaining.
Being a member of the DSRB will make arms and ammunition made in the U.K. cheaper to other nations, boosting our defence sector. A win.
Should the UK also decide to borrow money from the DSRB the interest we would pay will be less than on the bond market. A win.
Seems a no-brainer to me 🤷🏻♂️
The people the country are borrowing a 135 billion a year from are not going to ignore the fact you are borrowing an additional 10 billion a year from someone else. UK debt to GDP is 93%, when you include PFI its 101%. We are paying more to borrow money than Italy already. The more you borrow the more you pay in intrest, the current debt payments are twice the defence budget and sits at 4% of GDP.
What a government pays in interest on its bonds is largely based on its credit rating, ours is below AAA- which is why it will be cheaper to borrow from DSRB. Added to the credit-rating is political instability (which we now score poorly), and evidence of measures to reduce long-term debt (eg Reeves fiscal rules, plus economic growth).
That £10bn will have zero effect to lenders.
U.K. debt to GDP is 105%…
Less than Belgium (111%), Canada (113%), France (120%), USA (129%), Italy (138%), Singapore (176%), Japan (227%).
Once again. The people who are lending 135 billion will notice that you are borrowing and additional 12 billion from someone else. Its a liability on the balance sheet and it increases risk. Higher risk means higher borrowing costs. . The UK is paying a higher rate to borrow than all the countries you list because the bond markets think the UK is at higher risk of default. High tax burden, low growth, low productivity and increasing budget deficit means higher borrowing costs. Borrowing from someone else will not change that oppion, in fact just the opposite. Theres no escaping 2+2=4. There’s no magic money tree, the only way that additional funding for defence is going to come is from politically painful cuts to something else
No it’s not, it’s because unlike other nations we don’t direct national banks and pensions funds to buy government debt and we also have a higher inflation expectation.
We don’t direct our own banks or invest in our debt to prevent financial risks, German banks invest 400% more of their base reserves in bunds than British banks. I have no idea why we don’t mandate pensions have to invest in UK debt but the idea is that our pensioners can get more wealth by investing in equity especially US equity.
Bond markets are interested in real returns adjusted for inflation. Look at Australia as an example they pay more than we do on a ten year yield 4.79% vs 4.89%. They have a AAA credit rating and their debt to GDP is 50%.
I can’t get my head around this DSRB and how it aims to operate.
My fuzzy understanding is that a group of leading banks will lend money to defence start-ups and SMEs who can put forward credible business plans that offer good prospects of success. If a bank decides to lend the money, it will be a long-term, low-interest loan. They can do this because the governments participating in DSRB will collectively underwrite these loans – and I assume therefore take the knock if the business fails.
It would certainly give an early boost to defence manufacturing and jobs.
Ron and others remind us that our public borrowing is already sky high and HMG needs to be cutting it energeticallyeduce debt interest. But as I understand it, HMG wouldn’t be borrowing money to fund this, it would be the banks doing the lending. So surely this wouldn’t add to our national debt and debt interest? So would this scheme be off HMG’s books?
Of course I may have failed to understand it at all Spock!
Afraid you’re wrong.
Reread my original post. It’s a sovereign funded financing initiative, lending money to nations to buy arms from companies based in the nations that created it.
HMG could lend money to it, benefitting our arms industry.
HMG could borrow money from it, more cheaply than directly from the bond market.
This would seem sensible, if we could trust the UK government to borrow and spend what is necessary to fund Defence. If it’s AAA rated and therefore cheaper, why not? Given that the Chancellor is seriously considering PPP to fund new towns, surely a cheaper mechanism that won’t spook the markets would appeal. But it doesn’t. I don’t understand what economic ideological rabbit hole the Chancellor is stuck down, where cheap is unacceptable and stupidly expensive is a better option.
I appreciate Alex Baker’s work, and if anyone hasn’t read her publication along with Luke Charters last year: Rewiring British Defence Financing, I’d recommend it. However, it won’t be anywhere near enough. At the end of the day defence is paid for through taxation or it’s not sovereign and therefore deficient. Borrowing is a temporary fix and will have to be paid back.
What Britain needs is something like a Defence Investmnt Plan which would show us the way forward. Still, never mind. As for the above we might as well join. £1 biilion is less than a quarter of what the government has committed to cycle lanes but of course they are a priority.
It’s very simple. Flat tax on all income for business and people, same rate, none of this shuffling profit abroad to head office any more. Tax income above a million at a sensible level, perhaps 100 percent, you don’t need more than a million a year, and you are liable for tax if you spend a second in the UK. Then stop buying g ANYTHING abroad, stop giving any money away at all, stop all benefits unless you have at least a years work in the UK first. That takes care of finance. Now put at least half or gso in defence, purely British equipment the Russians with a fraction of our economy can manage an exercise in addition to a full scale war with more ships than the royal navy, more planes than the royal airforce and not troops than the British army. We are squandering too much on crap
🤣
Well that’s some Wally World economics right there.
How? We dont have enough income so we need to raise some more, the millionaires can certainly afford it. ompanies like Starbucks, Amazon, and many many more offshore all their profits so they pay no tax here so we need to block that route. Bying Britihs with British tax payers money means keeping jobs and tax money here and not sending it abroad – and frankly what 2 of 5 F35s are operational so they aint exadctly quality. I know thatcher went on about living in our means and people rubbish Keynes ut if you actually understand what he said and look at history it works. To grow your economy spend money in your economy. He didnt say spend money, he was far far far more specific.
I’ll try to think of a question to that reply. But I can’t understand half of it. We do buy British. 15% of every single F35 is built in the UK. Over 1300 are now in service globally. That’s worth billions to the Treasury and over 20,000 UK jobs.
That means 85 percent is foreign not supporting British jobs and frankly meaning when we are at war with another country we can’t guarantee supplies if new planes or spares. Argentina lost the Falklands because it ran out of exocets. Ukraine has had to survive in charity while it tries to get it’s own industry capable of making armaments, had trump not Biden been in power they would have lost. Today no f35 can do bugger all without the USA based computers, now picture trumps friends in Argentina invading the Falklands again, even assuming one of the carriers can make it that far without breaking down and we can find an escort or merchant ships for supplies, all unlikely today, then trump won’t let us use the servers so even the 2 or 3 f35s available that function on the carrier won’t work. Frankly we need to build all the kit and develop all the kit, and I mean all of it, every last byte of software every last spring washer in this country or we may as well scrap the whole defence budget and bullshit
Alternatively, we should focus on driving productivity—simply put, doing more with less. This is exactly what happened during the Industrial Revolution, where automation drastically multiplied human output. The tragedy is that we have the technology available right now to replicate this shift, yet we fail to adopt it.If we successfully produce more with fewer people, the national tax take increases while the burden on public services drops. We can either spend less overall, or maintain current spending levels for a smaller population pool, resulting in vastly superior public services.
Furthermore, we should actively focus on attracting wealthy individuals. They consume virtually no public infrastructure because they rely on private healthcare and education, yet the top 1% already contribute roughly 33% of all income tax. And before people say the wealthy don’t pay tax well then how does the 1 to 33% stat exist then, it fairly clear wealthypeople pay tax and quite a lot. So now triple that 1% to 3% and we’ve solved defense spending and more.
As for taking on more government borrowing in any shape or form? Given that the UK is already on a dangerous trajectory toward severe economic difficulties by the mid-2030s, piling on more debt is the absolute worst path we could take.”
Its really not difficult to solve our problems secure vetter defence position but we need a government thats not wedded to ideology which has been the case for this one and the last.
It’s a ponzi scheme
Designed by the ex boe governor so that socialist governments don’t have to cut welfare. But add debts to the future hard workers
Ita a ponsi scheme created by a socialist to borrow money from the future to pay for stuff they not prepared to make cut to pay for
It isn’t an option though, the UK isn’t Spain and never will be. We get involved on the world stage, up till the last 10 years as a force for the good of the west. We were ready to get involved, bad countries feared us and others asked us to help. If we are going to be a global force with PM’s trying to big it up internationally then we need to stump up the cash.
It may be others directly threatened by Russia but don’t forget our citizens will be there fighting if it all kicks off and NATO goes article 5. At that point Russia wouldn’t be above attacking our economy or homeland in limited ways.
There are two things that really strike me with this article.
The first was reading “At a moment when the Government is searching for growth ….”
This is quite a surprising statement, given that Labour’s policies have actually led to a decline in the British economy since they came to power. They are hurting small businesses by their excessive bureaucracy on small bussinesses and sole traders, making it harder for them to be competitive and grow. Perhaps they need to look in the mirror and actually shred red tape instead of creating it.
The other thing was about joining a new bank which will have a AAA credit rating. Again, another surprising statement given that Labour’s policies led to the deficit being so big that by the time they were booted out of office last time, even the Conservative/Lib Dem policy of austerity could not save Britain’s own AAA credit rating.
It’s time to accept the fact that Labour has no idea about running a country, never mind running a country for the benefit of it’s citizens. As history shows, they just run it into the ground.
In a time when the security of the nation is exposed, and cuts of several governments have led to a crisis in funding the defence of our nation, the continuing delay of committing adequate funding and personnel increases just shows they lack the ability to take this issue seriously.
The conservatives might have been clowns, but Labour are just villains.
I’m not in favour of underwriting the debt of other nations, which is what this effectively is. We can borrow at favourable rates, if it’s needed. What we should be doing is funding our defence industry sustainably. That might mean less for other departments and increased taxes. It also means ordering sufficent kit to keep industry going for a prolonged period. This to me is just a distraction. I’m sure others will disagree.
It’s quite clearly pie in the sky stuff, almost certain to hugely increase the inefficiency of defence spending
Money is not enough – we need to borrow more!!!
Socialists soon run out of other people’s money to spend!!!
Laughable nonsense like this has put us in this position in the first place!!!