Gordon Brown has urged Chancellor Rachel Reeves to exempt the Government's defence spending pledge from her borrowing rules to create vital economic headroom. The former prime minister argued that the commitment to spend 5% of GDP on national security by 2035 should be treated as a joint "Nato initiative" with costs shared across Europe.
Leading economists have warned that Reeves will likely need to raise taxes in the autumn budget to plug a £51 billion black hole in public finances. The Chancellor is currently on track to miss one of her borrowing rules by £41.2 billion and needs to rebuild a fiscal buffer of nearly £10 billion that has been wiped out, according to the National Institute of Economic and Social Research (Niesr).
Defence spending should be 'exceptional'
Brown, who served as chancellor for a decade under Sir Tony Blair's Labour administration, said on Thursday that the rise in defence spending should be treated as "exceptional". He pointed to Germany as an example, where some defence expenditure has been exempted from strict borrowing rules.
"When you come to the fiscal position, look, there's one thing that's happened over the last few months that has been quite unprecedented - to spend 5% on defence expenditure as we want to spend by the 2030s," he told BBC Radio 4's Today programme. "But this is a Nato initiative, this is a European initiative. We should be doing this jointly."
Calls for joint European approach
Brown suggested that European nations should issue joint bonds or create a Nato defence fund to share costs across the continent. "We should have either jointly issued bonds or a Nato defence fund, and we should be sharing the cost across the continent, and that should be regarded as something extraordinary and exceptional, outside the fiscal rules," he said.
"That would create the kind of headroom that Rachel Reeves needs." Germany has already exempted some defence spending from its so-called "debt brake" to allow increased expenditure.
Reeves faces fiscal constraints
When she entered the Treasury, Reeves set out two key fiscal restrictions which she has described as "non-negotiable". The first rule ensures that day-to-day spending is matched by tax revenues so the Government only borrows to invest, whilst the second aims to reduce net financial debt as a share of the economy.
Ministers have already announced a cut to overseas aid to fund a boost in defence spending. However, economists have said the new Nato target of 5% by 2035 could increase expenditure by a further £38.6 billion.
The Treasury has been contacted for comment.
(PA) Note: This article has been edited with the help of Artificial Intelligence.
