defence investment plan to see the light of day<\/a>, and in the disappointing spending allocation which it is suggested to contain. The Ministry of Defence had argued that it needed \u00a328bn over four years. It has reportedly been allocated \u00a313bn, of which only \u00a310bn is \u2018new\u2019 money.\u00a0<\/p>\nThe government continues to discuss ways to close the funding gap. Its great difficulty is that in an era of constrained public finances, its cloth cannot stretch to covering its preferred spending priorities of welfare and the energy transition and other causes less to the party\u2019s liking.<\/p>\n
We didn\u2019t need to read the work and pension minister\u2019s grumbles that \u201cevery meeting is about who can we tax to pay more benefits\u201d or watch the removal of the two-child benefit cap to understand the importance to the party of protecting the welfare budget.<\/p>\n
It was already clear in the strength of backbench and cabinet resistance to proposed reforms. Ominously for taxpayers, welfare spending, which includes the state pension, now exceeds the amount raised in income tax (estimated by the Office for Budget Responsibility to be \u00a3329bn in 2025-26), and the bill rose by \u00a32.7bn in April. The Resolution Foundation says the cost of the triple lock alone could be \u00a314bn higher by 2029-30. The government\u2019s cost of living tsar, Lord Richard Walker, argues that the lock is unsustainable and unaffordable, and has also called for reform to prevent benefits from being used as a \u201clifestyle\u201d choice.<\/p>\n
Read more from Investors\u2019 Chronicle<\/p>\n
How could the defence funding gap be filled? A rise in taxation is certainly one option, but funding the entire rise from the current level to 3.5 per cent of GDP would require increases in the order of 4p on income tax or 4p on standard VAT, according to the Institute for Fiscal Studies (IFS). Starmer\u2019s rival Andy Burnham has indicated that he favours a wealth tax, and he is supported in this by the leader of the Unite union, who has declared that \u201cif the government needs to raise funds [for defence] it should introduce a wealth tax rather than attack the most vulnerable in society yet again\u201d.<\/p>\n
Increased borrowing, even if presented as an exceptional cause or enabled by a loosening of the fiscal rules, would still add to the growing national debt (borrowing rose by more than \u00a324bn in April) and, says Capital Economics, would be likely to provoke a backlash in the bond market.\u00a0<\/p>\n
That leaves spending cuts. The government has inherited a poor post-pandemic economic situation, but every administration has to cut its cloth accordingly. Welfare is the most obvious area for spending reductions, but the most problematic for Labour. Yet cuts elsewhere \u2013 such as in education or infrastructure \u2013 would ultimately be detrimental to growth and self-defeating.\u00a0<\/p>\n
It may be time for a hard reckoning. After all, it was the decline in defence spending in recent decades that allowed spending to increase in other areas, notes the IFS. In 1987-88, the institute says, defence spending stood at 3.5 per cent of GDP, while health accounted for 4 per cent. As defence spending fell in subsequent years, taking it to 2.3 per cent, health spending rose and now stands at 9.2 per cent.<\/p>\n","protected":false},"excerpt":{"rendered":"Two years in, Labour\u2019s promise of a strong government delivering growth, pro-business policies, stability and no income tax…\n","protected":false},"author":2,"featured_media":65856,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[2],"tags":[13,2823,613,702,13420],"class_list":["post-65855","post","type-post","status-publish","format-standard","has-post-thumbnail","category-britain","tag-britain","tag-economics","tag-opinion","tag-stocks-shares","tag-the-editor"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/116771976196252126","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/65855","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=65855"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/65855\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/65856"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=65855"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=65855"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=65855"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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