
‘Military Keynesianism'? Reeves faces British defence dilemma after EU spending surge
Berlin and Brussels – typically capitals of financial orthodoxy – have been convinced that this approach is required once again. Under the plan put forward by Germany's chancellor-in-waiting, Friedrich Merz, Berlin is on the brink of relaxing its 'debt brake' rule to pave the way for spending on defence and infrastructure worth an additional €1tn (£840bn) over the coming decade.
The EU, too, is at a 'watershed moment', having agreed an €800bn plan allowing member states to ramp up borrowing for their defence spending, under an 'escape clause' from its stability and growth pact debt rules. It is being chalked up as one of the most remarkable shifts in European economic policy in decades.
But for Britain, a more old-fashioned approach still prevails, with the chancellor, Rachel Reeves, insisting that her self-imposed fiscal rules remain 'non-negotiable'. Rather than allow for a rise in borrowing, Labour's plan to increase defence expenditure from 2.3% of GDP to 2.5% by 2027 involved a corresponding cut for the overseas aid budget.
Pushing spending higher still would require further 'difficult decisions', Reeves has suggested.
The Treasury accepts the world has changed and that higher defence spending is a necessity, but with a tight fiscal position in advance of an already tough spring statement for the chancellor, paying for it will involve difficult decisions to find savings elsewhere.
There are hopes in Labour circles that Britain will follow Germany's 'military Keynesianism', but the Treasury view has not shifted that much. Reeves still believes in it enough to stick to fiscal rules that, after all, were only announced less than six months ago.
That is, in part, understandable. Fresh in Reeves's mind will be the bond market turbulence at the start of this year, in which the British government was in the eye of a global storm. Mostly that was driven by investor fears over Trump's inflationary policies. But there was also a UK-specific overlay.
Reeves could point to the sharp rise in German yields last week. On Wednesday, the yield – in effect, the interest rate – on Germany's 10-year bonds rose by the largest amount in a single day since March 1990. She could also point to France, where even with newfound EU political cover, Emmanuel Macron could find he is still restricted by a rumbling political and fiscal crisis. In a divided Bundestag, Merz, too, has domestic roadblocks to overcome.
Britain and Germany are at different starting points. Despite its deep economic troubles, Berlin, unlike London, has a recent history of recording budget surpluses before the onset of the Covid pandemic. Its debt-to-GDP ratio is close to 63%, compared with almost 100% for Britain. Even though German borrowing costs have risen sharply, yields remain significantly below those of the US and the UK, at about 2.8% for 10-year borrowing, compared with 4.6% for the UK.
That said, Reeves is being held back by politics more than economics. The government could make the case that higher borrowing today can be a down payment on stronger economic growth. Across the Channel, that is exactly what investors anticipate.
Before this month's spring statement, it is widely thought higher government borrowing costs will break Reeves's fiscal rules, fuelling speculation about cuts to the welfare budget.
But the Institute for Fiscal Studies reckons a small breach could be overlooked: 'There is no meaningful economic difference between a forecast for a small current budget surplus in 2029-30 and a forecast for a small current budget deficit,' the thinktank suggests.
Still, the chancellor is hamstrung after promising before the election not to increase taxes, and having signalled the virtue of balancing the books to draw a neat dividing line with the Tories' Liz Truss experiment.
That position may not be tenable for much longer. Whittling away at government spending threatens to undermine Labour's other promises: of fixing public services, avoiding a return to austerity and growing the economy.
It is a point made clearer by growing disquiet within Labour ranks, and by the government's sliding opinion poll rating. So watch this space: it may not be wise to burrow much further into a fiscal foxhole.
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


The Independent
22 minutes ago
- The Independent
Starmer convenes Cabinet for urgent meeting on Gaza
Sir Keir Starmer has gathered senior ministers for an urgent Cabinet meeting on Gaza. It comes as the Prime Minister faces renewed pressure to recognise Palestine as a state immediately and after he held an emergency call with France and Germany at the weekend. The Prime Minister is focusing on securing aid for those on the ground and a 'sustainable route' to a two-state solution, Downing Street has said, and emphasised that the UK recognising Palestine was a matter of 'when, not if'. Sir Keir has started working with France and Germany on a process to 'bring about a lasting peace' in the Middle East and shared the plans with US President Donald Trump when they met in Scotland on Monday. He is expected to share details with Arab states and other key allies in the coming days. The Cabinet meeting, which some ministers are attending in person and others virtually, comes after Parliament broke for its summer recess last week. Pro-Palestine protesters gathered outside Downing Street as the meeting took place. Four people wearing white headdresses posed solemnly above what appeared to be a model shrouded corpse and crowd of people gathered banging pans with spoons, many of them wearing keffiyehs and carrying Palestinian flags. A metres-long banner was held in front of the black gates in Whitehall reading 'genocide in Gaza' and 'death from famine and disease'. Speaking on Tuesday morning, Technology Secretary Peter Kyle said he would not 'pre-empt' the meeting, but added it was 'right' to 'assess what Britain can do' to ease the situation in Gaza. He also said the Palestinian people should be 'rewarded for what they've been through' and given the tools 'to move them towards the kind of peace, stability and dignity that every citizen in every country is owed'. Amid international alarm over starvation in Gaza, Israel announced at the weekend that it would suspend fighting in three areas for 10 hours a day and open secure routes for aid delivery. The UK confirmed it was taking part in airdrops of aid into the territory. Aid agencies have welcomed the new measures but said they were not enough to counter the rising hunger in the Palestinian territory. Sir Keir said that the British public is 'revolted' at the scenes of desperation in Gaza as he appeared alongside Mr Trump at his Turnberry golf course on Monday. The US president hinted at sticking points in US-led negotiations over a peace deal, saying Palestinian militant group Hamas had become 'very difficult to deal with' in recent weeks. He suggested this was because they held only a small remaining number of Israeli hostages. Sir Keir's official spokesman said on Monday: 'This week, the Prime Minister is focused on a pathway to peace to ensure immediate relief for those on the ground, and a sustainable route to a two-state solution. 'We are clear that the recognition of the Palestinian state is a matter of when, not if, but it must be one of the steps on the path to a two-state solution as part of a wider plan that delivers lasting security for both Palestinians and Israelis.' Sir Keir has likened the plan he is working on with France and Germany to the coalition of the willing, the international effort to support Ukraine towards a lasting peace. His spokesman said the plan would build 'on the collaboration to date that paves the way to a long-term solution on security in the region'. Sir Keir is meanwhile facing calls from a growing number of MPs to recognise a Palestinian state immediately. More than 250 cross-party MPs have now signed a letter calling for ministers to take the step, up from 221 on Friday. Business Secretary Jonathan Reynolds on Monday dismissed the idea that there is a split at the top of Government over when to recognise a Palestinian state, saying 'we all want it to happen'. Health Secretary Wes Streeting is among those to have signalled a desire for hastened action, calling for recognition 'while there's still a state of Palestine left to recognise', while Justice Secretary Shabana Mahmood said the Government wants to recognise a Palestinian state 'in contribution to a peace process'.


Fashion United
22 minutes ago
- Fashion United
Nigerians lead the way in UK fashion visas according to report
New data has shown that Nigerians make up the majority of accepted British visas in relation to fashion when compared to people from any other country. According to the Telegraph's analysis of official data, there have been 291 Nigerian applications for fashion visas between 2019 and 2014, the highest number among all countries. This was followed by 67 Chinese applicants. Fashion-related visa applications from Nigeria rose from three in 2019 to 145 in 2024. Meanwhile, over the same period, the British Fashion Council (BFC) has endorsed 71 Nigerian applications, also more than any other nationality. The BFC has been granted the power to endorse applications on behalf of the UK's Home Office, which then signs-off on the visas. The council receives around two million pounds a year from the Department of Culture, Media and Sport to promote British fashion and, in recent years, has set about diversifying the local fashion industry. The increase comes as part of a broader surge in talent-related visa applications from Nigeria, with most applying via the route for 'literature'. Since 2019, Nigerians have made 729 applications across artistic global talent categories in the UK, the Telegraph reported. Just 59 percent of them are endorsed.


Scotsman
22 minutes ago
- Scotsman
EuroMillions £131m draw – are we heading for another £208m jackpot?
Your millionaire moment starts here – join the Wowcher Euromillions syndicate and dream big tonight. | Canva This article contains affiliate links. We may earn a small commission on items purchased through this article, but that does not affect our editorial judgement. EuroMillions climbs to £131m tonight - just months after the UK went wild over the £208m jackpot. Is another maximum draw on the cards? Sign up to our daily newsletter – Regular news stories and round-ups from around Scotland direct to your inbox Sign up Thank you for signing up! Did you know with a Digital Subscription to The Scotsman, you can get unlimited access to the website including our premium content, as well as benefiting from fewer ads, loyalty rewards and much more. Learn More Sorry, there seem to be some issues. Please try again later. Submitting... The EuroMillions jackpot climbs to £131 million tonight, raising the question: are we heading for another record-breaking jackpot run? Just a few months ago, the UK went into full-on lottery fever as the jackpot hit the maximum £208 million and rolled over several times before it was finally won. Could history be about to repeat itself? With no winner in recent draws, tonight's £131m prize could be just the start of another snowballing jackpot surge - and players are already piling in for their shot. But with odds stacked high, playing solo might not be the smartest option. That's where syndicate play comes in. Right now, you can join the Wowcher You Play We Play EuroMillions syndicate and get 500 real EuroMillions lines and 500 Millionaires Raffle tickets - all for just £9, instead of £35. You'll be part of a 50-player group with hundreds of official National Lottery entries managed for you. It's affordable, hassle-free, and dramatically improves your chances compared to buying a single line. If this really is the start of another jackpot run, tonight might be your smartest move yet. Book your syndicate lines now through Wowcher here: Join the EuroMillions syndicate today This article was produced with the help of AI tools to assist with sourcing and structuring information. All content has been reviewed and verified by a National World journalist before publication. National World Play Euromillions with 500 lines and 500 Millionaires Raffle tickets £ 9.00 Buy now Buy now If you're dreaming of one of those huge European jackpots, the Wowcher Euromillions syndicate deal is hard to beat. For just £9, you'll get an incredible 500 Euromillions syndicate lines plus 500 genuine Millionaires Raffle tickets. All tickets are official National Lottery entries, bought and managed by You Play We Play, so you're not betting — you're really playing. By joining a 50-person syndicate, you massively increase your chances of winning while sharing the fun and the prizes with your group. The draws happen every Tuesday and Friday, giving you two shots each week at jackpots that can top £200 million. Ready to aim for life-changing winnings? Join your discounted Euromillions syndicate here If you're worried about how gambling makes you feel, you can find free, confidential advice, tools and support, by visiting GambleAware or contacting the National Gambling Helpline, available 24/7, on 0808 8020 133