Rachel Reeves should exempt defence pledge from budget rules, says Gordon Brown

Yahoo

14 hours ago

Gordon Brown has said Chancellor Rachel Reeves should exempt the Government's defence spending pledge from her borrowing rules to help free up economic headroom.
The former prime minister said the commitment to spend 5% of GDP on national security by 2035 should be dealt with jointly as a 'Nato initiative', with costs shared across Europe.
Leading economists have warned the Chancellor will likely have to raise taxes in the autumn budget to plug a £51 billion black hole in the public finances.
Ms Reeves 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, the National Institute of Economic and Social Research (Niesr).
Mr Brown, who served as chancellor for a decade in Sir Tony Blair's Labour administration, said on Thursday that the rise in defence spending should be treated as 'exceptional', as it has been in Germany.
'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.
'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.
'That would create the kind of headroom that Rachel Reeves needs.'
Germany has voted to exempt some defence spending from its self-imposed borrowing constraints as Nato allies seek to boost funding following pressure from US President Donald Trump for them to shoulder more of the burden of European defence.
Mr Brown said: 'If you look around Europe at the moment, you see that the Germans are looking at what they can do outside the fiscal rules… the French are looking at ways of doing it, the Polish have already done that.
'What I'm actually asking for is a European-wide initiative.
'Let's do it jointly, either jointly issued bonds or individually issued bonds that are simultaneous and therefore seen by the markets as an extraordinary issue.'
When she entered the Treasury, Ms Reeves set out two key fiscal rules: the first to ensure that day-to-day spending is matched by tax revenues, and the second 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 but 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.