Increasing defence spending in the UK carries significant economic consequences that extend well beyond national security. The government targeting a raise in defence spending to 2.5% of GDP by 2027 invites both opportunity and risk.
One of the most immediate concerns is the opportunity cost associated with higher defence outlays. Additional funds allocated to defence could divert resources from critical public investments in areas such as infrastructure, healthcare, and education. This reallocation may crowd out spending on projects that typically stimulate long-term economic growth. Moreover, meeting the longer-term target of 3% could widen the fiscal deficit, forcing the government to borrow more. Higher borrowing levels may drive up interest rates and escalate the national debt, ultimately straining fiscal stability.
On a more positive note, increased investment in advanced military technology could generate spillover benefits for civilian industries. Defence spending has historically driven innovation, particularly in high-tech sectors such as aerospace, engineering, and cybersecurity. These investments can stimulate research and development, leading to new technologies and efficiencies that bolster the broader economy. The impact on employment is another crucial consideration. Defence projects have the potential to create jobs both directly in military production and indirectly in supporting sectors such as construction and manufacturing.
A robust defence posture not only helps to safeguard critical trade routes and energy supplies but also reassures international investors and allies of the UK’s commitment to maintaining stability in an increasingly uncertain global environment. This investment can stimulate domestic innovation and technological advancements, particularly in sectors that have significant civilian spillovers, thereby strengthening the broader economy. Moreover, by reducing dependence on external security guarantees, the UK can better manage its fiscal and geopolitical risks, creating a more resilient economic framework that is less vulnerable to international shocks and regional instabilities.
Policymakers, however, must adopt a balanced approach. A rigorous, evidence-based review of the fiscal implications is essential, ensuring that increased defence spending does not crowd out investment in other growth-enhancing areas. Ultimately, while a stronger defence posture is critical for national security, it must be pursued in tandem with strategies that safeguard the long-term economic health of the UK.