Newly-appointed Chancellor John Healey is reportedly considering the issuance of 'defense bonds' to generate billions of pounds for increased military expenditure. The proposal, which Healey has previously indicated support for, aims to bolster the nation's armed forces.
Healey was appointed Chancellor to replace Rachel Reeves shortly after Andy Burnham became Prime Minister. Healey, a former defense secretary, resigned from Keir Starmer's administration just over a month prior, citing a dispute over defense spending levels. He had advocated for a commitment to spend 3% of Britain's GDP on defense.
However, the concept of defense bonds faces skepticism. Both former Prime Minister Sir Keir and Rachel Reeves had previously ruled out the idea, cautioning that such bonds are merely another form of borrowing. The Conservative Party has also criticized the proposal, labeling it a 'total gimmick' and an 'easy way out.' They urge the government to reprioritize existing spending to fund defense increases rather than adding to national debt.
Wes Streeting, now the Defense Secretary, has also suggested that inheritance tax-free defense bonds could be a mechanism for funding military needs, referencing a Canadian initiative. He stated that such a scheme could channel funds from savings and investments into national defense.
Lord Dannatt, former head of the Army, believes Healey will likely examine the concept of defense bonds. He suggested that individuals concerned about collective security and able to contribute financially should be invited to do so, noting that such instruments have been used in the past.
Economists, including Paul Johnson, former head of the Institute for Fiscal Studies, and Rupert Harrison, formerly chief of staff to George Osborne, argue that defense bonds offer no economic distinction from regular borrowing. Harrison described using tax exemptions for such bonds as a form of financial repression that diverts capital from the private sector to the state.
Shadow defense secretary James Cartlidge echoed these sentiments, calling defense bonds a 'total gimmick' and simply a form of borrowing. He pointed to a House of Commons Library paper that concluded defense bonds do not alter government borrowing costs or national debt. Cartlidge emphasized that a true policy would involve difficult decisions about reprioritizing other spending areas.
The Liberal Democrats have advocated for defense bonds, with party leader Ed Davey calling on Healey to implement their plan to invest £20 billion in sovereign capability through this method.