Why the UK’s 3.5% Defence Spending Target Is Under Pressure

Britain’s ambition to raise defence spending to 3.5% of GDP by 2035 is colliding with a weak economy and a strained fiscal position, a tension that contributed to Defence Secretary John Healey’s resignation last month and Keir Starmer stepping down as prime minister.

The government’s long-awaited Defence Investment Plan, published June 30, set out how Britain intends to modernize its armed forces, but analysts say existing capability commitments already exceed budgeted funding by billions of pounds over the next decade.

The dispute comes at a time when incoming Labour leader Andy Burnham and future Prime Minister of the UK, prepares to take over a government trying to reconcile rearmament promises with sluggish growth, a strained bond market and competing demands on public spending.

Britain’s push to significantly expand defence spending is running into the limits of a weak economy, a clash that has already reshaped the top of the British government. Defence Secretary John Healey resigned on June 11, saying the government had not provided enough funding to meet the challenges facing the armed forces.

In his resignation letter, Healey wrote that he had been unable to secure the additional funding needed because the Treasury was unwilling to commit the necessary resources. He warned that current spending plans would force military leaders to make decisions that would reduce force readiness.

Then-Armed Forces Minister Al Carns resigned the same day in protest over the funding dispute. Days later, on June 22, Prime Minister Keir Starmer announced he would step down as Labour Party leader and prime minister after losing the confidence of his parliamentary party, citing a broader pattern of political setbacks during his two years in office.

Andy Burnham, the former Greater Manchester mayor, is expected to be confirmed as Labour’s new leader on July 17 and to become prime minister within days after that, inheriting the unresolved defence funding question along with the rest of Starmer’s government.

The dispute centers on a widening gap between what Britain’s military says it needs and what the Treasury has committed to fund. The Ministry of Defence‘s own assessment put existing capability commitments at 42.5 billion pounds, more than the defence budget can cover over 10 years to 2033. They had requested 28 billion pounds over four years to deliver the government’s Strategic Defence Review. The Treasury’s reported counteroffer of 13.5 billion pounds left a gap of roughly 14.5 billion pounds, equivalent to about six months of the current annual defence budget.

Chief of the Defence Staff Sir Richard Knighton warned publicly on June 5 that Britain is running out of time to modernize its armed forces, saying adversaries, including Russia, are actively testing British defenses.

Despite the funding dispute, the government unveiled its Defence Investment Plan on June 30, adding 15 billion pounds in new funding that will raise annual defence spending to 80 billion pounds by 2029.

“Some planned road and energy infrastructure projects will be delayed or scrapped to help fund the increase”, the government said. Starmer, at the plan’s launch, said Britain must prepare for a more dangerous global security environment. Chancellor Rachel Reeves said the funding would help modernize Britain’s armed forces to fight the wars of tomorrow rather than the past.

In the 2024-25 financial year, the UK spent 60.2 billion pounds on defence, equivalent to about 2.4% of GDP by NATO’s broader measure. The government has committed to raising that figure to 2.5% of GDP by 2027 and to 3.5% by 2035, in line with commitments made at NATO’s 2025 summit in the Hague. The Office for Budget Responsibility estimated that reaching the 3.5% target would require about 40 billion pounds in additional annual spending, in 2025-26 prices.

Economists at the Institute for Fiscal Studies say the government has limited options to close the gap: raising taxes, cutting spending elsewhere, or borrowing, all of which carry political and economic costs given Britain’s already strained fiscal position. The Institute of Chartered Accountants in England and Wales noted that the increases add to the chancellor’s difficulties as she tries to support the economy through an energy crisis, encourage growth and retain the confidence of bond markets simultaneously.

Opposition parties have criticized the funding as insufficient. Conservative Party leader Kemi Badenoch called the package barely half of what the armed forces say is needed, while Liberal Democrat leader Ed Davey described the plan as late and underfunded.

Burnham has pledged fiscal discipline and committed to operating within the government’s current borrowing limits, though he has not yet detailed how his government would approach the defence funding gap once he takes office. The unresolved dispute is expected to be among the first major decisions facing his government.