Breaking the Rules for Defence
Rearmament, economic growth, and the case for a British Autonomy Bond
Defence spending in Britain is stuck. The Defence Investment Plan is now over six months late, prompting the normally constrained establishment figure Lord Robertson to publicly accuse the government of ‘corrosive complacency’.
Britain’s defence capabilities are creaking, but the government can’t agree on how to pay for the overhaul that’s badly needed. The working public won’t accept another tax rise, the public at large won’t consent to spending cuts, and then there are the fiscal rules.
Enter Andy Burnham, who argued in an interview last week that ‘There’s certainly a case, when we look at the pressure on defence spending, to consider that exceptionally outside of the [fiscal] rules’.
This is a welcome intervention. The urgency of the threat, the scale and nature of the investment we need, and the political environment all converge on borrowing as the most plausible solution. But we need to be clear-eyed about the problem borrowing solves – and the one it doesn’t – and how it ought to be packaged to achieve both public consent and market credibility.
The problem defence borrowing solves – and the one it doesn’t
Defence suffers from chronic under-funding with respect to both capital and resource spending. Both are needed, but borrowing only solves the first cleanly.
Capital costs are one-off or time limited, like building new factories, expanding munitions stockpiles, building ships and submarines, and so on. They don’t continue in perpetuity, which means you don’t have to keep borrowing in order to sustain them (there is a caveat to this – more on that in a moment). Some of them may even pay back their costs over time – and then some.
Resource spending is the opposite. It’s ongoing and open ended, such as paying soldiers’ salaries, maintaining military accommodation, and repairing equipment. Borrowing for this sort of spending is more likely to spook markets that are worried about unbounded liabilities.
So, borrowing solves the capital problem but not the resource problem. Unfortunately, it’s not enough just to solve one of them. And here’s the fly in the ointment: if you solve the capital problem too well, you’ll generate significant additional resource costs. New warships need maintaining, new aircraft need fuel, and new weapons systems need soldiers to operate them. And here lies the caveat I mentioned above. You can end up creating a resource cost-borrowing spiral even if you set out to only borrow for capital spending.
In defence of military Keynesianism
This is where investment returns start to matter. If more resource spending is also needed alongside capital spending, the government needs a way of meeting higher ongoing costs. Which would seem to bring us back to our starting point: taxation and spending cuts.
I won’t pretend that borrowing allows us to escape this dilemma completely, nor should it. There are questions of political economy that the country must reckon with, from reforming the triple lock on pensions to taxing wealth more effectively. Nonetheless, the best answer for meeting higher resource costs, whether it’s for defence or in other areas, is economic growth. For that, you need long term investment that produces returns.
Here’s where things get interesting, but contentious. Capital spending for defence – funded by borrowing – could produce returns that not only recoup the original cost but produce a net gain for the economy that, over time, allows us to fund higher resource costs too.
Renewed interest in this sort of military Keynesianism has attracted some criticism. The most powerful argument is that while defence investment may end up paying for itself over time, there is an opportunity cost associated with prioritising it over more productive infrastructure investment. It’s worth interrogating this criticism more closely. Much of it rests on comparisons of short-term fiscal multipliers – how much immediate economic activity is generated per pound spent. By that measure, defence often underperforms infrastructure or public services. But this shouldn’t be the only metric.
What it misses are the dual-use spillover effects that are hard to quantify. Defence spending has created or accelerated some of the most transformational technologies of the modern era. Jet engines took off in WW2 and went on to underpin the entire modern air transportation industry. The Manhattan Project gave us the atom bomb but also nuclear power. Codebreaking drove early advances in computing. The internet started as ARPANET, a project of the US Department of Defense. Defence spending has a habit of concentrating investment in technologies that would be too high risk for ordinary investment but which end up producing enormous returns for the civilian economy. Opportunity cost runs both ways.
Defence spending also underpins strategic industries, such as aerospace, shipbuilding, secure digital communications, energetics, and precision manufacturing reliably and at scale. Unlike many other targets for investment, these industries tend to involve long-term procurement cycles, deep domestic supply chains, geographically rooted production, and high-skill technical work that is difficult to offshore. More investment in these areas can therefore turn them into a durable pillar of re-industrialisation, bringing jobs, skills, and growth to communities that need them. This could be particularly powerful when combined with devolved regional growth strategies, with defence industries underpinning regional clusters that integrate local universities, technical colleges, apprenticeships, and supply chains into long-term employment ecosystems.
From defence spending to autonomy
The most interesting part of this debate, though, is what we mean by defence spending in the first place. The central insight of many security analysts and commentators on the left is that defence is much broader than its military dimension. It should, they argue, include the threat from climate and ecological breakdown, as well as upstream conflict prevention and efforts to tackle global poverty and disease – an approach often called human security.
The problem is that this often, fairly or unfairly, comes across as a political sleight of hand designed to elide hard power from the conversation altogether, which naturally raises the suspicions of defence hawks. But this is a missed opportunity. The truth is that placing traditional defence spending within a broader envelope would enable us to build a wider coalition in support of it.
The question is, what envelope? The key concept here is not human security, but autonomy. People in Britain are weary of having their lives upended by things beyond their control: markets crashing, pandemics raging, energy prices skyrocketing, wars breaking out. The defining slogan of Brexit, ‘take back control’, was so effective because it spoke to a deep desire that has increasingly been frustrated in our highly globalised, interdependent world – the ability to influence our own fortunes.
Whereas traditional approaches to defence and the human security approach occupy opposite poles, autonomy provides a meaningful overlap between the two. It does not elide the military dimension – in fact, traditional defence is at its core – but it also encompasses energy security, technological sovereignty, strategic infrastructure, and national resilience. These pillars translate into military rearmament, nuclear power, and data centre construction, just as much as decarbonisation, energy affordability, and pandemic preparedness.
Not everyone will be convinced. Some defence hawks won’t want to broaden and share their lane. Some on the left will find it difficult to accept military spending at all. But for the moderates on either side, there is an opening now for a meeting in the middle that has not been available before – an opening created by Donald Trump.
If autonomy gives us the framing, then Trump has given us the impetus. Britain’s military dependence on the US has emerged as a dangerous vulnerability in the age of America First. Those on the left who have long viewed the US with suspicion now find some common cause with disillusioned Atlanticists who are looking again at deeper European cooperation, as well as a new Anglo-Gaullism. The concept of autonomy is the glue that can hold them together.
A British Autonomy Bond
How to operationalise autonomy? What I propose is a British Autonomy Bond: a national investment vehicle designed to fund projects, programmes, and technologies that will contribute to British autonomy. This would include spending on defence and defence-industrial capacity, but also on nuclear and renewable energy, strategic infrastructure, AI and advanced computing, biosecurity, and other areas vital to national resilience.
The bond must have credibility with the markets. For this reason, it should be restricted to long-term capital investment, rather than resource spending, with independent governance and oversight mechanisms designed to ensure it stays tightly defined and on mission. It could aim to raise as much as £100 billion over a 10–15 year period, which would track well with the longer timeframes needed for the kind of projects it would fund. A longer timeframe would also avoid overheating the economy, allowing time for capacity to scale up.
For the defence component, funding should be tied to procurement reform (I recommend this excellent report by Alex Chalmers for Centre for British Progress if you want to know how this could be done). The markets – and the public – must be confident the money will be spent prudently after years of mismanagement. It should also include funding for local and regional authorities to invest in education, skills, and infrastructure to sustain new industrial clusters.
The bond should be made as attractive as possible to domestic pension funds, which sit on vast amounts of under-utilised capital. Fund managers must not be asked to abandon their fiduciary duty. Through the bond, the state absorbs the risk, while pension funds benefit from stable, long-duration investment returns.
The bond should also be available to members of the public, potentially as a National Savings and Investments product. In the more ambitious version of this idea, the public could be given a choice over what sort of projects they want to fund and in what regions, turning it from a financing instrument into a vehicle for public mobilisation and participation – part of that ‘whole of society conversation’ that has so far been missing.
This isn’t just about defence spending and the fiscal rules. It’s about rebuilding legitimacy for strategic state capacity in an era of fragmentation and insecurity. After decades in which the British state has struggled to think long term, build at scale, or shield the public from systemic shocks, autonomy offers a way of reconnecting national resilience with democratic consent. A British Autonomy Bond could provide the political and financial architecture through which we begin to do that.