Raising defence budget will squeeze other areas of government, Chancellor warns

Raising Britain’s defence budget will squeeze spending on other parts of government, Rachel Reeves has warned.

The Chancellor, who aims to increase defence spending to 2.5 per cent of GDP, said extra money for the Armed Forces would come out of the same spending “envelope” used for other priorities.

She told the Daily Mail: “There is not some magic pot for any area of government spending – it has to come out of this (spending) envelope.”

Labour pledged to “set out the path” to reach the 2.5 per cent figure in its manifesto but has not yet said when it will be achieved.

In an interview with the BBC last month, Darren Jones, the Chief Secretary to the Treasury, repeatedly refused to promise it would be met in the next five years.

Ms Reeves said the plan for defence spending would be set out once the sector-wide Strategic Defence Review is completed next year.

She said: “We’re doing the defence review at the moment, being led by George Robertson, the former head of Nato, and that will be reported next year. And then we’ll set out the trajectory for defence spending alongside that.”

But she warned that other parts of government would have to be squeezed to fund the spending, saying: “If you spend money on one thing, you can’t spend it elsewhere. There’s not a magic money tree.”

Ms Reeves said a one-year spending review she announced during the Budget would involve a “line-by-line” examination of every item of Whitehall spending in a bid to reduce waste and increase efficiency.

“It’s a good process, because we’ll go through line by line, every spending item of every department, and then we will also use outside people to challenge that and look at that,” she said.

There is growing debate about when Britain should reach the defence spending threshold, further fuelled by the election of Donald Trump to be the next president of the US, who has repeatedly called for Nato allies to increase spending.

Government insiders, Labour grandees and defence industry sources all told The Telegraph last month they expect the timetable for hitting 2.5 per cent to be unveiled in spring 2025, just weeks after Mr Trump enters the White House in January.

The UK spends about 2.2 per cent of GDP each year on defence. That is above the 2 per cent target set by Nato for its members and puts Britain in eighth place for spending out of the 32 Nato members.

An uplift to 2.5 per cent would see the UK jump to fourth place in the Nato league table.

Military figures have called for increased spending on the military.

Gen Sir Roland Walker, the Chief of General Staff, used his first speech as the new head of the Army to warn in July that the UK needed to be ready to fight a major war in three years, double its ability to kill the enemy by 2027 and triple it by the end of the decade.