IFS warns Britain must overhaul state to hit NATO defence target, urging deep public-spending cuts

The Institute for Fiscal Studies warned that meeting Britain's NATO pledge to raise defence spending by about £36 billion a year would require sweeping public-spending cuts and a wholesale rethinking of how the state operates. Britain has committed to lifting defence spending from 2.3% of GDP to 3.5% by 2035, a step designed to counter growing threats from Russia and to fulfill Britain's Ukraine commitments, including a possible peace stabilisation role. The IFS notes that Britain has not spent that much on defence since 1988, and health spending, as a share of GDP, has since more than doubled. To hit the 3.5% target, the watchdog warned, public budgets would need to shrink elsewhere, potentially erasing the entire budgets of the Ministry of Justice and the Home Office, including police, prisons and border enforcement.

Bee Boileau, Research Economist at the IFS and author of the report, said increasing defence spending to 3.5% of GDP will be a major fiscal challenge. He cautioned that it is not certain the target will be reached: the world could look very different in a decade, and future governments might change tack. Still, he noted that other NATO allies have signed up to the commitment, and that countries such as Germany and Poland are moving faster. Just the increase to 3.5% of GDP is equivalent to the combined amount the UK currently spends on the Home Office and Ministry of Justice — not a sum that can be found painlessly.

The IFS also signalled that defence spending will benefit the UK economy and manufacturing due to a high proportion of capital expenditure within the departmental spend. Relative to earlier years, more money is being spent on military equipment and less on personnel, with capital expenditure on assets such as warships and stealth jets almost doubling since 2000. That shift reflects all three services — the Army, the Royal Navy and the Royal Air Force — growing more reliant on high-tech weaponry while shrinking in size. Where additional defence revenues are spent will affect which regions of the UK see growth, with the South West expected to benefit most.

Beyond the core defence budget, the UK faces a separate demand to find an additional 1.5% of GDP for defence and security-related projects, including national infrastructure. While the government has a decade to reach the 3.5% figure, Germany has pursued a faster path, aiming to achieve similar levels by 2029, a pace aided by relaxing its constitutional debt brake to raise investment, much of which is expected to be financed by borrowing. The IFS notes that this reflects a broader European trend as states try to balance defence commitments with broader fiscal constraints.

The report aligns with recent public commentary from senior defense officials who have warned that the state’s machinery is not currently optimized for the scale of spending needed. Outgoing Chief of the Defence Staff Admiral Sir Tony Radakin has said that the state is not working efficiently, a point echoed by IFS researchers who argue that reaching 3.5% of GDP will require structural reform rather than temporary measures. NATO partners have pressed the United Kingdom to keep pace with alliance spending, arguing that sustained high levels of investment are essential to maintaining influence.

The timing of the funding shift matters. While the IFS acknowledges that immediate pressure on the public finances may be limited by the phased ramp to 3.5%, critics warn that delaying ramp-up could reduce value for money if investments are accelerated in the final years before the target date. Projections suggest that the pace of increase could influence the effectiveness of defence acquisitions and related industrial benefits, particularly in regions that will see economic gains from the surge in capital projects. The South West, among other regions, is singled out in the analysis as a potential beneficiary as suppliers, manufacturing jobs and local economies adjust to the higher defence bill.

Overall, the IFS paints a cautious but clear picture: the UK’s ambition to reach 3.5% of GDP on defence by 2035 faces a potentially wrenching fiscal balancing act. The organization emphasizes that the spending path will be shaped by political choices, alliance dynamics, and the urgency of modern threats, and it cautions that the long horizon could either dilute or magnify the benefits of defence investment depending on how the state reshapes itself. The report underscores that the UK remains a major NATO player but is under pressure to sustain high levels of burden-sharing while ensuring fiscal stability in a shifting European security landscape.