IFS warns Britain must overhaul state to meet NATO defence target

LONDON — The Institute for Fiscal Studies warned Thursday that Britain would need sweeping changes to public finances to meet NATO’s target of adding about £36 billion a year to defence spending, lifting the share of GDP spent on defence to 3.5% by 2035. The government has pledged to raise defence outlays from 2.3% of GDP to 3.5% by 2035, a move that the IFS says would require a major reallocation of public money and could demand cuts across other departments.

Britain’s path to 3.5% is framed by the perceived threat from Russia and the country’s commitments to Ukraine, including potential peace-stabilisation roles. The IFS notes that achieving the target would necessitate reducing other areas of public spending to fund defence, effectively requiring cuts comparable to the entire budgets of the Ministry of Justice and the Home Office, including police, prisons and border staff. Bee Boileau, Research Economist at the IFS and author of the report, said: 'Increasing defence spending to 3.5 per cent of GDP will be a major fiscal challenge. It is, of course, not certain that we will reach this level of spending: the world could look very different in a decade and future governments might decide to change tack. But other countries have signed up to the same commitment – and, indeed, countries such as Germany and Poland are moving further and faster. Just the increase to 3.5 per cent of GDP is equivalent to the combined amount we currently spend on the Home Office and Ministry of Justice – not a sum that can be found painlessly.' The warning mirrors previous remarks by outgoing Chief of the Defence Staff, Admiral Sir Tony Radakin, who said that 'the state is not working' and that inefficiencies in public departments are holding back the country.

Beyond the core defence budget, the IFS notes that the government would also have to identify around 1.5% of GDP for defence and security-related projects, such as infrastructure. While the UK has set a decade to reach 3.5%, Germany has targeted 2029, though much of that investment is expected to be financed by borrowing after relaxing its debt brake. Capital expenditure within defence has risen, with outlays on ships, aircraft and other high-tech equipment growing since 2000, even as personnel numbers shrink. The distribution of the new money could influence regional economic growth, with areas such as the South West expected to benefit.

Mark Franks, Director of Welfare at the Nuffield Foundation, said: 'A large proportion of the rise towards 3.5 will not come until the 2030s. This delay will limit the immediate pressure on the public finances. But it may also reduce the chances of securing good value for money if spending is ramped up over a short space of time as the commitment date approaches.'

On top of the 3.5% core defence commitment, Britain also faces the aim to identify an additional 1.5% of GDP for defence and security-related projects, such as national infrastructure. The decade-long horizon contrasts with Germany’s 2029 target, underscoring different fiscal tools and borrowing assumptions as NATO allies seek stronger deterrence amid ongoing security challenges. The IFS’s analysis highlights a broader policy question: whether Britain can sustain higher defence outlays without diminishing the quality and reach of public services. The debate comes as Britain continues to position itself as a leading NATO member amid evolving threats and alliance commitments.