UK defence spend to hit 3.5% of GDP as Treasury aligns with MoD

Andy Burnham has committed to lifting UK defence spending to 3.5% of GDP by 2035, placing a former military chief at the heart of the Treasury to execute the plan. The appointment of John Healey as chancellor signals an unprecedented alignment between finance and defence ministries. The target implies a real-terms increase of more than £25bn in less than a decade. It represents a notable shift from traditional Labour priorities, which have historically favoured health and education.

The immediate focus for markets is whether Burnham will accelerate this timeline. Hitting 3% by 2030 would require roughly £9bn a year more by the end of the decade. Healey resigned as defence secretary under the previous government after demanding this 2030 target, clashing with former prime minister Keir Starmer who only offered 2.7%.

For the aerospace and defence sector, the political messaging is designed to provide stability after a period of internal conflict. New Defence Secretary Wes Streeting used the Farnborough airshow to promise the arms industry "clarity and confidence". He unveiled a £15m prototype "loyal wingman" drone, designed and assembled by BAE Systems in Lancashire to fly alongside Typhoon fighters.

However, the fiscal rebalancing carries explicit opportunity costs. Streeting warned that increased military spending would force cuts across other government departments. Analysts have cautioned that raiding infrastructure budgets to fund defence could cost 10,000 jobs, noting that capital deployed in health or infrastructure typically generates higher returns per pound.

The strategic pivot responds to shifting global threats, including Russian aggression and pressure from the US for European Nato members to increase their military capabilities. UK defence spending was last at 3.5% of GDP in the early 1990s.

Internal political tensions over the funding remain visible. Former armed forces minister Al Carns declined an offer to return to government on Wednesday, though he praised Healey's appointment as chancellor.

Streeting also risked diplomatic friction by standing by a previous message that Israel was "committing war crimes before our eyes". He stated that while he supported Israel's right to self-defence, it had fallen short of the standards expected of an ally in Gaza and the West Bank.