Burnham left to find extra cash as Starmer leaves £5bn defence spending hole to fill at next PM's first Budget
Britain's next Prime Minister will need to find ways to raise £4.7 billion to fulfil commitments made in the Defence Investment Plan, announced on Tuesday
Andy Burnham faces having to fill a £4.7 billion black hole in his first Budget should he become Prime Minister after Sir Keir Starmer put off deciding how to fund defence spending hikes.
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The Downing Street frontrunner will face having to find the money to fund rearmament under the Defence Investment Plan (Dip) announced on Tuesday.
Outgoing PM Sir Keir announced £15 billion in extra defence spending - but had not sourced £4.7 billion of the funding needed to do so yet.
The other £10.3 billion is being found through reallocating money earmarked for other departments.
In a written statement to Parliament, Chancellor Rachel Reeves said only two-thirds of that sum – £10.3 billion – had been identified, while the remaining £4.7 billion would be “confirmed at Budget 2026, in a fair and balanced way”.
Ms Reeves added that the Treasury would focus on finding “efficiencies” and cancelling or delaying “lower priority programmes”, while emphasising the Government would not cut day-to-day spending to pay for defence.
Announcing the Dip on Tuesday, Sir Keir said he expected his successor to build on the increase in defence spending, while Defence Secretary Dan Jarvis said defence would be the number one priority for the Government’s next spending review.
But the decision to leave almost a third of the extra funding to be set out at the next budget means finding the money will be a task for Mr Burnham, Sir Keir’s likely successor, and his new chancellor.
While Mr Burnham was briefed on the Dip before its publication, it is understood he was surprised by the need to find an additional tranche of funding.
Max Werner, senior research economist at the Institute for Fiscal Studies, said the decision meant there would be “further impacts on other areas of spending, tax or borrowing on top of those set out in today’s announcements – implying one key early decision for the next prime minister”.
Mr Jarvis denied the funding gap was a hand grenade for the future chancellor, insisting it was “absolutely the opposite”.
The Defence Secretary said that given the “massive expenditure” required to meet the commitment to increasing defence spending to 3.5% of GDP by 2035, it was “not unreasonable” that “those kind of decisions are done in the context of a spending review”.
He told Sky News: “We need to chart a course to 3.5%, and that will require billions of investment, and that will be the job of the person who’s drawing together the next spending review.”
Of the funding that has already been identified, most comes from reducing other departments’ capital budgets by 1%, providing some £4 billion over the next four years.
The Department for Transport and the Department for Energy Security and Net Zero will be forced to find additional savings of £800 million and £2 billion respectively.
This money is expected to come from cancelling or delaying projects, in a move which has already caused some disquiet among MPs concerned about spending that had been promised to their constituencies.
Ms Reeves said another £2.4 billion had been found by the Treasury taking responsibility for the costs of “ongoing international objectives” such as providing security guarantees for Ukraine in the event of a ceasefire.
Some £400 million is expected to be raised by selling off Ministry of Defence land, and another £600 million from “reprioritisation” of the department’s existing budget.
Mr Werner added that, with the Government committed to increasing defence spending to 3.5% of GDP by 2035, it would “likely remain one of the biggest fiscal pressures facing the UK in the medium term” and require finding an extra £25 billion per year by that date.
He said: “Given the clear difficulties of finding less than a sixth of this per year as part of the Dip process, this will be one key challenge facing the next prime minister, along with deciding how a substantial share of today’s top-ups will be funded.”