UK defence financing debate revives Keynes-style case for war bonds and spending trade-offs

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UK defence financing debate

Highlights

An Ipsos survey for the Financial Times finds defence ranks fourth in UK public priorities, with support increasing if spending links to jobs and innovation.
Around 25% of respondents would buy war bonds, and with over £2tn in UK bank deposits, tax-incentivized bonds could help finance defence while offering better returns.
Committing to 3% of GDP for defence implies £10bn–£15bn in annual extra borrowing, necessitating fiscal trade-offs such as replacing the pension triple lock to save about £5bn.

Public backing and financing options

As argued in the Financial Times, public support for higher defence spending in the UK is present but depends heavily on how the money is used and paid for. An Ipsos survey of more than 1,000 people conducted for the newspaper shows defence ranks fourth among public priorities, behind health, immigration and housing, while support rises if spending is tied to apprenticeships, jobs, infrastructure and innovation.

Views on financing are split between higher taxes, especially on the wealthy, lower public spending, especially on welfare and pensions, and additional borrowing. Around a quarter of respondents say they would be willing to buy war bonds, a finding that echoes parts of Keynes's 1940 proposal for forced saving, although a modern version would rely on voluntary tax incentives instead.

The UK public holds more than £2tn in bank deposits, much of it earning a negative real return, creating a potential pool for bond demand. Temporary tax breaks through individual savings accounts, pension relief or inheritance tax could help channel that capital into defence financing while limiting the government's funding costs and offering savers a better return.

Growth strategy and fiscal trade-offs

Bringing forward a commitment to reach 3 per cent of GDP in defence spending would still require broader fiscal choices, particularly at a time of fragile bond markets. The argument is that extra borrowing of roughly £10bn to £15bn a year would add only modestly to debt issuance, but it should be paired with policies aimed at supporting growth and containing public spending.

A defence plan linked to a larger apprenticeship programme and support for defence-technology companies could improve employment and productivity, especially by tackling youth inactivity. That approach would seek to raise the economic multiplier from military spending, rather than treating defence solely as a budgetary cost.

On the spending side, replacing the state pension triple lock with a single lock tied to inflation is presented as a way to generate savings of about £5bn while improving intergenerational fairness. The broader historical case points to the post-war adoption of key parts of Keynes's framework, when debt as a share of GDP fell markedly over the following decades alongside growth and high employment.

We previously reported on the long freeze in UK tax allowances and reliefs, which has steadily increased households’ real tax burden as inflation erodes thresholds. The analysis highlighted areas such as inheritance tax, savings allowances, rental income and pension contribution limits, and argued that regular uprating and reviews are needed to keep the system fair and fit for current conditions.

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