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Methodology note

Raise defence spending to 3% of GDP: calculation note

Assumptions behind the Raise defence spending to 3% of GDP scenario. Implementation detail is incomplete, so uncertainty is explicit.

View main policy page: Raise defence spending to 3% of GDP

Central fiscal result

+GBP 10.0bn - Net fiscal impact in 2029-30

Low case: +GBP 4.0bn. High case: +GBP 18.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • Defence reaches 3% of GDP within six years.
  • Baseline includes current 2.5% by 2027 commitment.
  • Costs use broad NATO-style defence spending terms.
  • No offsetting aid cut is included here.

Affected population

  • Affected units are MoD budgets, personnel and defence suppliers.
  • UK taxpayers fund the increase.
  • Industrial regions with defence supply chains gain demand.
  • Other departments face possible crowding-out.

Gross impact

  • A 0.5 percentage-point GDP uplift is a large commitment.
  • Central extra cost is GBP 10bn by 2029-30.
  • Low case assumes baseline already moves near 3%.
  • High case assumes higher GDP and broader definitions.

Fiscal build-up, central case

  • Extra personnel and equipment spending: +GBP 10.5bn
  • Tax receipts from defence wages: -GBP 0.8bn
  • Procurement inflation and transition: +GBP 0.3bn
  • Administration and uncertainty: +GBP 0.0bn

Central net impact: +GBP 10.0bn in 2029-30.

Behaviour and pass-through

  • Low case assumes current policy funds much of the increase.
  • Central case assumes a clear 0.5% GDP gap remains.
  • High case assumes procurement inflation and broader spending.
  • Domestic multipliers are not scored as self-financing.

Phasing

  • 2026-27: +GBP 2.0bn. Preparation or partial implementation.
  • 2027-28: +GBP 4.0bn. Main scenario year.
  • 2028-29: +GBP 7.0bn. Behaviour and pass-through develop.
  • 2029-30: +GBP 10.0bn. Steady-state uncertainty persists.

Main source groups

  • S1: Reform Contract states 2.5% then 3% within six years.
  • S2: Commons Library describes current 2.5% and higher commitments.
  • S3: Strategic Defence Review shows planned 2.5% framework.
  • S4: Fiscal-multiplier studies inform output-risk from higher defence spending.
  • S5: Exact NATO definition and baseline remain uncertain.