7 big questions as Britain hikes defense spending

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The devil will be in the detail as Britain’s top finance minister tries to make good on a promise to boost defense spending.

October 26, 2026 7:30 pm CET

LONDON — U.K. Chancellor John Healey is set to deliver an unexpected increase in defense spending at his first budget on Wednesday, as Britain strains to reach its NATO commitment to spend 3.5% of GDP on defense by 2035.

Healey — who quit as defense secretary in the dying days of Keir Starmer’s government over a funding row — hopes he can show how Britain will start to reach that target now that he's safely ensconced in the powerful Treasury.

Until last week, it was assumed that the top finance minister would defer decisions on ramping up funding until next year’s multi-year, government-wide spending review. So Wednesday’s move could represent an early win for the Ministry of Defence in Prime Minister Andy Burnham's new government.

But with regular warnings in the press and in public about Britain’s unpreparedness for conflict, there’s much more to watch for beyond Wednesday's headline hike. POLITICO walks through the seven key details and defense industry demands.

1) How will Healey play the numbers game?

Healey's government-rocking resignation back in June was explicitly over a refusal in Downing Street and the Treasury to commit to spending 3% of GDP on defense by 2030.

Now that he is leading the Treasury, Healey is under pressure to deliver on that. But even that keeps Britain shy of the bigger NATO aim.

On existing plans, U.K. defense spending is set to rise to 2.7% next year and remain flat until 2030. Healey's first move will be to fill the £4.7 billion black hole in defense funding in the Defence Investment Plan — meant to overhaul the armed forces and improve readiness — published earlier this year.

More money is now expected beyond this, briefed to the media in recent days as a “down payment” towards spending 3% on defense by 2030.

But two government officials, granted anonymity like others in this article to discuss internal thinking, said the pathway to meeting NATO's larger, 3.5% target will only come in next year’s spending review, not the budget.

Even on the smaller measure, the margins for the chancellor are tight, with government spending rules and debt targets leaving little room for maneuver. Mike Martin, an MP on the House of Commons Defense Committee, told POLITICO: “They have got themselves into a straitjacket over defense spending and none of this will be resolved before the next election. This is why I think an early general election is inevitable.”

2) Will the chancellor move to funnel private capital into defense?

Britain's defense industry has long called for more direct government spending on domestic contracts. But the sector also wants more private capital flowing into U.K. firms, and will be looking to Healey to set the conditions.

The Financial Times reported last week that Healey will allocate £15.4 billion to the country’s National Wealth Fund and £5 billion to the British Business Bank — a share of which could end up with defense companies.

Two key details to watch here are whether the government claims this money counts towards its wider defense spending commitments, or whether any cash is allocated purely for defense firms. Potential reforms to and incentives for pools of private capital, such as pension funds and venture capital funds, to invest in defense would also be welcomed by the sector in this budget — but the industry may be left waiting.

One of the government officials cited above said that a Defence Finance and Investment Strategy is slated for December, with a Defense Investment Summit coming December 1.

3) Where does Healey stand on global defense team-ups?

On Sunday evening, the Treasury disclosed that it would not join the Canadian-led Defence, Security and Resilience Bank (DSRB) — a proposed multinational financial institution with its own AAA credit rating that aims to provide cheap loans for countries to invest in defense.

The U.K. had previously considered joining the bank, or merging it with its own separate initiative, the Multilateral Defence Mechanism (MDM) — a planned scheme for joint defense procurement, stockpiling and supply chains for member countries.

But a joint statement with Ottawa said that the institutions will now work in partnership.

The MDM currently has £400 million allocated from June’s Defence Investment Plan, while none of the other member nations — the Netherlands, Finland and Poland — have confirmed whether they have contributed capital to the project.

Now that uncertainty over Britain’s membership of the DSRB has gone, the government will be looking to flesh out its plans for its own MDM.

4) Can the chancellor slash energy and manufacturing costs?

Two industry figures told POLITICO that one of the biggest barriers to doing defense business in Britain — making it less attractive than other nations — is the country's comparatively high energy costs.

However, slashing costs for energy-intensive industries, including the industrial base of the defense sector is expensive, and schemes aimed at reducing costs — such as the British Industrial Competitiveness Scheme – already exist. Measures reportedly under consideration this time around appear to focus more on reducing households’ energy costs than on supporting businesses.

A third industry figure predicted that ministers would not offer immediate support for business energy bills because “every possible option” for instant help “is too expensive." But a defense industry investor said the Treasury is, however, looking at reducing the financial burden of machinery — which they said is a key issue for small firms wanting to ramp up production as part of the supply chain.

5) What does Buy British actually mean?

The government has been consulting with the defense sector and wider British industry over what exactly constitutes a British company under its plans to implement a new "Buy British" scheme.

The plan aims to bring together Andy Burnham’s pledges of re-industrialization and more evenly-spread growth across the country, and comes after the EU proposed its own Made in Europe procurement plan to try and boost the bloc's own firms.

The push is also designed to build sovereign capability, which has become increasingly important to Britain amid fears that the U.S. is an unreliable ally. The recent row over Ukraine’s constrained access to the Starlink satellite system has exacerbated such concerns.

Early suggestions indicate the government will take a broad definition — in a potential boost for multinational defense giants. Rupert Pearce, the Ministry of Defence’s National Armaments Director, told a recent industry event that, from his perspective, French defense company Thales, which has a headquarters in the U.K., “is a British company.”

6) Will Healey move further on AI and hybrid defenses?

Ahead of the budget, Healey's Treasury announced a series of AI-specific policies with potential defense applications.

These include £165 million for AI-driven detection and surveillance of biological threats — a move first teased by the boss of Britain's MI5 intelligence service.

The government will also put £60 million into its Sovereign AI fund to invest in British tech companies, including autonomous systems, robotics, and advanced manufacturing.

Watch to see whether the chancellor waves around more promises of boosting British resilience to malign actors on Wednesday.

7) Will Donald Trump even notice?

Britain’s comparatively slow progress on defense spending has already caught the eye of the Trump administration.

Warren Stephens, the U.S. ambassador to the U.K., warned earlier this year that Britain must make “sustained investment” in defense, rather than focusing on “other spending priorities,” and warned against “backloading” defense spending to a later date. 

A lack of a meaningful movement on defense spending — or at least eye-catching claims from opposition parties that Healey has fumbled it — could grab the attention of Trump’s team this time around. The timing is tricky: the Pentagon is currently undertaking a review of American military assets stationed in mainland Europe and the U.K.