Andy Burnham declines to commit to spending 3% of GDP on defence by 2030 demanded by new Chancellor John Healey – and he rules out issuing ‘war bonds’ to boost military cash

Downing Street today failed to commit to new Chancellor John Healey’s demand of spending 3 per cent of Britain’s GDP on defence by 2030.

In Andy Burnham‘s first full day as Prime Minister, No10 also ruled out issuing ‘defence bonds’ to raise billions of pounds for extra military spending.

Mr Healey was named as Chancellor to replace Rachel Reeves after Mr Burnham took office on Monday. 

The former defence secretary was handed the Treasury role little more than a month after he quit Keir Starmer‘s administration amid a furious row over defence spending.

When he resigned, Mr Healey raged at Sir Keir’s and Ms Reeves’ failure to commit to a timetable for spending 3 per cent of Britain’s GDP on defence.

In an explosive resignation letter, he said it was a mark that needed to be reached by 2030. But Downing Street on Tuesday afternoon dodged on whether Mr Burnham was also committed to Mr Healey’s demand on defence spending.

The PM’s official spokesman said: ‘As the PM said yesterday, we will honour our commitments on defence to our international partners. We’ll set out more on defence in due course.’

The spokesman also noted how Mr Burnham, in a phone call on Monday with NATO boss Mark Rutte, said that appointing Mr Healey as his Chancellor ‘is a signal of his intent’.

Mr Healey is said to have been keen on a ‘defence bonds’ scheme to fund a boost to military spending. But it is understood it is not something the Government is working on.

Sir Keir, the former PM, and Ms Reeves had previously ruled out the idea and cautioned defence bonds are ‘just another form of borrowing’.

The Tories earlier warned Mr Healey against trying to find an ‘easy way out’ by issuing defence bonds, as they branded the proposal a ‘total gimmick’.

They instead urged the new Chancellor to ‘deprioritise’ spending in other areas in order to fund a defence boost, rather than just add to Britain’s debt pile.

Mr Healey has previously indicated he would consider the use of defence bonds, borrowing allocated specifically for the military, to help boost its financial resources. 

Wes Streeting, who is now the Defence Secretary, has also suggested inheritance tax-free defence bonds could help fund military spending and pointed to a Canadian-led initiative.

In comments last month, Mr Streeting claimed such a scheme would see ‘the huge amounts of money that are currently sat in all sorts of other savings and investments, probably not earning a great deal of interest, actively investing in the defence of our nation today’.

Lord Dannatt, the former Army head, told Times Radio on Tuesday morning that Mr Healey will ‘probably want to look at the notion of a defence bond’.

‘If we think collective security is something that involves us all, then why shouldn’t those who are concerned about these things and have the ability to put their hand in a pocket, why shouldn’t they be invited to contribute?,’ he said.

‘It’s been done before and I think it’s an idea that’s certainly worth looking at; it’s not the complete solution but if John Healey is going to be true to himself, knowing exactly what the defence budget needs, he’s going to have to work very, very cleverly and very carefully at finding ways of raising more money.’

But Paul Johnson, the former head of the Institute for Fiscal Studies think tank, said there was ‘zero economic difference’ between defence bonds and extra borrowing.

He posted on X: ‘I’m sorry but ‘defence bonds’ is literally just another way of saying ‘more borrowing’. Fine. If that’s what you want to argue for just say so. There is zero economic difference.’ 

Rupert Harrison, another leading economist who was formerly George Osborne’s chief of staff in the Treasury, agreed with Mr Johnson’s comments.

He wrote: ‘This 100% And doing it with eg an IHT (inheritance tax) exemption for defence bonds is a textbook example of financial repression – using policy to divert capital away from the private sector and towards the state – and crowding out private investment.’

Shadow defence secretary James Cartlidge said defence bonds are ‘a total gimmick’.

The senior Tory MP congratulated his former opposite number Mr Healey on getting ‘the second most powerful job in Government’.

But he added that ‘there’s already been talk around defence bonds, which he himself, when he was asked MoD (Ministry of Defence) questions, was always, in my view, relatively enthusiastic about in his responses, primarily from the Liberal Democrats’.

Mr Cartlidge told Times Radio: ‘My view is this is a total gimmick, it’s simply borrowing.’

A paper from the ‘independent, very respected’ House of Commons Library said the bonds make ‘no difference in the impact on Government borrowing costs or on the national debt’, he added.

‘With defence bonds, they both go up – it’s just like any other borrowing, that’s the easy way out, that is not a policy,’ he continued.

‘A policy implies you have to make a difficult decision about what you’re going to deprioritise to prioritise the spending we need on defence.’

The Lib Dems have called on Mr Healey to introduce defence bonds as a means of raising extra cash for defence.

Party leader Ed Davey said: ‘John Healey has seen up close the need to rebuild our Armed Forces after years of Conservative cuts and Starmer dithering.

‘Now as Chancellor, he should take up Liberal Democrat plans for defence bonds to invest £20 billion in our sovereign capability.’