Rachel Reeves warns other budgets may be cut to lift defence spending

Rachel Reeves has warned “difficult choices” are required to increase defence spending and other budgets may have to be cut, including welfare.

Under pressure for a faster rise in military spending amid the Iran conflict and Russia’s war in Ukraine, the chancellor said she was “working through a range of options” but preferred not to increase taxes or add to government borrowing.

She said: “My two budgets have both increased taxes substantially. I would prefer not to have to do that again. And on borrowing, well look, we’ve seen through this conflict [in Iran] the cost of government borrowing increase.

“We already spend £1 in every £10 on what the government spends on servicing the debt. If we increase that debt further we’d only be increasing how much we would be spending.”

In comments suggesting readiness to face down her Labour colleagues, Reeves said: “I think people have seen that I’m willing to make difficult choices and challenge the orthodoxy through what I did last year to realise more money for defence.”

Speaking to journalists on the sidelines of the International Monetary Fund spring meetings in Washington, she said ministers were working through the government’s 10-year defence investment plan and it was important to allocate funding appropriately.

While refusing to be drawn directly on whether welfare cuts would be targeted, Reeves said: “National security always comes first, I’ll always do the right thing as chancellor for our country.”

When asked if the pensions triple lock could be ditched, she said Labour remained committed to its manifesto promise to keep the policy. “We’re not changing that,” she added.

Her comments on welfare echo those of Wes Streeting, the health secretary, who suggested earlier on Thursday that welfare cuts could be required because it was critical to deal with the “challenge of the world we face”.

Keir Starmer’s government faces mounting pressure from opposition politicians and former senior military figures for a faster rise in defence spending amid Donald Trump’s threats to withdraw the US from Nato and escalating geopolitical tensions.

UK spending on defence is on track to reach 2.6% of gross domestic product by April next year, which Reeves said was ahead of the plans outlined by both Labour and opposition parties in their manifestos before the 2024 general election.

The chancellor said she was proud to have provided the biggest uplift in defence spending since the end of the cold war in her previous budgets: “To have a strong and secure economy you’ve got to have strong defences and strong national security.”

Reeves said the economic shock from the Iran conflict was limiting her room for manoeuvre in the public finances.

The IMF said on Tuesday that a further escalation in the Middle East war could trigger a global recession that would affect the UK more than any other G7 nation. It also sounded the alarm over government debt levels that were on track to reach the highest point since the second world war and called on countries most in the red to focus on targeted and temporary energy support measures.

Reeves suggested her support measures for households and businesses would need to be funded through reprioritising other budgets. Highlighting the blanket support measures used by Liz Truss’s Conservative government after the Russian invasion of Ukraine, she said the top third of families had received more than a third of the support.

With the subsidies costing more than £100bn, she said this had resulted in “higher inflation, higher interest rates, and ultimately higher taxes to repay it”. She added: “I think the best way to help families in Britain and to help businesses as well is to do everything I can to keep prices, costs and interest rates down.”