Asked by
To ask His Majesty's Government whether they intend to replicate
the approach of the Green Savings Bonds to provide incremental
resource to fund the defence capability by issuing a defence
bond.
The Parliamentary Secretary, HM Treasury () (Con)
My Lords, the Prime Minister recently set out our pledge to
increase defence spending to 2.5% of GDP by 2030. That increase
starts today, will rise each year and will see defence spending
rise to £87 billion a year by 2030-31. This is the biggest
strengthening of our defence since the Cold War. The commitment
will be fully funded, with no increases in borrowing or debt.
Therefore, we have no plans to issue defence bonds.
(Con)
My Lords, I thank my noble friend for that response. I of course
welcome the Prime Minister's commitment, which is reassuring and
provides a clarity that is much needed. My Question is designed
to explore innovative ways of augmenting defence spending and
thereby assist the Treasury. The Government vigorously promoted
green gilts and green investment bonds to fund green expenditure.
If that is an acceptable funding principle for the environment,
why is it not for our national security?
(Con)
As I have outlined, the Government will use existing resources to
fund this increase in defence spending, but my noble friend makes
an important point: our superb defence industry needs investment.
Although the Government are the main customer of the defence
industry, as are exports, these are of course private companies
and they do need investment. There are some reports that defence
is being excluded on ESG grounds. The Government have confirmed
and are absolutely committed to the fact that investment in good,
high-quality, well-run defence companies is compatible with ESG
considerations.
(Lab) [V]
My Lords, with the green savings bonds success in mind, would not
it be appropriate, while considering the benefits and viability
of a defence bond, to complement its introduction with the issue
of a peace bond: a bond that invests in NGOs that promote
conflict resolution, peace initiatives, international
understanding, political exchange and sensitive and constructive
media intervention overseas; a bond that funds a fostering of
links and exchange with more problematic parts of the world; a
bond that tempers the slide to conflict and war?
(Con)
My Lords, as I have already set out, the Government are not about
to start a plethora of different bonds for different measures,
but the noble Lord is right that the green bonds have been
successful. The funds raised from those bonds have been invested
in things such as cycling and walking, electric vehicle
home-charging, plug-in grants for cars and vans, and the Nature
for Climate Fund.
(CB)
My Lords, in the Prime Minister's speech he highlighted perils
that some of us have been warning about, to little avail, for
more than a decade now. The Government's response seems to be to
increase the defence budget in six years' time to a level that,
allowing for accounting changes, will still be below where it
stood in 2010. In light of the Prime Minister's speech and in
line with the Question from the noble Baroness, Lady Goldie, is
it not high time the Treasury addressed itself to the question of
how we can, rather than why we cannot?
(Con)
I am grateful to the noble and gallant Lord for his intervention,
but the Government have committed to increase NATO-qualifying
defence spending to 2.5% of GDP. That will make us the biggest
defence power in Europe, and second only to the US in NATO. If
all other NATO members were to increase their spending to the
same levels, that would mean an additional £140 billion to be
spent by allied nations.
(LD)
My Lords, the UK's green gilts have been justified as necessary
to promote London as a global centre for green finance, and they
have been successful, but defence bonds would bring no such
advantage and surely should be funded from core taxation. What
would be the impact of defence gilts on general gilts issuances,
on the national debt, on our annual interest payments and on
funds for other public services?
(Con)
Of course, I do not have the answer to those questions because
the Government are not intending to issue defence bonds. However,
the noble Baroness mentioned one of the rationales for issuing
green gilts—ensuring that the City of London is a global
financial centre—and she is absolutely right. Indeed, we are the
No. 1 financial centre for green finance.
(Con)
Is my noble friend aware that investment in good defence
companies is entirely compatible with ESG? Will she ensure that
our fund managers in the City take a copy of what she has stated
today?
(Con)
I am very happy to reiterate what I said about the Government's
commitment to the defence industry, ensuring that it receives the
amount of private sector investment it needs. My noble friend may
have seen that, to that end, there was a joint government/
Investment Association statement to fund managers that gave
exactly the clarity he seeks.
(CB)
My Lords, notwithstanding that the 2.5% by 2030 is welcome in
comparison with where we have been, was not my noble and gallant
friend right to remind the Minister and the House of that
fact—not least in the context of the International Relations and
Defence Committee report two years ago, which urged urgency in
addressing the multiple threats from dictators in Russia, China,
North Korea and Iran? Is not the noble Baroness, Lady Goldie, who
has huge experience in this area, right to look at innovative and
different ways of adding to what we can do in a more urgent
manner? To that end, will the Minister consider a private round
table discussion here in the House to explore that idea further,
so that some of the figures that have just been mentioned might
be laid before us?
(Con)
The noble Lord seems to imply that this is a timing issue. The
Government have heard all the messages coming from various
quarters about the urgency and the threats we face. We do
understand them, but the funds we are now going to put into the
system are timed such that they can be most effective. For
example, we will be spending on firing up the UK industrial base,
but that cannot happen overnight. Our defence companies need
multiyear certainty, which, of course, we get from the £10
billion commitment to a new munitions strategy, for example.
Again, that does not happen overnight. We are content that the
timing is right. As I say, we do not intend to issue defence
bonds.
(CB)
My Lords, now that I have heard about the Minister's initiative,
I am less personally concerned about the scale and esoteric
source of the defence uplift. Like many, my prime emotion is
relief, not jubilation. My concern is that the uplift is well
spent. On behalf of government, can the Minister reassure the
House that the priorities for the uplift will be keeping Ukraine
in the fight this year and then re-establishing the credibility
of conventional deterrence in Europe?
(Con)
I can absolutely give that reassurance. In addition to firing up
the UK industrial base and the £10 billion on the new munitions
strategy, the third key area that the additional funds will be
spent on is guaranteeing for as long as it takes support for
Ukraine. Obviously, that will build on the billions of pounds in
military support we have already committed to Ukraine, as well as
the extra £0.5 billion announced by the Prime Minister alongside
the funding uplift.
(Lab)
My Lords, the Labour Party is fully committed to increasing
defence spending to 2.5% of GDP, a level that was last met 14
years ago, when Labour was in office, so we welcome the
Government's recent commitment to this target. In her first
Answer, the Minister stated that the commitment was fully funded.
However, it was not included in the March Budget, and it is not
clear how they intend to fund it within their fiscal rules. In
the event that there is another fiscal review this autumn, can
she guarantee that it will be included and submitted to the OBR
to ensure that it is openly costed and independently
validated?
(Con)
The Government have published figures in accordance with the OBR
forecasting period, which sets out exactly how this uplift will
be met. The OBR forecast goes out to 2028-29, and obviously the
uplift goes out further than that. For example, in 2028-29 there
will be an extra £4.5 billion, which will be met through an
increase of £1.6 billion in R&D spending and £2.9 billion
from reducing headcount in the Civil Service to the pre-pandemic
levels of 2019.
Lord (LD)
Can the Minister reassure us that it is the Treasury's view that
an increase in defence expenditure to 2.5% of GDP is compatible
with the promise of further tax cuts, without further cuts in
other public spending areas?
(Con)
I can assure the noble Lord that this has no impact on our
ambition to further cut taxes in future. We want to end the
unfairness of double taxation of work—we have cut employees'
national insurance contributions by a third—so we do not see that
this is incompatible.
