In 1940, as the United Kingdom faced the onset of the Second World War with public debt already exceeding 100 percent of GDP, economist John Maynard Keynes proposed a financing plan to support wartime expenditures. Today, while war remains a possibility rather than a certainty, discussions around increasing defence spending in the UK have resurfaced amid similar fiscal constraints, with public debt once again approaching 100 percent of GDP.

Currently, the UK government plans to raise defence spending to 3 percent of GDP by the end of the next parliamentary term, although the associated investment plan is already delayed by six months. In comparison, Germany has committed to reaching NATO’s defence spending target of 3.5 percent of GDP by 2029. Experts argue that accelerating the UK’s defence spending increase within the current parliament could be justified on both national security and economic growth grounds, but this raises challenges related to public acceptance, competing priorities, and funding mechanisms.

A recent survey of over 1,000 UK residents reveals that while defence spending ranks behind health, immigration, and housing as a public priority, a significant portion—around 40 percent—supports its increase. More notably, support rises to 60-70 percent if additional defence funds contribute to apprenticeships, job creation, infrastructure, and innovation. When considering how to finance higher defence expenditures, public opinion is divided among higher taxes (primarily targeting the wealthy), cuts to public spending (particularly welfare and pensions), and increased borrowing. About one-quarter of respondents expressed willingness to purchase “war bonds,” suggesting an appetite for voluntary government investment instruments across different demographics.

These financing preferences echo elements of Keynes’s 1940 proposal, which included compulsory savings repaid with interest funded by a tax on wealth. Today, a similar approach might be implemented using voluntary tax incentives rather than compulsion. With the UK public holding over £2 trillion in bank deposits—much of it yielding negative real returns—expanding tax advantages for war bonds via mechanisms such as temporarily raised Individual Savings Account (ISA) limits, pension relief, or inheritance tax adjustments could tap into this pool effectively. Such measures could lower government borrowing costs while providing savers with better returns.

Proposals suggest that additional annual borrowing of £10 billion to £15 billion would only modestly increase public debt issuance and ISA uptake. However, concerns about borrowing amid volatile bond markets mean further measures are necessary. Two complementary strategies include directing defence spending increases toward boosting employment and economic growth, particularly by addressing youth inactivity through expanded apprenticeship programs and leveraging the UK’s defence technology sector. While some international assessments have questioned the growth impact of higher defence budgets, proponents emphasize the importance of implementation details.

Secondly, balancing new defence expenditures with reductions in other public spending is considered crucial for fiscal sustainability. A key recommendation is replacing the “triple lock” on state pensions—currently guaranteeing increases based on inflation, wages, or a minimum percentage—with a single inflation-linked adjustment, aligning with other benefits. This change could generate fiscal savings of around £5 billion, funds which could then be redirected to youth employment initiatives, enhancing intergenerational fairness.

Historically, elements of Keynes’s wartime financing plan were adopted in the post-war period by the Attlee government, coinciding with sustained economic growth and significant reductions in the debt-to-GDP ratio over the following decades. Analysts suggest that bold fiscal decisions today may similarly support national security goals while promoting economic stability.