OBR Warns of Rising Defence Spending Pressure on Public Finances

By the Editorial Team · Wednesday, July 22, 2026

The Office for Budget Responsibility has identified rising defence spending, targeted to reach 3.5% of GDP by 2035, as the main new strain on the UK’s public finances under Chancellor John Healey. This increased military investment, alongside pressures from pensions and healthcare costs, poses significant fiscal challenges that may require revisiting policies like the state pension triple lock and tax reforms to maintain economic sustainability.

The Office for Budget Responsibility (OBR) has identified rising defence spending as the primary new pressure on the United Kingdom’s public finances, a development that will challenge Chancellor John Healey as he assumes responsibility for the Treasury. During a session before the House of Lords Economic Affairs Committee, members of the OBR’s budget council emphasized that the government’s commitment to increase defence expenditure to 3.5 percent of gross domestic product (GDP) by 2035 adds to existing fiscal strains caused by health, pension, and welfare costs.

Tom Josephs, a member of the OBR’s budget committee, described the defence spending pledge as a “significant” challenge. He noted uncertainties over whether this target, originally set under Prime Minister Sir Keir Starmer, would be sufficient amid escalating geopolitical tensions, suggesting that future defence budgets could require even larger increases.

Healey, who previously served as defence secretary and resigned from Starmer’s cabinet over concerns about inadequate military funding, now faces the task of managing a defence investment plan that reportedly demands an additional £1 billion annually over the next four years. This plan was inherited by the new Prime Minister Andy Burnham, who assumed office recently.

The OBR also highlighted the potential to ease fiscal pressures by reconsidering the state pension’s “triple lock” policy, which guarantees annual increases based on the highest of inflation, average earnings growth, or 2.5 percent. David Miles, another OBR budget committee member, pointed out that the triple lock represents a “significant and rising” expenditure and recommended that both Burnham and Healey examine pension and health spending to improve fiscal sustainability. The Organisation for Economic Co-operation and Development (OECD) recently estimated that abolishing the triple lock could save the government up to £60 billion.

On the taxation front, Miles suggested that certain targeted tax cuts might stimulate economic growth and potentially pay for themselves. Specifically, he cited the removal of “cliff-edge” effects in the tax system, where some workers face marginal tax rates close to 100 percent, as an area warranting reform.

The discussion took place in the context of the OBR’s Fiscal Risks and Sustainability report released earlier this month, which outlined a grim long-term outlook for public debt. The report projects that, without significant policy adjustments, the UK’s debt-to-GDP ratio could rise to around 300 percent by the 2070s. Currently, the UK’s tax burden approaches a post-World War II high of 38.5 percent, while the debt-to-GDP ratio is near 100 percent, underscoring the pressing fiscal challenges confronting the new government.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.