Future Capability of the Armed Forces

Lord Altrincham Excerpts

Thursday 16th July 2026 Lords Chamber

[Lord Altrincham (Con)]

I thank my noble friend Lord Harlech of the Coldstream Guards for securing this debate and I thank the Minister for hosting us with such courtesy, as he always does.

I start by noting that the strategic defence review presented our defence position very clearly last year, but at that time made almost no commitments to expenditure and, fatefully, made just a reference to an ambition for 3% of GDP as being a kind of soft target. The Government at the time accepted all the recommendations of the strategic defence review, as noble Lords will remember. Notwithstanding their acceptance, it turned out that expenditure and the position of the public finances were central to the problem, and became central, alas, to the last Prime Minister’s fate.

We might ask how that came to be. Possibly rather unhelpfully for the Government, the OBR put out its financial sustainability report in July, which explains quite clearly that the public finances are on an unsustainable trajectory. That is because, as we know, and as we often talk about in this House, we are deficit financing the Government at the moment. The gap between the amount we raise in taxation and what we spend is very wide, and it is risky for the Government to be funding on that basis. We will be raising £150 billion of new money for the Government in debt this year, which is much more than we spend on defence, just in the current deficit. We are at quite a risky, delicate moment.

The need for defence arises at just the moment when the OBR points out that we are in no position to meet economic—or any other—shocks to public finances. It is a risky moment, not only because the Government are funding all the time in the government debt markets but because of inflation, the foreign exchange and growth. All of these factors lie well beyond this debate, but they place fundamental risk on us, just as the defence challenge does. It is very hard to know how we are going to fund defence in the next few years.

The Government have promised to consolidate the public finances by 2031 or so. That probably marks the limit of where deficit financing is going and the limit for the next Administration of what they can do. They cannot go much further than this promise of debt consolidation. By the way, that will still mean that we are deficit financing in the 2030s but just to a more modest level—but let us assume it is the limit.

Against that backdrop, the OBR took a look at what would happen in the coming years. Its approach was to ask why we do not just keep all the variables and expectations of public expenditure where they are and not change anything. This is not realistic, if you think about it. It accepts all the promises made on public expenditure as they are and expects all the spending on net zero, for example, to be unchanged.

The one variable that the OBR changes—which shows that the OBR itself is part of the national conversation about which the noble Baroness, Lady Stuart, spoke—is that it talks about the need for defence. It says that defence spending is likely to pass 3.5% of GDP in the early 2030s and may go to 5%. At 5%, defence spending in the UK would be similar to where it is in Germany today, all of which is to say that it is completely unsustainable and completely unknown, and a degree of change will have to come. The clue for that change is in this national conversation.

I end by saying that this is a moment of opportunity for the Government, where we could restart a conversation on public finances and defence at the same time.