Fiscal Policy: Defence Spending

James Cartlidge Excerpts

Monday 27th January 2025 Commons Chamber

[James Cartlidge (South Suffolk) (Con)]

(Urgent Question): To ask the Secretary of State for Defence if he will make a statement on the impact of Government fiscal policy on defence.

[The Minister for the Armed Forces (Luke Pollard)]

The Government’s plan for change says that we will

“set out the path to spending 2.5% of GDP on defence in the spring”.

I am genuinely grateful to the hon. Gentleman for asking this urgent question. It gives me the opportunity to reiterate what the Prime Minister has said, what the Defence Secretary told the House on Wednesday last week, and what the Minister for Defence Procurement and Industry repeated in the House on Friday, which is that this Government have a cast-iron commitment to spending 2.5% of GDP on defence, and that we are already delivering for defence by increasing defence spending. At our first Budget, we announced an extra £3 billion on spending on defence in the next financial year.

[James Cartlidge]

Thank you for granting this urgent question, Mr Speaker. Before I turn to the specifics, I hope you will indulge me and allow me to say on behalf of His Majesty’s Opposition that we join all colleagues today in marking Holocaust Memorial Day. May we never forget or be complacent about the lessons.

Last Wednesday, the Defence Secretary stood at the Dispatch Box and laid bare the extent of the Russian grey zone threat. This is not a distant threat, but one that has been lurking in our own waters, threatening the United Kingdom and our critical infrastructure. I heard what the Secretary of State said, and responded by confirming that he had our full support in standing up to the Russians. I said that this showed why we urgently needed to increase defence spending. But there is one big problem. The rest of us were listening, but the Chancellor of the Exchequer was not. Despite all the evidence before our eyes of the growing threat, we learned this weekend from multiple sources that spending 2.5% will be delayed beyond 2030. Can the Minister disown such talk, and specifically confirm that we will hit 2.5% during this Parliament?

The Treasury is not just failing to back more defence spending; it is hitting our armed forces with higher taxes on death in service benefits and education. The Secretary of State confirmed on Friday that the application of inheritance tax to death in service benefits for the armed forces would go ahead. We understand that to be causing deep alarm throughout the forces community.

As for the education tax, we knew that the continuity of education allowance would not be uprated to 100% of the VAT impact, leaving many service personnel thousands of pounds out of pocket, so since the summer I have called for a full exemption for children of armed forces families. However, in a written answer to me in November on the continuity of education allowance and schools VAT, the Minister for Veterans and People said that

“the new VAT policy does not offer any exemptions”.

Yet on Friday we learned that children of US armed forces families serving in this country and attending British independent schools are exempt from VAT on their UK school fees. I do not begrudge them that—US forces are based in our country to defend us—but we want the same treatment for our people.

Finally, can the Minister confirm that the Secretary of State will bang on the door of No. 11 to demand, first, that the tax on death in service benefits be dropped and, secondly, that British forces families be treated the same as their American colleagues and granted a full exemption from education VAT? Is it not time that Labour backed our armed forces with action, rather than just words?

[Luke Pollard]

I agree with the hon. Gentleman’s words about Holocaust Memorial Day. His Majesty the King has been in Auschwitz for the 80th anniversary, and he spoke for the nation when he said that we will remember this evil long after the survivors of the Holocaust have passed.

I have set out clearly that, in the spring, we will lay out a path to spending 2.5% of GDP on defence. We will also publish a strategic defence review, setting out what we will spend the money on and how we will respond to emerging threats. As the hon. Gentleman will know from the Defence Secretary’s statement last week, we will make it absolutely clear to those who threaten us that we will use the formidable capabilities available to us to defend the UK and our allies.

We inherited a situation in which, during their entire time in power, not a single Conservative Government spent 2.5% of GDP on defence. The last time that 2.5% of GDP was spent on defence was under the last Labour Government. We have inherited falling morale; a retention and recruitment crisis; service personnel living in mouldy, broken homes; and a hollowed-out and underfunded military. That is what the SDR will seek to fix, and I hope that the hon. Gentleman will be able to give us his full support.

Having listened to last week’s debate, the hon. Gentleman will know that those who die on active service are exempt from the inheritance tax provisions. He will also know that the Defence Secretary has uplifted CEA support to 90% for those who privately educate their children while serving in the military. We will continue to support our armed forces, renewing the contract between the nation and those who serve. We will publish the defence review in the spring, when we will also set out our path to spending 2.5%.