Gordon Brown has said Chancellor Rachel Reeves should exempt the Government’s defence spending pledge from her borrowing rules to help free up economic headroom.
The former prime minister said the commitment to spend 5% of GDP on national security by 2035 should be dealt with jointly as a “Nato initiative”, with costs shared across Europe.
Leading economists have warned the Chancellor will likely have to raise taxes in the autumn budget to plug a £51 billion black hole in the public finances.
Ms Reeves is currently on track to miss one of her borrowing rules by £41.2 billion and needs to rebuild a fiscal buffer of nearly £10 billion that has been wiped out, the National Institute of Economic and Social Research (Niesr).
Mr Brown, who served as chancellor for a decade in Sir Tony Blair’s Labour administration, said on Thursday that the rise in defence spending should be treated as “exceptional”, as it has been in Germany.
“When you come to the fiscal position, look, there’s one thing that’s happened over the last few months that has been quite unprecedented – to spend 5% on defence expenditure as we want to spend by the 2030s,” he told BBC Radio 4’s Today programme.
“But this is a Nato initiative, this is a European initiative. We should be doing this jointly.
“We should have either jointly issued bonds or a Nato defence fund, and we should be sharing the cost across the continent, and that should be regarded as something extraordinary and exceptional, outside the fiscal rules.
“That would create the kind of headroom that Rachel Reeves needs.”
Germany has exempted some defence spending from its strict borrowing rules – the so-called “debt brake” – to allow an increase in expenditure.
When she entered the Treasury, Ms Reeves set out two key fiscal restrictions which she has said are “non-negotiable”.
The first rule is to ensure that day-to-day spending is matched by tax revenues so the Government only borrows to invest, and the second is to reduce net financial debt as a share of the economy.
Ministers have already announced a cut to overseas aid to fund a boost in defence spending but economists have said the new Nato target of 5% by 2035 could increase expenditure by a further £38.6 billion.
The Treasury has been contacted for comment.
