Arming For Peace | Defence Spending and GDP

This isn’t the blog I originally intended to write, but events over took me.

Kier Starmer has returned relatively unscathed from his visit to the madhouse that is Trump’s White House.

The headlines focused on Trump’s attention-seeking antics and Starmer’s nerdy calm. Not everyone was pleased. A lot of people seem stunned that so far there has been no drama. Seems like lots of people want the British PM to act like Shaz who has just dumped Gaz and is all over facebook about it.

Starmer’s leadership style is about getting on with running the country without unnecessary spectacle. That approach isn’t always easy in an era of social media and voters hooked on political drama.

But buried beneath the media circus was a major policy announcement overshadowed by the Trump theatrics.

The UK government has doubled down on its commitment to increase defence spending to 2.5% of GDP by 2027, with further plans to reach 3% by the end of the next Parliament. This will be funded, in part, by reducing the overseas aid budget. Even more significantly, Starmer has committed British troops to man the front line against Russia to enforce a peace deal.

This is the largest increase in UK defence spending in generations. For decades, successive governments have steadily reduced military budgets—now, that trend is dramatically reversing.

The left will howl with protest, but this is the purest expression of Clement Attlee-era Labour politics we’ve seen since 1951. The only real difference? Attlee would have sent British troops to Ukraine before a peace settlement, rather than after. And perhaps he’d have landed them illegally in Albania, just to keep an eye on the Eastern Mediterranean.*

Cutting foreign aid will be unpopular, but there wasn’t time for more creative solutions, such as the proposed ‘rearmament bank’ suggested by former Chief of the Defence Staff, General Sir Nick Carter. Expect ideas like this to resurface as the UK moves towards it’s long-term goal of 3% defence spending—potentially softening the blow to the aid budget.

Shifting funds from soft power to hard power is a bold move. Typically, foreign aid serves as a diplomatic tool, achieving policy goals through persuasion rather than force. The UK was once a global leader in soft power, but this has declined sharply. David Cameron’s cuts to the BBC World Service and the diplomatic corps weakened Britain’s global influence. Brexit compounded this, stripping the UK of its seat at Europe’s top table and reducing it to an international punchline.

Yet, counterintuitively, this defence-driven strategy has strengthened Britain’s standing. Washington approves. An EU defence summit is happening in London, with Starmer front and centre. Post-Brexit, Britain was shut out of crucial EU negotiations—now, we’re leading them. It’s a seismic shift in UK-EU relations. The president of the European Commission, Ursula von der Leyen, and the European Council president, António Costa, will come to London, with the leaders of Ukraine, France, Germany, Denmark, Italy, Turkey, Netherlands, Norway, Poland, Spain, Finland, Sweden, the Czech Republic and Romania, plus the Secretary General of NATO. Starmer will chair a pre-summit call with the Baltic countries – Latvia, Lithuania and Estonia.

Labour will remain coy on freedom of movement, but spearheading a security deal with Europe could pave the way for a more favourable trade agreement—boosting British business and easing inflation. David Lammy has worked hard to rebuild EU relations; now is the moment for Labour to take a decisive leap forward.

But this still isn’t the blog I was going to write.

Many will argue that increased defence spending is an unaffordable luxury. Yet, history suggests that it can also stimulate economic growth. Under Attlee, the UK spent 7% of GDP on defence, and the economy boomed. Full employment, rising wages, and a falling deficit followed. Attlee was, in essence, a military Keynesian, using defence spending to drive demand.

The same logic applies in the US. Despite its aversion to socialism, post-war America was more redistributive than many realise. Federal spending moved money across states, with military investment playing a key role. Senators routinely secure defence projects for their districts in exchange for budget support—just as Keynesian in practice as Attlee, but with different branding.

High military spending, immigration, and quiet Keynesianism were the secret ingredients of America’s post-war economic boom. The unraveling began with Reagan’s embrace of neoliberalism.

However, the link between defence spending and economic growth isn’t as clear-cut as many claim. If high military budgets guaranteed prosperity, Russia and North Korea would be thriving.

At the end of this blog, I’ve included links to the research I reviewed while trying to build the case for defence-driven economic growth. The correlation is weaker than popular economic commentators suggest.

In the UK, Attlee’s defence spending helped because the economy was on its knees post-war. Similarly, US military budgets have mitigated regional inequalities. But there are plenty of examples where excessive defence spending has come at the cost of essential infrastructure and domestic investment.

A favourite journal of mine, Negative Results in Oncology, stopped publishing a few years ago. It was unique in that it only published studies where treatments failed—an antidote to the bias in medical research towards positive findings.

It took integrity to publish five years of research concluding that none of the interventions worked and all the patients died. Unsurprisingly, it didn’t last long. But its approach was invaluable: sometimes, the data doesn’t fit the hypothesis, and that truth matters.

That’s why it’s worth discussing topics where the evidence is inconclusive.

For what it’s worth, I believe the UK economy is so stagnant that any increase in government spending will boost GDP. The NHS remains the best investment—but defence isn’t far behind. Still, I wouldn’t want to put a number on it.

*Apologies if any CPNs are upset by that comment, it wasn’t meant to be offensive to CPNs. Or to people who shits in the park who might be offended by the comparison to Trump.

*Attlee “accidentally” invaded Albania twice while illegally interfering in the Greek Civil War.