The UK government is considering a revival of “war bonds” as it faces mounting pressure to increase defence spending. The proposal would allow both individuals and institutions to lend money directly to the state for national security purposes.
The idea emerges as ministers struggle to meet a £17.6 billion funding gap tied to a pledge to raise defence spending to 3 per cent of GDP by 2029–2030. It reflects wider tensions within government over how to balance fiscal rules with growing military demands.
Government Explores Public-Backed Borrowing for Defence Funding
Chancellor Rachel Reeves is reviewing whether issuing war bonds could help resolve what has been described as an impasse within government over defence financing. According to The Telegraph, the scheme would involve selling bonds to the public and financial institutions, with funds ringfenced specifically for national security.
The concept draws on historical precedent. War bonds were widely used during both world wars, allowing governments to borrow from citizens while appealing to a sense of national duty. In this case, the Treasury is understood to be assessing whether similar instruments could raise funds more cheaply than standard government borrowing by tapping into investor demand linked to defence.
Support for the proposal has emerged across political lines. Labour peer Lord Hain has suggested creating a “special purpose vehicle” in the form of defence bonds, arguing that past periods of military risk justified adjustments to fiscal policy. He has raised the idea directly with senior figures including Reeves and Prime Minister Sir Keir Starmer.
Liberal Democrat leader Sir Ed Davey has also backed the approach. Earlier this year, he proposed bonds with a two- to three-year term offering returns comparable to government gilts, suggesting they could raise up to £20 billion. Such a scheme would allow the public to “support patriotically our defence”.
Treasury officials are reportedly examining whether issuing these bonds would remain consistent with existing fiscal rules. Reeves has previously ruled out increasing taxes or general borrowing to fund defence commitments, placing additional emphasis on alternative financing mechanisms.
Political and Fiscal Tensions Shape Defence Spending Debate
The discussion around war bonds comes amid broader disagreements within government over how to fund increased military investment. The delay in publishing a long-promised defence investment plan has added to concerns, with industry sources describing a sense of “paralysis”, according to the Express.
Pressure has intensified following criticism from senior figures. Lord Robertson, a former NATO secretary general and co-author of Labour’s strategic defence review, warned that current funding levels are insufficient and linked the issue to what he described as an “ever-expanding welfare budget”.
This has exposed divisions within government. Some ministers and military leaders have argued for reductions in welfare spending to redirect funds to defence. Health Secretary Wes Streeting has publicly supported this position, marking a departure from the broader stance of Downing Street.
However, such measures carry political risks. Previous attempts to cut welfare spending triggered resistance within the governing party, forcing a reversal and weakening leadership authority. This context helps explain the appeal of war bonds as a potentially less contentious alternative.
Alongside funding debates, ministers are also pursuing structural changes. Plans are under way to establish a Defence Universities Alliance, aimed at strengthening ties between academia and the defence sector. According to government statements cited by The Telegraph, the initiative is intended to support a broader “whole of society” approach to national security.
The outcome of the war bond proposal remains uncertain. Officials have indicated that any new financial instrument would need to demonstrate value for money, sustained demand, and alignment with wider fiscal objectives before being adopted.
