Finance
UK's Reeves Says Higher Taxes and Borrowing Not Good for Extra Defence Spending
Published by Global Banking & Finance Review®
Posted on April 16, 2026
2 min readLast updated: April 16, 2026
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UK finance minister Rachel Reeves said she opposes raising taxes or borrowing more to fund defence increases, highlighting existing high debt-interest costs. Instead, the government is exploring spending cuts, North Sea tie‑back oil and gas projects, and delinking electricity prices from gas to supp
Rachel Reeves Rules Out More Tax or Borrowing for UK Defence Budget Rise
UK Defence Spending and Government Funding Strategies
Rachel Reeves’ Stance on Tax and Borrowing
WASHINGTON, April 16 (Reuters) - British finance minister Rachel Reeves said on Thursday she did not favour tax hikes or higher borrowing to pay for increases in defence spending which has become a priority after Russia's full-scale invasion of Ukraine and the Iran war.
"Obviously we are working through a range of options, but my two budgets have both increased taxes substantially and I would prefer not to have to do that again," Reeves told reporters during the International Monetary Fund and World Bank spring meetings in Washington.
Concerns Over Debt Interest Costs
In terms of borrowing, British government spending on debt interest costs is already too high, she said.
Prime Minister’s Defence Budget Pledge
British Prime Minister Keir Starmer has promised the largest sustained rise in defence spending since the Cold War, but with the public finances already under strain, his government has not yet published a 10-year defence investment plan.
Alternative Funding Options
As well as raising taxes or borrowing more, cuts to other areas of public spending could help fund a bigger defence budget.
Energy Policy and Economic Implications
North Sea Oil and Gas Tie-Back Projects
Reeves said the government was working "pretty intensely" with energy firms to finalise the details of so-called tie-back projects in the North Sea which would allow some new oil and gas production on or near existing fields.
Labour Party’s Net-Zero Commitments
Starmer's Labour Party pledged during its 2024 election campaign that it would stop awarding new oil and gas licences to help the move toward net-zero emissions. But its plan for tie-backs, announced in November last year, would allow for new oil and gas licences if they do not require new exploration.
Electricity Price Reforms
Reeves also said the government hoped to have more details on ways to de-link UK electricity prices from gas prices in the coming days or weeks, a change which could help bring down the high cost of power in Britain.
(Writing by William Schomberg; Editing by Paul Simao)
Key Takeaways
- •Rachel Reeves opposes further tax hikes or borrowing for defence, citing substantial tax increases in her last two budgets and high interest on government debt.
- •Labour’s plan is the ‘biggest sustained defence spending rise since the Cold War’, targeting 2.5% of GDP by 2027 and rising to 2.6% including intelligence spending, with ambition for 3% by the next parliament. (gov.uk)
- •To finance the spending, the government is pursuing alternatives like reallocating future North Sea tie‑back projects and reforming energy pricing to reduce the cost of power, avoiding additional taxes or debt.
References
Frequently Asked Questions about UK's Reeves says higher taxes and borrowing not good for extra defence spending
1Why does Rachel Reeves oppose higher taxes or borrowing for defence spending?
Reeves says taxes have already increased substantially and debt interest costs are too high, so she prefers not to raise taxes or borrowing further.
2What alternative funding options are being considered for the UK defence budget?
Other than tax hikes or borrowing, cuts to other public spending areas are being considered to fund a bigger defence budget.
3What is the UK's position on new oil and gas licences for North Sea projects?
The government plans to allow 'tie-back' projects if they do not require new exploration, aligning with Labour Party pledges on net-zero.
4How might UK electricity prices change in the near future?
The government aims to de-link UK electricity prices from gas prices, which could help lower power costs.
5Has the UK government published a long-term defence investment plan?
No, despite promises of increased defence spending, a 10-year defence investment plan has not yet been published.