No, Sir Keir Starmer, Defence Spending Won’t Make Britain Richer
Modern politicians love to pretend all good things go together, so avoiding difficult debates about trade-offs. Net zero won’t just save the planet — it’ll supposedly create “green jobs”. New employment rights won’t just provide workers more security — they’ll also raise productivity. And now, Sir Keir Starmer says ramping up British defence spending won’t just guard against Russia’s ambitions — it will “put more money in people’s pockets” and open “opportunities for good, skilled jobs, making communities across the UK better off.”
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Can more defence spending really drive Britain’s flagging growth, as Starmer implies? Some “military Keynesians” would argue that a large, temporary defence run-up can boost GDP by raising aggregate spending when unemployment is high and interest rates low. Yet that’s not Britain’s reality today. Even with bloated disability rolls, labour markets remain tight. Bond markets have been jittery about Britain’s borrowing levels since 2022. And the proposed rise in defence spending — from 2.3 to 2.5 per cent of GDP, then 3 per cent — isn’t a one-off splurge. It is permanent.
The idea this modest spending increase would meaningfully boost growth doesn’t just fail the common-sense test—it’s at odds with serious economic research. Economist Ethan Ilzetzki’s recent Guns and Growth pamphlet for the Kiel Institute claims that higher European defence spending would boost GDP. Yet read the small print: if financed through tax hikes — something many Labour MPs favour beyond the 2.5 per cent threshold — even the short-run growth effect shrinks, often turning negative.
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Yes, some defence-related industries would see job and output gains from more defence spending, provided the money isn’t simply eaten up by higher wages or the Ministry of Defence’s notorious procurement cost overruns, like the Ajax armoured vehicle project. Yet there’s a trade-off: expanding the defence sector siphons off workers, scientific talent, and capital from private R&D, crowding out commercial investment and long-run productivity growth there. If spending is paid for via borrowing, higher interest rates raise private sector borrowing costs, too.
These effects aren’t just theoretical. Top American economists from Valerie Ramey to Robert Barro have found that defence spending crowds out private investment. Basic intuition tells us this is true. Nobody claims that Russia’s military spending is driving an economic boom there. Just the opposite. And that’s the point: at best, defence splurges create a growth mirage at the private sector’s long-term expense.
Europe’s top macro economists were recently asked by the Clark Center for Global Markets whether higher defence spending would “measurably boost economic growth” over the next five years. Unsurprisingly, a quarter backed the crude, short-term Keynesian view. But most —almost six in ten — weren’t convinced, declaring themselves uncertain. That alone should undermine Starmer’s confident rhetoric.
History is more damning. My colleague George Selgin’s excellent new book, False Dawn, shows that macro economists thought massive defence spending cuts after the Second World War would crash the US back into depression. Instead, private spending and business investment underpinned a strong recovery. Freed from wartime command, resources flowed into homes, factories, and consumer goods — driving a more enduring prosperity than military production ever could.
None of this is to say, of course, that Britain shouldn’t invest more in its national security. If it helps avoid a costly European war, spending an extra 0.2 per cent or even 0.7 per cent of GDP per year would be a worthy sacrifice. And who knows? Extra defence spending may bring unforeseen technological spillovers with commercial applications: the internet, GPS, jet engines, semiconductors and nuclear energy all had roots in defence programmes, after all.
Yet these speculative possibilities don’t justify seeing defence as a growth strategy. For every military-aided technological breakthrough, there are countless white elephants that deliver nothing of value. Defence spending should protect us, not create jobs. If Starmer wants taxpayers to pony up billions more, he should emphasise the strategic imperative for higher spending — not peddle fairytales that it will also make us richer.
