Historically, UK spending on defence has often been pitted against welfare, education and local government. But at a time when the government has pledged to meet Nato's target for defence spending - 5% of GDP in the next decade, up from around 2.3% - it appears to be offering a different fiscal equation .
Authors
- Giray Gozgor
Associate Professor of Economics & Finance, School of Management, University of Bradford
- Kamran Mahroof
Associate Professor, Supply Chain Analytics, University of Bradford
The government has suggested that it aims to shift the tax burden upwards, targeting especially large profits and tax avoidance. Despite recent fury over its welfare reforms , as far as taxes go, the government still appears to believe that those with the broadest shoulders should carry the weight.
Past approaches to balancing the books relied on austerity or slashing welfare spending. Throughout the 2010s and early 2020s, Conservative governments framed public finance as a rigid trade-off. This mentality dominated budget decisions, forcing domestic priorities to shrink as defence budgets grew.
However, Labour now appears to want to boost defence spending without austerity-level cuts to public services .
Beyond defence, this shift of the tax burden could signal a broader transformation in how national priorities are financed. If implemented effectively, this approach could protect public services even during times of global insecurity.
But while it may seem like a win-win, reforms of this nature have often faced political resistance or been deprioritised in favour of short-term fixes. What is different now is that global economic uncertainty is creating growing pressure for more sustainable and equitable choices.
So who pays?
The core question in any public finance debate is not what the money is spent on, but who pays for it. First, the government wants to close some of the loopholes that allow large firms to legally reduce their tax bill . Of course, the risk here is that some leave the UK and their taxes are lost entirely.
The government also has in its sights high-income individuals . While around 60% of tax receipts come from the top 10% of earners, these people can also benefit from lower effective tax rates thanks to tax-efficient investments , for example. Again though, the risk for Labour is that it causes some of them to leave the country.
Similarly, those with a high net worth often hold assets offshore in order to pay less tax in the UK. This can be legal, but opaque, and the government would like to increase the tax these people pay.
Lastly, Labour is looking more closely at what to do about taxing sectors with windfall profits, namely energy .
This approach is not only ideological but also strategic. By targeting wealth and excess , the government hopes to fund new priorities without alienating working and middle-class voters , and to avoid painful cuts to essential services.
But clearly, it is not quite as simple as that. To make this sustainable, a combination of targeted tax reform, economic growth and spending efficiency will be needed. However, this approach could mark a pivot towards a fairer way of sharing the burden. It also reflects a more profound shift in political storytelling.
Labour leaders have made clear that there will be no return to austerity . The broader policy direction suggests ambitions to invest in the NHS, early-years and social housing, as well as refining in-work welfare benefits such as universal credit.
But these aims require fiscal headroom, and this is where the challenge lies. Parallel commitments such as raising defence spending and funding welfare might look impossible to live up to. Many are questioning whether the government can maintain economic stability without increasing the overall tax burden on ordinary households.
The answer depends on three things: political will, economic performance and execution. Even if there is public support for a fairer tax system, building and enforcing it will require effort and patience beyond this parliament. The government will need to strengthen tax compliance, close legal loopholes and prevent the flight of capital.
None are easy, but we argue they are entirely achievable. Progress globally is already proving it. Automatic tax-data sharing between nations and the Organisation for Economic Cooperation and Development's global minimum tax (which ensures that large corporations operating in member nations pay at least 15% tax) have made offshore tax havens far less viable.
At home, modernising tax laws and properly funding enforcement can shut down legal exploitation of the system. With political will and international cooperation, these reforms can deliver a fairer system without sacrificing competitiveness.
The UK's debt to GDP ratio is very high, and economic growth is sluggish. Therefore, there is little space for manoeuvre. That's why tax reform, not just tax increases, will be key. Efficiency in collection, transparency and closing loopholes are just as crucial as raising tax rates.
The financial implications of military expansion are real, but so are the choices in how the country funds it. Labour is betting that a fairer tax system can finance Britain's rising defence commitments while protecting public services. However, efforts to procure or produce new military equipment rank very low on the public's priorities. .
Defence needs steady funding to handle national security threats. Welfare programmes are vital to support vulnerable people, reduce economic inequality and to help more people into paid work.
Progressive taxation taps wealth from the richest but often sparks fierce resistance from powerful groups. The alternative (cutting schools, hospitals or pensions) is politically and morally costly.
But this strategy requires clear communication and a commitment to both security and social justice. If successful, it could mark a real turning point in how the UK balances its responsibilities.
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
