Ed Davey calls for defence bonds to fund £20bn boost to military spending and reduce reliance on US

EMBARGO: Immediate Release

Liberal Democrat Leader Ed Davey has called on the Government to issue defence bonds, open to the public, to raise billions in investment to modernise Britain’s armed forces.

Ed Davey said the country faced a “once-in-a-generation” security threat - with Donald Trump undermining NATO from within and Vladimir Putin continuing his brutal war in Ukraine. He called for a collective, patriotic effort to urgently boost defence spending and reduce the UK’s reliance on an increasingly erratic US President.

The Defence Bonds would echo the “war bonds” issued during the First and Second World Wars, giving members of the public an opportunity to invest directly in Britain’s defence as part of a collective national effort.

The Liberal Democrats said the bonds could raise up to £20 billion for capital spending on defence over the next two years, including new military equipment and other major assets, helping to rebuild the Armed Forces after years of being hollowed out by the Conservatives.

The bonds would be time-limited, capped and accompanied by the establishment of a new Defence Public Accounts Committee to ensure taxpayers’ money is spent efficiently. The UK’s 2021 ‘green gilts’ programme, issued to raise money for capital projects with an environmental benefit, raised £10 billion in its first sale.

The Liberal Democrats said the new bonds would help boost defence spending to 3% of GDP by 2030 at the latest. The party is calling on the government to urgently convene cross-party talks on how to increase defence spending to achieve this goal.

Liberal Democrat Leader Ed Davey said: 

“Now is the moment to be clear-eyed about the threats facing Britain. Vladimir Putin is waging war in Europe while Donald Trump is tearing up the rules and alliances that keep us safe.

“Britain and our allies must rapidly strengthen our defences to deter the likes of Putin – but the Conservative Party slashed troop numbers to their lowest since the Napoleonic Wars and Labour is dragging its feet on the investment our defence industry desperately needs.

“Defence Bonds would give ordinary people the opportunity to contribute to Britain’s security, joining together in a patriotic effort like the Greatest Generation did during the two world wars.

“It is much better to invest now in deterring a war than having to fight one.”

ENDS

Notes to Editors:

Reported by the BBC here. 

Liberal Democrat proposal for a Defence Bonds Programme

• This would be a fixed-term issuance, legally hypothecated to capital spending on defence. Under our proposals, the issuance would be capped at £20 billion and run over the next two years to urgently build up our defence capabilities.
• This package would also send a strong UK demand signal to drive more defence-related investment - helping to deliver growth, jobs and additional revenues for the Exchequer.
• The Defence Bond programme would need to be accompanied by the establishment of a new Defence Public Accounts Committee to provide regular scrutiny of defence spending - including the use of funds raised by the Defence Bonds programme.
• There is recent precedent for UK governments using sector-specific bond programmes to raise funding for capital investment. The previous government issued its first green gilt in September 2021. The proceeds from the gilt are being spent on projects with an environmental benefit. £10 billion was raised from the sale of the first green gilts issuance. [Link to Government Press Release on first sale of ‘Green Gilts’, 2021].
• There is recent European precedent for the use of Defence Bonds to raise spending for security. This includes, for example, Poland’s Armed Forces Support Fund - established in 2022 to support the modernisation of Poland’s military and managed by the state-owned National Development Bank, with the main source of funds coming from issuing bonds. [Link to Politico article outlining Poland’s debt financing for defence model].