Andy Burnham backs borrowing outside fiscal rules to boost defence spending

Greater Manchester mayor Andy Burnham has reignited a debate about funding an uplift to defence spending via borrowing outside the UK’s fiscal rules, in a veiled criticism of the government’s approach.

Burnham floated the idea in a wide-ranging interview on Wednesday in which he warned Labour needed to take a “different course”.

“There’s certainly a case, when we look at the pressure on defence spending, to consider that exceptionally outside of the rules,” the Labour mayor told Bloomberg.

In the same interview, Burnham declined to back Prime Minister Sir Keir Starmer staying in post after May’s devolved and local elections, when Labour is expected to suffer bad results.

Burnham is championed by some soft-left Labour MPs as a potential successor to Starmer, although the mayor would need to win a parliamentary seat before making a leadership challenge.

Backing proposals to increase defence spending — a key demand of some on Labour’s right flank — may be seen as a campaign tactic to broaden Burnham’s support within the parliamentary Labour party.

However, his proposals drew sharp criticism from some. One Labour MP who backs diverting money from the welfare budget towards defence said the mayor was “making stuff up without having a clue what he’s saying”.

Gilt investors are anxious that Labour could shift to the left after the May 7 elections, especially in the event of Starmer facing a leadership challenge, and seek to loosen its self-imposed borrowing limits.

That worry has added fuel to a sell-off in government bonds from the Iran war inflation shock, with a knock-on effect for the public finances. The UK’s 30-year borrowing costs rose to 5.73 per cent on Wednesday, close to the highest level since 1998.

Rupert Harrison, a senior adviser at bond giant Pimco and a former chief of staff to ex-Tory chancellor George Osborne, said on X: “Talk like this is exactly what will cause gilt market jitters during a leadership election.”

Last year, the EU temporarily loosened its fiscal rules to allow countries to spend more on defence in response to growing US pressure on the bloc to increase investment in its own security.

Asked how she planned to fund defence spending during a recent visit to Washington, chancellor Rachel Reeves said she did not want to boost the UK’s government debt burden given interest costs and signalled she would be more inclined to look at reallocation of expenditure.

Last year, Starmer announced he would increase defence spending from 2.3 per cent of GDP to 2.5 per cent from 2027, funded from a commensurate cut to the international aid budget.

However, he later vowed to “go faster” on increasing the defence budget and promised to raise it to 3.5 per cent by 2035.

The Ministry of Defence is grappling with a funding gap of £28bn over the next four years. Meanwhile, the publication of a 10-year military investment plan has been repeatedly delayed due to a deadlock between Number 10, the Treasury and the defence department.