Britain's ability to increase defense spending without compromising other areas of the budget is under scrutiny as fiscal constraints tighten. Chancellor Rachel Reeves faces challenges following lower tax receipts and higher borrowing costs, with the upcoming budget potentially requiring cuts. Analysts see higher borrowing as likely, drawing parallels to earlier budget issues. An emergency situation, like ongoing conflict in Ukraine, could allow Reeves to suspend fiscal rules temporarily for defense. Nonetheless, critics warn against unfunded spending boosts that may destabilize financial markets, suggesting alternatives like targeted levies to fund defense initiatives.
Reeves fears a backlash from financial markets in response to higher, unfunded spending, pushing the cost of borrowing up in a repeat of the Liz Truss mini-budget debacle.
Ed Balls, a former Treasury minister, suggested that an argument could be made for extra borrowing in exceptional circumstances, potentially excusing higher defence spending from fiscal rules.
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