How anti-Russian defences could be funded – and the ‘baffling’ decision not to ...Middle East

The UK is actively looking at new models to pay for the expansion of its military, amid concerns that it cannot adequately fund plans to make Britain ready for a future war with Russia.

Whitehall insiders told The i Paper that the UK is assessing different potential funding models. The Ministry of Defence has been in a protracted recruitment and funding crisis, with a reported £28bn funding gap in its plans to become “war ready”.

One option is joining a multilateral investment bank – which could unlock new funding for defence – though the Treasury has so far ruled out that approach. MPs described the decision to opt out of discussions on a defence bank as “baffling”.

UK in funding crisis, but no to ‘defence bank’

The head of the British Army has said that the UK must be ready to fight or deter a war by 2027, while Nato has warned that Russia could attack the alliance within five years.

But the UK has so far failed to release a funding plan for military development – known as the Defence Investment Plan (DIP) – amid a reported battle between the Treasury and No 10.

Concerns have been raised that Nato could quickly run out of ammunition in a war with Russia due to low production and large donations to Ukraine – although Nato Secretary-General Mark Rutte recently told a roundtable of journalists, including The i Paper, that the ammunition issue had been “solved”.

The UK has also said it is committed to sending peacekeeping forces to Ukraine in the event of a ceasefire, but one former top official said the British military is “too stretched” to deploy a long-term force there without cutting other programmes.

Despite uncertainty over sources of military funding, the UK has been quick to rule out a new defence bank project being led by Canada’s Prime Minister Mark Carney, the former head of the Bank of England.

The Treasury said in September that the proposals “are not backed by the UK government, and the representatives of these concepts do not represent the government or any of its ministers”.

What is the ‘world bank for defence’?

The plan, known as a Defence, Security and Resilience Bank (DSRB), would loan money to governments or firms making weapons, ammunition and other military supplies for Nato member states.

It is designed to help bolster Nato’s stockpiles and supply chain in the face of increased Russian aggression and is reportedly aiming to generate $135bn in defence funding through low-cost loans.

The bank would be owned by nation states and have a triple-A credit rating – the highest rating possible for a company. The initial capital would be provided by member nations.

Ottawa said it is in talks with more than ten other countries as it aims to “bring together like-minded partners to mobilise capital and support collective security”.

A September meeting brought together more than 35 countries from Nato nations, the EU and the Indo-Pacific region, the DSRB said.

DSRB’s development group described the project as “designed to mobilise the capital needed to help like-minded allies and partners finance their capabilities for the defence, security, and resilience of the democratic world.”

Its leadership includes former senior Nato and government officials, as well as global bankers, the group said, although it has not released any specific names.

Even so, the project has already garnered support among some of the world’s largest banks, with Toronto-Dominion Bank, JP Morgan, the Royal Bank of Canada and Deutsche Bank all backing the initiative.

One Whitehall source told The i Paper that the UK is “interested in improving value from defence spending, and how to work with our allies to increase interoperability, standardisation and efficiency”.

They said that policymakers “continue to assess” various models being proposed but have no current plans to join the DSRB initiative.

Prime Minister Keir Starmer said last week at the Munich Security Conference that the UK is “prepared to explore innovative solutions, so we are stepping up work with like-minded allies”.

But The i Paper understands that there has been limited engagement with industries over alternative funding models, and defence sector insiders expressed doubts about new spending proposals.

Defence bank could be a ‘lifeline’ for UK

Some MPs told The i Paper they were baffled by the decision to not engage with the DSRB, when defence finances are so stretched.

Alex Baker, the Labour MP for Aldershot, said the bank could be as “vital and lasting” as the Nato military alliance.

“This is a sliding doors moment for the UK,” she said. “By joining DSRB now, we have the chance to shape an institution that will define international defence for years to come.”

Baker suggested that the project could be a “vital lifeline” to revitalise defence, saying it “isn’t just about working strategically with our allies abroad; it’s about backing British jobs and industry at home while also ensuring our security on the frontlines”.

She added: “Just as a Labour government helped found Nato 77 years ago, this is an opportunity to create something just as vital and lasting. I want to see the UK leading from the front.”

Calvin Bailey, the MP for Leyton and Wanstead and a former RAF officer, said that Starmer “rightly set out in Munich that UK defence and security needs more resources sooner in order to meet the escalating threats we face”.

“I continue to believe the DSRB could be a very valuable part of this, smoothing out the impact on the UK budget while delivering our defence industry, including SMEs, the finances they need to scale up,” he said.

Bailey added: “What we need are mechanisms that solve long-standing problems in the way defence investments are financed in the UK, while also enabling better coordination with our European and global allies, and I will support any credible proposal to do that.”

Aimie Stone, the chief economist at defence industry body ADS, said that a defence bank would not be a “silver bullet” for the sector but could help bolster the UK’s security and economic growth.

“Any initiative that improves the flow of capital into the sector should be encouraged, provided this is centred around ensuring capabilities are in the hands of those that need them,” she told The i Paper.

Stone added: “Working with financial services institutions is pivotal to unlocking the growth potential of the sector as well as the security of the nation.”

It is unclear what other models of funding the UK is considering at this time.

A Treasury spokesperson said: “We are committed to deepening cooperation with our allies to deter and disrupt threats – including strengthening the UK’s unshakeable commitment to Nato.”

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