How to pay more for our military without spooking the markets

There is widespread political agreement that both Britain and the European Union need to increase defence spending. But in straitened times, how can it be done?

- Phillip Inman Economics Editor

Can Britain increase defence spending without cuts elsewhere?

Rachel Reeves is constrained by fiscal rules that govern the extent of the UK's debts and the annual spending deficit by the end of the parliament. Following lower than expected tax receipts and higher borrowing costs in the current financial year, it looks likely that the chancellor will need to make budget cuts when she makes her next financial statement on 26 March. Last week she said a rise in defence spending would mean making "difficult decisions across the board".

Reeves fears a backlash from markets in response to higher, unfunded spending, pushing the cost of borrowing up in a repeat of the Liz Truss mini-budget debacle. Most analysts believe a rise in borrowing is expected by international lenders.

Could there be an opt-out of the fiscal rules for defence?

A crisis that forces major European countries to step up their funding for defence could be a gift to Rachel Reeves. It is the perfect excuse for suspending budget rules that most economists consider a barrier to reviving economic growth.