Budget: £2.9 billion boost for MoD to support Royal Navy, Army and RAF as chancellor increases defence finance

Chancellor Rachel Reeves announced that the MoD’s budget will increase by £2.9bn. The Labour MP made the pledge in the House of Commons this afternoon as part of the October budget - becoming the first ever woman to deliver one.

Ms Reeves was not specific on where this funding will be allocated. She said the Labour government will keep to its commitment of increasing defence spending to 2.5 per cent of GDP in the future. A date has yet to be given, with any decision on further increases due to be made after the ongoing Defence Strategic Review.

“There is no more important job for the government than to keep our country safe,” the MP for Leeds West and Pudsey told parliament. “We are conducting a strategic defence review to be published next year.

“As set out in our manifesto, we will set a path to spending 2.5 per cent of GDP on defence at a future fiscal event. Today, I’m announcing a total increase to the Ministry of Defence’s budget of £2.9bn next year, ensuring that the UK comfortably exceeds our Nato commitments, and provides guaranteed military support to Ukraine of £3bn per year for as long as it takes.”

Ms Reeves said £2.26bn will also be contributed to the G7’s revenue acceleration agreement, which would be repaid using profits from immobilised Russian sovereign assets. Money will be also allocated to remembrance services.

She said: “As we approach Remembrance Sunday, it’s vital we take time to remember those who served our country so bravely. I’m announcing funding to commemorate the 80th anniversary VE and VJ day next year, to honour those who served at home and abroad.”

The budget will see an increase in taxes of £40bn to “fix the foundations” of the economy and repair the public finances. Ms Reeves said this was necessary to address a £22bn “black hole” left by the Conservatives, while claiming that the scale of the public spending problems she inherited were worse than previously thought.

She said the Tories “hid the reality of their public spending plans”. Ms Reeves confirmed a £25bn raid on employers’ national insurance contributions, with higher rates and a lower starting threshold. The rate will increase by 1.2 percentage points to 15 per cent from April 2025, with payments starting when an employee earns £5,000, down from the current £9,100.

“I know that this is a difficult choice. I do not take this decision lightly,” she said. The Chancellor announced a £2.5bn increase in capital gains tax by increasing the lower rate from 10 per cent to 18 per cent and the higher rate from 20 per cent to 24 per cent.

She also confirmed changes to inheritance tax, including bringing pension pots within the tax from April 2027, and reforms to agricultural and business property reliefs, raising a total of £2bn a year. The Office for Budget Responsibility’s forecast suggested gross domestic product growth will be higher in 2024 than expected in March – upgrading it from 0.8% to 1.1% and from 1.9% to 2.0% in 2025.

But there are downgrades in subsequent years – down from an expected 2 per cent in 2026 to 1.8 per cent, from 1.8 per cent in 2027 to 1.5 per cent and from 1.7 per cent in 2028 to 1.5 per cent.