Chancellor John Healey urged to raise taxes as UK aims for 3% GDP defence budget
Category: Politics
As the UK grapples with rising global tensions and the need for increased military readiness, Chancellor John Healey stands at a crossroads. He has been urged by the Resolution Foundation thinktank to prepare for higher taxes on middle earners if he intends to meet Labour's ambitious pledge to boost defence spending significantly. This call comes in light of Healey’s previous resignation from Keir Starmer’s government in June 2026, where he protested against what he perceived as inadequate funding for defence.
The core question in this scenario is: how will the UK fund its increased military ambitions without placing an undue burden on its citizens, particularly the middle class? Healey has indicated that he will wait until the 2027 spending review to present a comprehensive plan that aligns with Labour's commitment to allocate 3.5% of GDP to defence by 2035.
According to the Resolution Foundation's recent report, titled "Thin End of the Wedge," the government will need to raise approximately £28 billion annually to fulfill its defence spending promise. This figure is staggering, especially considering the current economic climate. The report emphasizes that without raising taxes on average workers, meeting this target will be virtually impossible. James Smith, chief economist at the Resolution Foundation, stated, "No other OECD rich country has a bigger state and a lower burden on average workers, so any politician promising both is not being realistic."
Currently, the UK’s tax wedge — the difference between taxes on earnings and benefits — remains low compared to international standards. Since Labour came to power in 2024, there have been historic tax increases totaling £70 billion per year. Yet, the tax burden on average earners is still below that of many of the UK’s international peers. For example, the tax wedge for a single earner on average pay stands at 32.4%, which is less than the averages for the Organisation for Economic Co-operation and Development (OECD) and the G7 major economies.
Historically, the tax burden on the UK’s middle class has fluctuated, but the current levels are particularly low by historical standards. The tax wedge on a median salary of £33,000 as of April 2025 is low compared to other countries and below pre-2008 financial crisis levels. This raises an intriguing point: if the UK is to increase its defence spending, how does it balance the need for increased revenue with the potential backlash from voters who may resist higher taxes?
In the past, tax increases under Healey’s predecessor, Rachel Reeves, resulted in a notable 2.4 percentage point increase in the tax wedge last year, marking the largest rise among OECD countries. This suggests that the public may already be feeling the pinch from recent tax hikes, making any additional increases a politically sensitive issue.
As Healey prepares to address these challenges, he must navigate a complex political environment. He will present his first budget on October 28, 2026, where he is expected to outline how he plans to fill a near £5 billion gap in the Defence Investment Plan approved by Keir Starmer. This budget will set the stage for defence spending and signal how the government intends to manage its broader economic strategy.
Healey's previous resignation over defence funding issues adds another layer of complexity to his current role. His commitment to increasing defence spending to 3% of GDP by 2030, up from the existing target of 2.7%, is ambitious. Yet, it raises questions about how he will reconcile this goal with the pressing need for fiscal responsibility, especially as the UK faces soaring debt interest costs and rising bond yields.
The Resolution Foundation's analysis indicates that the urgency of determining who will shoulder the financial burden of a larger state has never been more pressing. As the UK contemplates its military future, the implications for the middle class are stark. With the Chancellor’s plans potentially leading to higher taxes, the question remains: will the public support these changes, or will they push back against what they see as an unfair burden?
James Smith articulated a broader point, emphasizing, "There is a strong case that any benefits of increased defence spending will be broadly shared, so the tax rises needed to fund this should be too, including higher rates on middle earners." This perspective reflects a growing consensus that if the state is to increase its military capabilities, the funding must come from somewhere, and that somewhere may well be the middle classes.
In the coming weeks and months, attention will turn to Healey as he navigates these treacherous waters. The decisions made in the upcoming budget will impact the UK's defence posture and the economic wellbeing of its citizens. As the Chancellor prepares to make these difficult choices, the stakes could not be higher for both the government and the electorate.
As the October budget approaches, the discussion surrounding tax increases and defence spending will likely intensify, making it a focal point in the political arena. Voters will follow closely closely to see how their leaders balance national security with economic stability, and whether they are willing to accept higher taxes in exchange for a stronger military presence.
In this complex interplay of fiscal policy and national security, the decisions made by John Healey will resonate far beyond the walls of Westminster, shaping the future of the UK’s military capabilities and economic health.