UK: Flexibility in the fiscal rules won‘t help that much

Research evidence excerpt

UK: Flexibility in the fiscal rules won‘t help that much

J P M O R G A N Europe Economic Research

22 July 2026

UK: Flexibility in the fiscal rules

won’t help that much

• Healey appointment as Chancellor has solidified expectations for higher Economic and Policy Research

defence spending Allan Monks

• While Burnham has started talking about using “flexibility” within the (44-20)allan.j.monks@jpmorgan.com7134-8309

fiscal rules J.P. Morgan Securities plc

• Existing flexibility won’t unlock scope for large increases in defence, or

other spending for that matter

• ...unless by flexibility there is an intent to make some alterations ‘within’

the current fiscal rules

The appointment of John Healey as Chancellor has raised expectations that

defence spending will increase. Healey was formerly the defence secretary, but

resigned due to what he saw as inadequate funding under the previous Labour

leadership. Burnham remarked earlier this week that he woud stick to the fiscal

rule,s but use “flexibility” within them. This has raised questions about what he

means and whether the two points could be linked. It is hard to sustainably increase

defence spending through more borrowing within the current fiscal rules. Instead,

higher taxes or spending cuts elsewhere are likely to be required. The same is true

for other areas where spending pressures exist, which suggests that higher taxes are

likely.

• On defence, the investment plan published by the government on 30th June

outlined steps to increase spending from 2.6% to 2.7% of GDP by 2029/30.

This requires extra borrowing averaging just £1.2bn per year. Healey was

reportedly expecting an increase of closer to 3% of GDP, which would have

required additional annual funding of around £11bn by 2030. This is also just