The UK is looking for new ways to fund rising defence spending. With a possible change of political leadership looming, the authorities have revived the idea of issuing special “military bonds” for retail investors.
The initiative suggests selling retail debt securities whose proceeds would be dedicated entirely to the armed forces. The idea has already won support in Parliament and in the City of London. To attract retail investors, City economists propose exempting the military bonds from inheritance tax — in addition to the existing capital gains tax exemption for UK gilts.
The plan’s authors estimate that a combination of state guarantees and tax incentives could raise at least £10 billion for the Treasury in the first year, with total proceeds potentially exceeding £20 billion over time.
The debate over new borrowing sharpened ahead of the July NATO summit, for which the British government must present an updated defence investment plan. Budgetary pressure intensified after the recent resignation of Defence Secretary John Healey. He left office saying publicly that an additional £13.5 billion allocated to the military was categorically insufficient, forcing officials to seek alternative funding sources.
Beyond topping up the defence budget, the initiative aims to broaden the domestic lender base. In the meantime, about a third of the UK government’s debt is held by foreign investors. Issuing retail defence bonds is intended to boost internal demand in the same way the government successfully offered “green gilts” to the public in 2025. The project is still under consideration and awaits an official government decision.
