By Michael Burke
Britain is both a declining economic power and an increasingly dangerous and reckless military one, in a subordinate relationship with the United States. In that sense, it serves as an example for NATO member states to one degree or another. These two contrasting trends are economically and politically linked. An examination of them highlights important observations about key aspects of the current situation in Britain, and potentially offers insights into broader trends across the NATO bloc.
There is now a war drive underway in NATO, encouraged by Trump. This is an extension of NATO expansion that has been ongoing since 1952, and especially since the collapse of the Soviet Union. It has taken a decisive new turn under the Biden and Trump II presidencies.
As a result, there is not only growing propaganda regarding external threats, but also Trump’s demand for increased military spending by other NATO members is largely being met. Alongside this, considerable effort is being made to promote the supposed economic benefits of increased military spending. As will be shown, these claims are illusory—the economic impact of increased military spending will be the opposite of what its supporters claim. It will likely entrench Britain’s economic stagnation, or worse.
Economic Stagnation
The relative decline of British capitalism is not a new story. In 1820, Britain accounted for 9.8% of global output (Maddison data); today, it accounts for just 2.1% of world GDP (World Bank). The gradient of decline in recent years suggests that Britain’s relative economic decline is now at risk of becoming absolute. This reflects both a long-term secular slowdown and a shift into a new, lower gear of economic deceleration. The economy is approaching outright stagnation.
To illustrate: in the decade to 1965, the British economy grew by 37% in real terms. In the decade to the first quarter of 2025, it grew by just 14%, representing an annual average growth rate of little more than 1%—a trend that has persisted in recent years, excluding the effects of the COVID-19 lockdown. Aside from temporary booms such as the North Sea oil windfall (which soon turned to bust), the growth rate has been in near-continuous decline since the post–World War II recovery.
There is no mystery behind this stagnation. Britain has long maintained one of the lowest rates of investment (Gross Fixed Capital Formation, GFCF) in the G7. This has declined erratically but steadily, falling from 23% of GDP in 1970 to 17% of slowing GDP in 2024 (Office for National Statistics, ONS data). Fixed capital formation is necessary to maintain an economy’s productive capacity. Economic growth requires an increase in fixed capital formation. Since capital is consumed in the production process, the most appropriate measure of whether the stock of fixed capital (the “means of production”) is expanding or contracting is net fixed capital formation, which deducts the capital consumed from total new investment.
Prior to the Global Financial Crisis (2007–2008), Britain’s net fixed capital stock grew at an annual average rate of 2.5%, according to ONS data. Since the crisis (excluding the crash itself), this rate has slipped to 1.5%. Just as Britain’s relative economic decline has become a commonplace, so too has the widespread understanding that this is led by the decline of British manufacturing. This sectoral decline is driven by weak investment, particularly in net fixed capital formation.
Although the Bank of England and others describe the weakness in output and productivity growth as a “puzzle,” the ONS data are clear and decisive. In real terms, the manufacturing stock of fixed assets was £271 billion in 1995. By 2023, it had reached just £274 billion—barely any increase at all. The means of production in British manufacturing are not expanding. The fact that real manufacturing output has increased by just over 50% in the same 28-year period shows that there is no productivity puzzle, at least in terms of capital productivity. What is missing is growth in the real level of fixed manufacturing assets.
A Call to Arms
This structural, long-term weakness of the British economy has not been corrected by the prolonged period of austerity, which the Starmer government has continued. Manufacturing and industrial production in aggregate (which also includes energy, water, gas, and oil production), as well as GDP, have all grown at an annual average pace of 1% or less since austerity was first implemented in 2010.
Under strong pressure from Trump, the Labour government under Starmer has committed to reaching the US President’s target of spending 5% of GDP on the military among G7 countries. In reality, the figure will be somewhat lower. Widespread reports suggest that Britain, like other NATO members, will increase strictly military spending to 3.5% of GDP. The remainder will be allocated to military-related infrastructure (road and rail links, barracks, and similar projects). Much of this spending is likely to be on projects that would not otherwise have been undertaken and may be exclusively for military use, offering little utility to the productive sectors of the economy.
Military spending currently stands at 2.3% of GDP. The increase on the narrower measure will amount to a rise of 1.2% of GDP, or approximately £35 billion—an amount expected to grow over time. Announcements of increased military spending have been accompanied by a flurry of PR about the supposed economic benefits of this new expenditure, with promises that the benefits will be spread across the country. These claims are misleading. The spending will require large government outlays that yield almost nothing in terms of economic recovery. As a result, the net effect is likely to be the opposite of what its supporters claim. The British population will be worse off due to increased military spending, as resources will be diverted from other essential areas of government expenditure.
Why Military Spending Cannot Drive Economic Recovery
There are both theoretical and practical reasons for arguing that increased military spending will not lead to economic recovery. The theoretical issues will be addressed first, as they apply not only to Britain but to all countries, including the United States.
Both consumption and investment require prior production. What has not been produced—either by human labour or by nature—cannot be consumed. Likewise, investment requires production to proceed it. In Adam Smith’s famous example, investment in the creation of a pin requires digging coal, building an ironworks, smelting iron, and so on before the pin can be produced. But each of these steps—the capacity to produce coal, iron, or a factory—requires investment. Production and investment form a circular system.
There are only two broad categories for allocating production: consumption or investment. But of the two, only investment can augment the means of production. Consumption, by definition, uses up production and therefore cannot expand it.
Investment is the decisive factor in economic growth (and ultimately in prosperity, however it is shared). There is a widespread fallacy that consumption can lead to growth. But consumption is not an input to production—it is an outcome of it. Claims that consumption can “induce” or lead to growth require a mystification of the production process, where producers anticipate demand, consumption occurs, and production follows.
Under certain conditions, production can indeed be induced in this way, and it may be sensible for policymakers to attempt to stimulate it when there is spare capacity in the economy and consumption can rise to match it. But in all cases, investment in the productive capacity of the economy must occur first.
The corollary is that production is required for both investment and consumption. As investment either replaces or augments the means of production, it creates the conditions for maintaining or increasing production, which is the basis for prosperity. That increased production can then be directed either toward consumption or further investment. Therefore, while the sustainable satisfaction of human needs (consumption) is—or ought to be—the purpose of economic policy, the necessary means to achieve it is investment.
The definition of investment is that it adds to or replaces the existing means of production. Anything that increases the level of fixed assets in the economy is properly categorised as investment (Adam Smith’s term for the level of fixed assets was simply “stock”). Modern economic literature often uses a different definition of investment—an outlay for which there is a financial return. This is incorrect; it should be an economic return. There is no greater economic return from a toll road than from a road built without charges, and training a teacher for a publicly owned school is as economically productive as for a privately owned one. Either definition—financial or economic—can be used in examining military spending.
Despite the best efforts of its supporters, increased military spending is not investment. This is true even for military hardware. Missiles, bombs, and fighter jets are not additions to the means of production—they are designed to destroy it, along with human lives. Military hardware is the opposite of investment; it is the means of destruction. It is true that the production of military hardware requires a vast number of inputs from other sectors of the economy, just like Adam Smith’s pins—but on a much larger scale. This applies to all sophisticated production in a modern, advanced economy.
But there are no other parallels with productive sectors. In strict economic terms, military spending is consumption. This is because military hardware does not add to the means of production or the productive capacity of the economy. In this regard, a missile, fighter plane, or bullet is distinct from a desktop computer, lathe, or microchip. The latter can be used as inputs into the production of other goods or services; military hardware cannot.
Because it is not an input into production, military spending can only be categorised as consumption. It is not even beneficial consumption. Other items categorised as consumption—such as spending on health, education, or social welfare—are vital to the well-being of society. Not all consumption is equal. Some is essential to human development; military consumption is often wasteful or destructive.
This same point—that military spending does not constitute investment and therefore cannot contribute to growth—can also be illustrated using Keynesian economic terms in general usage.
The Military Spending Multiplier
There is an entire body of thought devoted to promoting military spending as an economic benefit, dubbed by its supporters as military Keynesianism. [1] The idea is a vulgarisation of Keynes’ work, suggesting that any type of government spending is beneficial to the economy—and given that military spending also enhances national power and prestige, it should be prioritised.
Fortunately, Keynesian economic analysis itself provides a strong rebuttal to these claims. Central to this rebuttal is the widespread assertion that military spending is jobs-rich. All types of government spending require labour inputs. Military spending is not unique in this respect, although many of its advocates rarely suggest that increased NHS spending or investment in green infrastructure creates jobs at all. Yet, since military spending does not add to the productive capacity of the economy, the labour used in the manufacture of weapons is the equivalent of Keynes’ metaphorical digging holes and filling them in again—it has zero net economic benefit.
In times of high unemployment, even digging holes and filling them in can stimulate wider job creation (which was Keynes’ ironic point). But if the aim is to create better, higher-skilled, higher-wage jobs, there are far more effective ways to spend public money.
The military budget is already one of the largest areas of government expenditure—£53 billion in 2022/23—behind only the Departments of Welfare, Health, and Education.[2] It exceeds the combined spending of the Departments of Housing, Transport, and Work & Pensions. In terms of direct employment, the Ministry of Defence employs just under a quarter of a million military and civilian staff. However, claims that military spending is jobs-rich rely heavily on assumptions about the impact of MoD procurement on job creation in private sector arms industries and related services.
It would be easy to get bogged down in technical analysis here. Thankfully, this work has already been done—in a study for the Scottish Government on employment multiplier effects. This analysis examines the structure of the economy and the relationships between inputs and outputs, including labour. It applies to individual sectors and includes detailed tables for each economic sector.[3]
The key conclusion is clear: military spending has one of the lowest employment multipliers of all economic categories. It ranks 70th out of 100 in terms of employment generated. Health ranks number 1. Sectors ranging from agriculture to energy, food manufacturing, chemicals, iron and steel, computers, and construction all have higher employment multipliers than military spending. Investment in health is two and a half times more jobs-rich than investment in the military.
A recent example illustrates this point. The British government hailed a deal with Norway to construct anti-submarine vessels, claiming it was the largest of its kind in history—worth £10 billion. Yet it was extremely vague on job creation, which can be verified. Officials stated only that the deal would secure 4,000 jobs well into the 2030s. [4] “Secure” is government-speak for no net new jobs created. A similar pattern is evident in many recent announcements about military projects. While ministers are eager to promote the supposed economic benefits of military spending, including claims about job creation across various sectors, none of the specific announcements include figures for net new jobs. There is a very good reason for this.
‘Military Keynesianism’ – A Casualty of War
The idea of military Keynesianism fell into disrepute partly because its advocates not only prioritised military spending but treated it as an exception. In no other sector of the economy did they argue that increased government spending would yield similar benefits.
The decisive turning point came in the real world, when the ideas behind military Keynesianism—and its left-wing variant, the permanent arms economy—were tested to destruction during the Vietnam War. At that time, US governments granted themselves unlimited public and covert budgets to fight the war, nearly bankrupting the federal government in the process. This also led to the collapse of the Bretton Woods economic system and unleashed a wave of global inflation.
A contrary example comes from Britain’s own history. After World War II, West Germany was not allowed to rebuild its armed forces. It was obliged to use its (much smaller) Marshall Plan funds for economic regeneration, leading to a prolonged period of public investment-led growth known as the German economic miracle. Britain, by contrast, faced no such restrictions and spent freely on the military, particularly in support of the Korean War. There was no British economic miracle. In time, Britain became known as the sick man of Europe.
In the present era, the diminished military weight of Western Europe has triggered widespread panic. In the drive to rearm, old and discredited ideas are being revived to justify the diversion of public funds—a blatant case of policy-based evidence-making. These include growing claims about the supposed positive effects of military spending on technology, R&D, and job creation. [5] As we have seen, economic theory, empirical data, and historical experience all show that these claims are not valid.
Practical Considerations, and Opposition in Practice
There are also a number of objective difficulties in implementing the policy of increasing military spending. As the character in the gangster movie says, “Blood is a big expense.” The cost—even before accounting for the toll in human lives—is twofold. First, the shift to a war economy requires significant outlays that cut across society and its existing spending priorities. Second, other forms of production must be halted or redirected toward the war effort.
NATO countries (with the exception of the United States, which has been continuously engaged in military operations since its inception) are attempting to shift to a war economy without undertaking the full, wrenching expenditure and economic redirection that such a shift entails. Either they will have to make that significant wrench, or they will fail in their aim. This tension is reflected in the discrepancy between the 5% target for total aggregate military spending and the 3.5% allocated strictly to military hardware. Additionally, it is questionable whether an increase of 1.5% annual spending on military-related infrastructure will be sufficient to accommodate an effective doubling of Britain’s military capacity remains to be seen. In any case, it will require a sustained annual commitment.
Yet there is a broader challenge beyond infrastructure investment. The required increase is nearly equivalent to Britain’s annual net public investment over the life of this parliament, as outlined in the October 2024 Budget. This challenge is magnified by the fragile state of government finances, even before meeting Trump’s demand for military spending to reach 5% of GDP. Britain has already seen three austerity-driven fiscal events under the current government: the October 2024 Budget, the Spring Statement, and the Spending Review in early 2025.
As with previous austerity packages, these measures have left both the economy and public finances in a worse state, prompting calls from austerity advocates for further tax increases and spending cuts. The traditional mantra—“there is no money left”—is not applied to military spending. But without economic growth and the resulting improvement in public finances, the government will be forced to slash other areas of spending to fund increased military outlays.
Ministers have already indicated a return to cuts in welfare spending, which previously triggered parliamentary rebellions within the Labour Party and imposed a heavy political cost on the current leadership. The Office for Budget Responsibility (OBR) estimates that total government spending will amount to 45% of GDP in the current financial year. The planned increase in military spending demanded by Trump will amount to 2.7% of GDP—an enormous rise.[6]
Clearly, this cannot be funded by cutting military spending or avoiding debt interest payments. Together, these already account for 6.2% of GDP (OBR data). For political reasons, the government has ruled out touching the state retirement pension. Altogether, these commitments total 13.9% of GDP. The increase in military spending must therefore come from the remainder—namely, spending on health, education, public services, and welfare. A series of ministerial statements suggest that welfare payments are the primary target. But given the depth of the fiscal crisis, little else has been ruled out. In effect, disabled people, the poor (including the low-paid), and pensioners will bear the cost of the war drive. In his latest statement, Starmer added that those suffering from mental health conditions would also be affected.
However, there is notable resistance. This was most evident in the parliamentary rebellion over cuts to disability payments, where the government was forced into a series of concessions that angered austerity advocates but still led 47 Labour MPs to vote against their own government.
There is a media furore every time it is hinted that the government may be forced to retreat on planned welfare cuts. The demand to cut welfare is the demand to cut the social wages and thereby lower wages in general. The demand to increase military spending fits with the new political priorities of the US-sponsored drive to war.
Perhaps the most significant resistance came from the recent Trade Union Confederation (TUC) conference. This was significant not only because of the social forces involved, but also because of the direct link made between military spending and welfare cuts. Reversing its previous support for immediate increases in military spending (based on job creation claims), the TUC voted to prioritise campaigning for public investment in services and to “reaffirm our movement’s priority is welfare and wages, not weapons and war.” The vote was close: 2,871,000 in favour, 2,291,000 against.
No one expects the TUC to campaign vigorously on this issue, but the vote leaves the door open for individual unions to work with the wider movement to advocate for the policy. It is highly unusual—but not unprecedented—for the organised labour movement to oppose the key war aims of both the British and US governments, especially under a Labour government. In opposing the Suez War, the National Council of Labour (the TUC and Labour combined) aligned with the US. The first real cracks in union support for Britain’s central war aims came during the Iraq War. The latest TUC vote builds on that legacy.
In Britain and many other NATO countries, there is much talk of public investment. But the reality is different. The announcement from Chancellor Rachel Reeves, following the Treasury’s Spending Review, stated that there would be £725 billion in public investment over the next 10 years. But this is less per year than the £77.6 billion invested in 2024. Public investment is being cut. Once the (smaller) envelope for public investment is set, that then determines the level of funding available for consumption.
Just as in the domestic economy, investment + consumption must equal 100% of output, so public investment + public consumption must account for 100% of public spending.
The inescapable logic is that the government must choose between types of consumption within the reduced funds allocated to it. The Starmer government has made its choice: it cut international aid and welfare to increase military spending. Cutting welfare once more and even reducing painfully low state retirement pensions are now openly discussed.
Essentially, under the current allocation for public consumption, the government chose between welfare funding and military funding. Economically, politically, and morally, it made the wrong choice. Other Western governments have made similar decisions.
Living standards are declining in Britain and across Europe. Commentators note the growing divergence in real incomes between rich and poor in the United States, with European countries now at risk of following that example. Therefore, the material basis for opposition to reckless, wasteful military spending may continue to grow.
The above article was originally published in Polish here by Nasze Argumenty.
[1] Paul Krugman, “Weaponized Keynesianism,” The New York Times (blog), June 24, 2009, archived at https://archive.nytimes.com/krugman.blogs.nytimes.com/2009/06/24/weaponized-keynesianism/
[2] “Public Spending Statistics: February 2024,” GOV.UK, published 28 February 2024, https://www.gov.uk/government/statistics/public-spending-statistics-release-february-2024/public-spending-statistics-february-2024
[3] “Input-Output: Latest,” Scottish Government, https://www.gov.scot/publications/input-output-latest/
[4] Jonathan Beale and Jessica Rawnsley, “UK Secures £10bn Deal to Supply Norway with Warships,” BBC News, August 31, 2025, https://www.bbc.co.uk/news/articles/cr5rgdpvn63o
[5] “Higher Defence Spending Could Create Up to 200,000 Jobs in Germany, Says Report,” The Brussels Times, February 17, 2025, https://www.brusselstimes.com/eu-affairs/1447802/higher-defence-spending-could-create-up-to-200000-jobs-in-germany-says-report
[6] “A Brief Guide to the Public Finances,” Office for Budget Responsibility, https://obr.uk/forecasts-in-depth/brief-guides-and-explainers/public-finances/
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