Taxes may have to rise to fund increased defence spending

In this video clip, Ed Conway explains that the government's ambition to increase defence spending to the NATO target of 3.5% of GDP by the mid-2030s appears to be significantly underfunded, creating a so-called 'black hole' in the public finances. He suggests that filling this gap could require an increase of up to 3.5p on the basic rate of income tax. The government has committed to raising defence spending to 2.5% of GDP by 2027 and has set an ambition to reach 3% during the next Parliament. Although other government departments have been asked to make efficiency savings of 1% to help finance the increase, this is unlikely to be sufficient without further spending cuts, higher borrowing or potentially unpopular tax rises.

Ed Conway: The real black hole in the UK's defence budget | News UK Video News | Sky News

1. Explain why defence is usually provided by the government.

2. Discuss the benefits of increased spending on defence for the UK economy. Use an AD/AS diagram in your answer.

3. Discuss the likely impact of an increase in income tax on economic growth and employment.