Defence Plans, Tax Strategy & Business: What Starmer’s Defence Vision Means for You
The UK Government’s latest defence strategy, unveiled by Sir Keir Starmer, outlines an ambitious and expansive vision for the country’s armed forces — but it also raises big questions about how it will be funded and what trade-offs may lie ahead for the wider economy, taxpayers, and business owners.
At its heart, the plan includes 12 new nuclear-powered submarines, major investment in emerging military technologies such as AI and drones, and a boost to Army personnel to reach a target of 76,000. There’s also a longer-term ambition to spend 3% of GDP on defence — a significant increase from current levels.
But with Chancellor Rachel Reeves already under pressure to balance the books after committing to a strict fiscal framework, the question everyone is asking is: where will the money come from?
Increased Defence Spending: The Fiscal Reality
To meet these defence goals, the government aims to increase defence spending to 2.5% of GDP by 2027, with an aspirational rise to 3% during the next Parliament. For context, reaching 3% would amount to around £30–35 billion in additional annual spending.
While some of this may come from economic growth and reallocated budgets, many analysts — including the OECD — believe that additional revenue will need to be raised through taxation.
And that’s where businesses and individuals may start to feel the impact.
What Taxes Could Be Affected?
Although no firm announcements have been made, there is growing speculation that the Autumn Budget may introduce or increase taxes to fund these plans. Potential areas under consideration include:
Capital Gains Tax: Adjustments to rates or reliefs could be on the table, particularly around business asset disposal relief.
Property and Land Taxes: Updates to outdated council tax bands or the introduction of a land value tax have been floated as ways to raise revenue without directly raising income tax or VAT.
High-Income Surcharges: With thresholds already shifting under fiscal drag, further changes could be used to target high earners.
All of this would come on top of previously announced rises in employer National Insurance Contributions (NICs), already affecting businesses from April 2025.
Implications for Business Owners
Whether or not you operate in the defence sector, these developments could impact your business. Here’s how:
1. Cash Flow and Financial Planning
If taxes rise, or if allowances and reliefs are reduced, it will be more important than ever to plan proactively. Businesses need to review profit margins, dividend strategies, and salary structures in anticipation of potential tax changes.
2. Reprioritisation of Public Spending
Boosted defence spending may result in less funding for other sectors — including grants or subsidies for education, social care, or small business support. Businesses relying on public sector contracts should remain alert to shifts in government priorities.
3. Opportunity in the Defence Supply Chain
For some businesses, the new focus on military investment could bring opportunity. If your business operates in manufacturing, engineering, cybersecurity, tech innovation or logistics — there may be increased demand for your services in the coming years.
4. The Case for a Tax Strategy
With further tax change on the horizon, now is the time to put a formal tax strategy in place. This means more than just filing your return — it means structuring your business in a way that’s tax-efficient, sustainable, and growth-ready in the current climate.
What Exchange Accountants Can Do
At Exchange, we’re closely monitoring developments in government policy and how these may impact our clients. We can help you:
Plan for potential tax changes ahead of the Autumn Budget
Review your business structure to ensure it’s tax efficient
Build a long-term strategy that aligns with your financial goals — even in an evolving fiscal environment
Explore opportunities created by shifting government priorities
Whether you’re concerned about future tax hikes, looking to take advantage of growth in the defence sector, or simply want peace of mind that your business is resilient — we’re here to help.
