Rachel Reeves is facing fresh criticism after reportedly refusing to back a major international defence financing initiative that could leave British companies locked out of billions of pounds worth of military contracts.
According to reporting by The Telegraph, the Chancellor rejected an invitation for Britain to become a founding member of a proposed £100 billion Nato-backed Defence, Security and Resilience Bank (DSRB), a Canadian-led project designed to help allied nations finance rearmament and strengthen defence capabilities.
The scheme, strongly supported by Canadian Prime Minister Mark Carney, would provide low-cost lending to Nato countries seeking to expand military spending amid growing security threats. However, Britain is understood to have balked at an initial contribution of around €1 billion.
The decision risks carrying a significant cost. Draft rules for the proposed institution would reportedly prevent member nations from using DSRB-backed funding to purchase equipment from companies based in non-member states. If Britain remains outside the arrangement, UK defence manufacturers could find themselves excluded from contracts financed through the fund.
Industry leaders have warned that the consequences could be severe, particularly for smaller British firms developing advanced military technology. The prospect of UK companies being sidelined comes at a time when European demand for weapons systems, drones, missiles, artillery and armoured vehicles is surging.
Andrew Kinniburgh, chief executive of Make UK Defence, told The Telegraph that suppliers from countries outside the scheme would not be considered for programmes funded through the bank. The warning has intensified concerns that Britain risks missing out on a major opportunity while allies deepen defence cooperation.
The row comes as ministers grapple with mounting pressures over defence spending. Reports suggest the Ministry of Defence faces a substantial funding gap in its long-term equipment programme, with disputes continuing inside government over how much additional money should be allocated.
While Defence Secretary John Healey is reported to be seeking significantly higher levels of investment, Reeves has come under fire for maintaining a tighter grip on public spending. Critics argue that her approach risks undermining Britain’s defence ambitions at precisely the moment allies are accelerating efforts to rebuild military capabilities.
The Treasury’s reluctance to participate in the DSRB appears particularly striking given the growing international support behind the project. Major financial institutions, including JP Morgan, Deutsche Bank, Commerzbank and the Royal Bank of Canada, have backed the initiative, which aims to become a highly rated lending institution capable of mobilising vast sums for defence investment.
Supporters argue the bank would help European and North American allies strengthen their armed forces while reducing dependence on the United States. Carney has reportedly lobbied the British government repeatedly to join the venture, yet those efforts have so far failed to persuade the Treasury.
The episode also echoes Britain’s difficulties in securing full participation in the European Union’s €150 billion Security Action for Europe fund, another programme from which British firms face restrictions despite the UK’s significant defence industrial base.
Treasury officials are said to favour alternative funding arrangements with countries including Finland and the Netherlands, while other proposals, such as defence bonds aimed at raising money from the public, have also been discussed. However, critics argue that Britain risks being left behind while competitors secure access to new streams of defence finance.
A Treasury spokesman defended the government’s record, pointing to plans for £270 billion of defence investment during the current Parliament and an increase in defence spending to 2.6 per cent of GDP by April 2027.
Nevertheless, questions remain over whether Reeves’s refusal to support the Nato-linked initiative represents prudent financial management or a costly missed opportunity that could weaken Britain’s defence industry and diminish its influence among allies.
This article is based on reporting first published by The Telegraph and has been independently rewritten.
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