UK Seeks to Merge Defense Group With Canada’s Rival ‘Bomb Bank’

Rachel Reeves, UK chancellor of the exchequer, during an interview in London. Photo by Chris J. Ratcliffe /Photographer: Chris J. Ratcliffe

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(Bloomberg) — The UK is talking with Canada about combining their defense financing initiatives, with neither reaching a critical mass of support for its plan.

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Both countries have proposed setting up bodies to provide capital for the defense industry, helping NATO allies pay for their plans to rearm. “My preference would be to create one new institution that fulfills the role of a number of purposes,” UK Chancellor Rachel Reeves told reporters at the NATO summit in Ankara, Turkey, on Tuesday. “The next step is to continue to work on bringing them together more formally.”

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Her comments come after Canadian Prime Minister Mark Carney said eight other countries agreed to back his nation’s Defence, Security and Resilience Bank, a new institution that would be headquartered in Canada and would help fund defense initiatives. The supporters include Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Turkey and Ukraine. Banks such as JPMorgan Chase & Co. and Royal Bank of Canada are also listed as backers. 

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Reeves is expected to depart as Chancellor when Prime Minister Keir Starmer leaves office as soon as this month.

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The UK has refused to join Carney’s initiative — dubbed by some as a “bomb bank” — despite intense lobbying by the former Bank of England governor. That decision has been widely criticized, including by former UK Defense Secretary John Healey, who resigned last month over funding for his defense investment plan. 

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Instead, Reeves set up the Multilateral Defense Mechanism to address her concerns that Canada’s proposal doesn’t include stockpiling and procurement provisions and is more focused on lending to smaller defense firms in nations with lower credit ratings. She said the MDM initiative would save the UK as much as 20% on procurement.  

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Earlier on Tuesday, the UK, Poland, the Netherlands and Finland said they were making “significant progress” on the MDM, with the UK contributing an initial £600 million ($802 million).

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Reeves insists the MDM and DSRB are complementary, but no country has yet signed up to both. The UK recently enlisted former Prime Minister Gordon Brown to lead discussions with Canada on avoiding potential overlap between the efforts. 

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Reeves said the UK mechanism will enable allies with high credit ratings to borrow at low rates to stockpile military hardware. This would be done off government balance sheets until the reserves are drawn down in wartime, allowing nations to invest more initially in defense. For the UK specifically, this would also avoid violating Reeves’ fiscal rules. 

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The likely next British premier, Andy Burnham, and Brown have both previously suggested some defense spending should be exempt from Reeves’ self-imposed fiscal restrictions.

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Starmer’s government has been under pressure to raise defense outlays further. Healey and his successor, Dan Jarvis, have called for the UK to set out milestones showing how it will reach defense spending of 3.5% of gross domestic product. 

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Reeves told reporters that a trajectory would be set out at next year’s spending review, but only for the next two to three years.

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