Sir Keir Starmer has suggested the existing fiscal headroom can be used to fill a defence funding gap of around £1bn a year. During Prime Minister’s Questions, Starmer accused the Conservatives of a “faux outrage” over complaints about £4.7bn out of £15bn being left for funding at the Budget this
Mauricio Alencar
Wednesday 01 July 2026 2:17 pm
Sir Keir Starmer has suggested the existing fiscal headroom can be used to fill a defence funding gap of around £1bn a year.
During Prime Minister’s Questions, Starmer accused the Conservatives of a “faux outrage” over complaints about £4.7bn out of £15bn being left for funding at the Budget this year.
Starmer said that a fiscal headroom of £22bn was the “very reason” that the government had the “credibility” to make a spending decision outside of the Budget without providing full details on costings.
“Because of the decisions at the last budget, we’ve got headroom of £22 billion. That is precisely so we can take decisions like this,” Starmer said.
“We delivered it outside a Budget, outside a spending review, just like we did with the special educational needs – outside a Budget, outside a spending review.
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He added: “Let’s drop the faux outrage, focus on what matters – the biggest sustained increase for 45 years, providing what is needed to keep the country safe.”
Starmer’s defence plan under fire
The Prime Minister’s spokesman later refused to label the Defence Investment Plan as “fully funded”. He also said it had been funded in a “fair and balanced way”.
But economists have widely warned that the public finances could be in a parlous state by the autumn if oil and gas trading across the Strait of Hormuz does not promptly resume.
Read more Exclusive: OBR calculations suggest Reeves set for borrowing spree
The Resolution Foundation, a left-leaning think tank favoured by Labour ministers, has suggested that the size of the headroom could be as small as £10bn.
The Office for Budget Responsibility has also sent the government a warning that it could raise upcoming borrowing projections after it had heavily underestimated the effects of the gas crisis sparked by the war in Ukraine on the UK’s budget deficit three years ago.
A senior Labour peer has also warned the Treasury against using the headroom as a “piggy bank” to fund extra government expenditure.
Out of the £15bn in funding provided to the armed forces, around £10bn will come from cuts to capital budgets across energy and transport.
Hamish Falconer, a minister in the Foreign Office, complained about the risks of a road project being ditched in his constituency in Lincoln while other MPs questioned if hospital building budgets would be slashed.
Starmer’s spokesman refused to provide a list of the infrastructure projects that would be dialled down as a result of the Dip’s publication and added that further details would come by the autumn when there will have already been a change in Prime Minister.
The government source also said that cuts to the energy department’s budget would focus on “efficiency savings” while adding that the Cabinet had agreed to measures put in place for the Dip.
Read more War bonds to lift defence spending ruled out
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