U.K. official pitching Canada on defence bank merger instead of separate groups

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

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The U.K. is talking with Canada about combining their defence 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 defence 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,” U.K. 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 defence 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 U.K. 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 U.K. Defence Secretary John Healey, who resigned last month over funding for his defence investment plan.

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

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

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Reeves insists the MDM and DSRB are complementary, but no country has yet signed up to both. The U.K. 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 U.K. 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 defence. For the U.K. 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 defence spending should be exempt from Reeves’ self-imposed fiscal restrictions.

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Starmer’s government has been under pressure to raise defence outlays further. Healey and his successor, Dan Jarvis, have called for the U.K. to set out milestones showing how it will reach defence 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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