John Healey is in talks with the Canadian government about joining a new global defence bank intended to help allies rearm to counter mounting security threats, just weeks after Rachel Reeves rejected the move.
The chancellor is understood to be actively considering a bid to join the proposed Canada-led defence, security and resilience bank (DSRB), which proponents say could help the UK fund defence projects at lower cost, before planned talks with his Canadian counterpart this week.
When he was defence secretary, Healey was understood to have been a strong advocate for keeping UK observers present at Canadian prime minister, Mark Carney’s, defence bank talks, despite resistance from the Treasury, which wanted to shut off those international discussions.
Reeves, his predecessor as chancellor, was concerned the bank would not address the UK’s defence procurement issues and was more focused on lending to smaller defence firms in nations with lower credit ratings. The UK has had a AA credit rating since 2016.
Healey, who has long been a proponent of multilateral funding mechanisms, met the Canadian finance minister, François-Philippe Champagne, twice at a G20 summit in North Carolina two weeks ago.
They are due to meet again in the UK this week, when the two men are – according to sources – likely to discuss the defence bank, and both are expected to be at EU finance minister talks in Dublin later this week.
Canada is understood to have already formally invited the UK to become a founding member of the bank, along with eight other countries including Ukraine and Turkey.
Healey resigned as defence secretary in June, accusing Keir Starmer and his chancellor, Reeves, of putting the country’s security at risk because the defence spending package fell £13bn short of what he argued was required.
As chancellor, he is expected to avoid setting a target date for reaching 3% defence spending in next month’s budget and instead is planning to set out a pathway to reaching the goal at the 2027 spending review.
The DSRB could play a role in this by using financial leverage, separate from the balance sheets of already indebted nations, to boost defence investment. But it would need additional sovereign backing beyond current commitments to become a major player.
Reeves announced at the Nato summit in Ankara in July that the UK would join the Netherlands, Finland and Poland to launch a new lender called the Multilateral Defence Mechanism.
She said the MDM would help the UK with procurement – saving the UK as much as 20% – and stockpiling, which would give taxpayers better value for money while allowing government to borrow at a low rate to fund defence. The UK has committed an initial £600m to the new lender.
The former chancellor had called for the two rival international defence financing schemes to merge, arguing that it made sense for countries to only fund one institution that could work for all nations.
In addition to overlaps with existing initiatives, there were also understood to be concerns in the Treasury over the amount of capital that countries would need to commit while public finances are strained. The UK’s initial capital contribution would be between £1bn and £2bn over three years.
The DSRB has been seeking to raise around €100bn, which it would use to lend at low cost to governments and contractors for defence projects. It would also offer guarantees for lenders financing smaller firms seen as riskier borrowers.
