Liberal Democrat leader Sir Ed Davey has said the government should start selling war bonds because Britain needs to “move very quickly” on defense spending.
Under his party’s plan, members of the public could lend the government money in the form of a bond that would last for a period of two to three years and pay the same interest as standard government bonds.
Davy said the bonds, which the party says could raise up to £20bn for the military, would give the public the chance to “patriotically support our defence”.
A government spokesperson said that “new debt instruments” were kept under review, but they would have to represent “value for money” and be “consistent with broader fiscal objectives”.
Calls for increased defense spending have intensified in recent years, following Russia’s full-scale invasion of Ukraine in 2022 and the election of US President Donald Trump, who has often criticized NATO countries for failing to spend enough on their military.
Speaking with the BBC’s Laura Kuenssberg on Sunday, Davy said the move to sell war bonds was needed because “we are almost in a Cold War type scenario”, citing Russian use of drones, submarines and shadow fleets.
He added: “This is a serious threat and we need to move much faster than what the government is doing.
“We need to move faster.”
The Labor government has promised to increase overall defense spending from 2.3% of national income to 2.5% by 2027, at an estimated cost of an additional £6 billion per year.
It has also pledged to raise the level to 3.5% by 2035, in line with a pledge by NATO members last year.
However, there have been reports in the Times and Sun that plans to make Britain’s armed forces “war-ready” will require more than the £28 billion allocated so far.
The government was due to publish its defense investment plan last autumn, but it has reportedly been delayed due to concerns about costs.
Earlier this month, the head of the armed forces, Sir Richard Knighton, said Britain was “not as prepared as we should be for the kind of full-scale conflict we might face”.
On Sunday, Davy said: “Everyone can see that things have changed dramatically since the last election. The way Putin is prosecuting [Ukraine] war, but equally important, Donald Trump’s attitude to supporting European defense.”
Given the attitude of the US President, he expressed concern about the NATO alliance.
He told the BBC: “I’m very sorry to say that because of Donald Trump, we have to question whether we can trust the United States. With him in the White House, they are no longer a reliable ally. We have to move fast.”
The Liberal Democrats said the money raised by the bond issue would be earmarked for defense and that the investment would help the government deliver “growth, jobs and higher revenues” “which will partially offset the cost of additional debt service”.
The party said the plan would require an overhaul of the Defense Ministry’s procurement process, which has previously been criticized as wasteful.
The party says their proposal would be similar to the bond scheme used during World War I and World War II.
Individual citizens could lend the government money, which would be paid back with interest over six to 10 years. By the end of 1945, the scheme had raised £1.754m.
Posters encouraging members of the public to buy bonds – or National Savings Certificates – featured slogans such as “Lend to the Rescue” and “Feed the guns with war bonds”.
Dan Coatsworth, head of markets at investor AJ Bell, said: “War bonds are a proven way of raising money for national defense spending, but they can impose a long-term debt burden on the government.
“Theoretically, the public could demand a better interest rate for holding bonds than for cash in the bank.
“While some people may think it is their duty to support the country, there will be others who treat such bonds the same as any other type of investment.”