The Resolution Foundation thinktank has warned Chancellor John Healey that funding Labour's defence spending pledge will require higher taxes on middle earners, as the UK's "tax wedge" remains internationally low despite recent rises. This matters because Healey, who resigned in June over what he called inadequate defence funding under Keir Starmer, now faces the task of financing that pledge from No 11, with his first budget due next month and pressure mounting to also address energy bills and youth unemployment.

The thinktank's report finds that although tax rises since Labour took power in 2024 total £70bn a year, including a record 2.4 percentage point jump in the tax wedge last year, the UK's rate of 32.4% for an average single earner still sits below the OECD and G7 averages. Meeting the pledge to spend 3.5% of GDP on defence by 2035 would require an extra £28bn a year, and countries with bigger states tend to tax average workers more rather than relying on business or wealth levies. Healey needs to find around £1.4bn a year over three years just for Starmer's existing defence investment plan, with his budget set for 28 October.