Liberal Democrat leader Sir Ed Davey has said the government should start selling war bonds as there is a need to “move far faster” on UK defence spending.
Under his party’s plan, members of the public could loan the government money in the form of a bond which would run over a two-to-three year period and pay out the same interest as standard government bonds.
Davey said the bonds, which the party says could raise up to £20bn for the military, would give the public a chance to “support patriotically our defence”.
A government spokesperson said “new debt instruments” were kept under review but that they had to represent “value for money” and “be consistent with wider fiscal objectives”.
Calls to increase defence 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 frequently criticised Nato countries for failing to spend enough on their military.
Speaking on the BBC’s Sunday with Laura Kuenssberg, Davey said a move to sell war bonds was needed as “we’re in almost a Cold War type scenario”, citing the Russian use of drones, submarines and shadow fleets.
He continued: “This is a serious threat, and we need to move far faster than what the government has been doing.
“We need to go rapidly.”
The Labour government has pledged to raise overall defence spending from 2.3% to 2.5% of national income by 2027, at an estimated cost of an additional £6bn a year.
It has also promised to raise levels to 3.5% by 2035, in line with a pledge by Nato members last year.
However, there have been reports in the Times and the Sun that plans to make Britain’s armed forces “war ready” will require £28bn more than has so far been allocated.
The government had been due to publish its defence investment plan last autumn but there are suggestions it has been delayed due to concerns about cost.
Earlier this month, the head of the Armed Forces, Sir Richard Knighton, said the UK was “not as ready as we need to be for the kind of full-scale conflict we might face”.
On Sunday, Davey said: “Everyone can see that since the last election things have changed dramatically. The way that Putin is prosecuting that [Ukraine] war, but as significantly, the attitude of Donald Trump to supporting European defence.”
He expressed concern about the Nato alliance given the approach of the US president.
“I deeply regret to say, because of Donald Trump, there has to be a question about whether we can rely on the United States. With him in the White House they’re no longer a reliable ally. We have to step up and fast,” he told the BBC.
The Liberal Democrats said the money raised from issuing bonds would be ring-fenced for defence and the investment would help deliver “growth, jobs and higher revenues” for the government “which would partially offset the cost of additional debt servicing”.
The party added the scheme would need to be accompanied by an overhaul of the Ministry of Defence procurement process, which has previously been criticised as wasteful.
Their proposal, the party says, would be similar to the bonds scheme used during World War One and World War Two.
Individual citizens could lend the government money, which would be paid back in six to 10 years with interest. By the end of 1945, the scheme had raised £1.754m.
Posters encouraging members of the public to buy bonds – or national savings certificates – used slogans including “lend to defend” and “feed the guns with war bonds”.
Dan Coatsworth, head of markets at investors AJ Bell, said: “War bonds are a proven way of raising money to fund national defence spending, but they can burden a government with long-term debt.
“In theory, the public might demand a better rate of interest than they could get on cash in the bank to take up the bonds.
“While some people might think it is their duty to support the country, there will be others who treat such a bond in the same way as any type of investment.”