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(Bloomberg) — Some UK government departments are bracing for budget cuts of as much as 11% as Prime Minister Keir Starmer comes under mounting pressure to plow more money into defense.

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The Treasury has asked so-called unprotected public services outside of health, education and defense to model two scenarios ahead of a three-year spending review due in June, according to people familiar with the matter who requested anonymity discussing internal planning. Those are “flat cash” — which translates to an inflation-adjusted cut of around 5% — and a spending reduction that in real terms comes to about 11% over the period, they said.

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While that second model was originally seen as a worst-case scenario, it now looks more plausible for some departments amid hints from Starmer that defense spending is set to rise, one of the people said. No final decisions have yet been taken on the scale of the cuts, or indeed the pace of increase of defense expenditure, a Treasury official said. 

The revelation raises the prospect of further damaging cuts in so-called unprotected departments that were also hit in the 2010s by the austerity policies pursued by successive Conservative-led governments. Reductions in day-to-day spending, which excludes capital investment, would leave departments that have already been squeezed hardest facing further pain. Those at risk include Local Government, Culture, Justice, the Home Office, Environment, Energy, and Work and Pensions.

Labour has pledged to lift defense spending as a share of GDP to 2.5% from the current 2.33% but has yet to set out a timescale. Delivering it this parliament would cost roughly £5 billion ($6.3 billion) extra per year, and Starmer is under pressure from military chiefs and US President Donald Trump to act swiftly.

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“We have to spend more on defense, that’s the reality of the situation we find ourselves in,” the prime minister told broadcasters on Monday. He said all countries across Europe have to “step up on both capability and on spending and funding” of the military. As the US pursues talks with Russia to end its war in Ukraine, Starmer also vowed to send UK peacekeeping troops to Ukraine if needed to enforce any deal.

The government has repeatedly said it’ll spell out a pathway to reaching the defense spending target when it publishes its strategic defense review in the first half of this year. The Treasury in June also aims to publish how it’s divvying up between departments the overall spending envelope for the next three years.

If military spending goes up faster, that means a tighter squeeze in other areas, despite Chancellor of the Exchequer Rachel Reeves topping up day-to-day departmental expenditure in her October budget by £50 billion in 2028-29. The bulk of that rise has been committed to areas including health, schools, childcare, defense and aid.

With about two-thirds of the UK’s annual £510 billion of day-to-day departmental spending dedicated to protected areas, that means funding is at risk in others, including the creative industries, court services, police, bin collections and environmental agencies.

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Moreover, the Treasury has made clear that the overall £50 billion increase in day-to-day spending is a best-case scenario. Reeves may have to trim the total and use the savings to meet her fiscal rule that all day-to-day spending must be paid out of taxes after bond market moves raised borrowing costs and the Office for Budget Responsibility downgraded its growth forecasts, wiping out all £9.9 billion of Reeves’ headroom and leaving her slightly in the red.

That increases the chances of the 11% cuts downside scenario being needed for some departments. Better-than expected growth in the final quarter of last year may have helped recover her position a little and may be reflected in the next OBR forecast submission on Wednesday this week. The watchdog will deliver five forecasts in all before the Mar. 26 fiscal statement.

It is not clear if Reeves plans to rebuild all £9.9 billion of her headroom or just creep back into the black in order to meet her key fiscal rule. 

—With assistance from Joe Mayes.

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