Britain's defence spending plans are encountering difficulties. Global threats are increasing, but the financial resources required to address them are not matching this rise.
NATO Secretary General Mark Rutte cautioned last summer that Britain and its allies should be prepared to spend more, learn Russian, or move to New Zealand.
This week in Davos, as world leaders such as Donald Trump, Mark Carney, and Volodymyr Zelensky gather for the year's major forum, security and defence expenditure will be a key topic. The necessary amounts are substantial.
Under a NATO agreement from last summer, the UK must double its defence spending from 2.4% of GDP to 5% by 2035. This includes allocating 3.5% of GDP to core defence spending on items like weapons and 1.5% to security spending.
Creative interpretations of how to achieve these targets are already circulating.
Downing Street has suggested that strengthening energy security and combating smuggling gangs could be classified as protecting national security.
Italy's Giorgia Meloni wants to include existing port upgrades in the definition, while Belgium, the Netherlands, and Germany plan to use a passenger railway to reach the 5% target.
However, the Ministry of Defence has warned of a £28 billion funding gap if it is to modernize the military. Increasing defence spending will require more than just inventive accounting.
Alistair Irvine, an investment director at fund giant Jupiter, states that Britain must be placed on a war footing as quickly as possible. "The best form of defence is deterrence," he says.
"The sooner the target is reached, the greater the chance that conflict is avoided."
He argues the Government should aim for the 5% target by 2030. "Back-loading UK investment while others, such as Germany and Poland, are being more proactive and urgent, raises the accusations of free-loading on the back of our allies," Irvine says.
"That is at odds with the official aims of putting NATO first and leading from the front."
The figures needed to hit that target are stark.
The Office for Budget Responsibility estimated last November that Britain's commitment to core defence spending would cost an additional £32 billion per year in today's money by 2035.
That is equivalent to another tax increase on the scale of those seen last November or in October 2024.
Irvine proposes another approach: war bonds.
Britain has a history of issuing debt to finance wars, first conducted on a major scale during the First World War.
Advertisements called on patriotic Britons to "feed the guns," "back the boys," and "join the crusade" by setting aside a portion of their wages to help finance Britain's war machine.
"Your bobs do big jobs," they declared alongside images of men on the front line or tanks showcasing military might.
Those bonds, issued by the government and designed for repayment within 10 years, were finally settled a century later in 2014 when George Osborne paid off Britain's last war loans.
Irvine has suggested Britain issue up to £120 billion in new debt as a National Defence Loan, ring-fenced for military spending.
Some within the Labour movement are already calling for defence spending to sit outside standard spending rules.
Former shadow chancellor Ed Balls used his Political Currency podcast to urge the Treasury to "carve out ... for a fixed period ... the uplift in defence spending [to sit] outside the fiscal rules."
"I think that is much more credible than a massive tax rise, and much more credible than undeliverable public spending cuts the markets won't believe in," he said.
But as Liz Truss and even Rachel Reeves know well, borrowing is still borrowing in the eyes of the markets.
Unlike Germany, which is also unleashing a wave of defence spending, Britain's debt pile is already the size of its economy. The interest on that debt is set to exceed £100 billion annually for the rest of the decade.
Investors will not forgive wanton spending.
There are also other risks.
Rob Murray, head of the Defence, Security and Resilience Bank, recently noted that getting NATO allies to 5% of GDP would require an extra $1.9 trillion in collective spending each year.
"Without structural reform, that surge will drive inflation, not capacity," he warned.
The former NATO official noted that 155mm artillery shells costing $2,000 before 2022 now exceed $8,000.
The price for Germany's Leopard 2 battle tanks jumped from $23 million each when sold to the Dutch in October 2024 to $30 million for the Austrians in February 2025.
With high risks of investors losing faith or spending spiraling, Irvine says legal safeguards will be needed. Money is fungible.
He argues a "badged, legally hypothecated fixed-term loan with covenants tied to measurable results and early redemption penalties in the case of missed targets for defence capital expenditure" would help control spending and reassure investors.
Others in the City seem to be warming to the idea.
"Ring-fenced use of proceeds makes it different," says one FTSE 100 executive, before adding: "Subject to yield levels ..."
Matt Amis, an investment director at Aberdeen, says the Government would also benefit from automatic investment from passive funds obliged to purchase debt.
"If a war gilt is structured like a green gilt, then you have a huge captive audience that has to buy it," he says.
However, Amis agrees that patriotism does not drive returns. "It's not what it's called, it's what it offers."
Many remain sceptical. "War bonds may sound patriotic and some people may even be willing to accept a return 0.5 percentage points below a gilt," says one economist influential within the Government.
"I guarantee you that hedge funds and pension funds won't."
Amis agrees selling war bonds could be tough when the Debt Management Office already must offload £300 billion in new and old debt this year alone.
"The UK isn't Germany," he says. "The fiscal situation is better than it was, but it's still not in the best place. Perhaps it could be more of a retail investor thing, but whether there's a market there will be tough."
History suggests challenges lie ahead.
Bank of England archives reveal the first war bond auction during the First World War was a failure that led to a cover-up by officials.
Returns were market-leading at the time, though inflation eroded much of the yield. Some historians claimed one million investors signed up, but the Bank's ledgers later revealed fewer than 100,000 had.
The Bank sought to disguise this by making cash advances to its chief cashier and his deputy, who then purchased the bonds under their own names.
The bonds were classified as holdings of "other securities" in the Bank's balance sheet rather than government securities to conceal the true buyers.
Luckily, the episode did not damage the economy. Buying gilts today is easier and tax-efficient.
The Bank estimates retail investment accounts for 4% of all issuance, with purchases also exempt from capital gains tax.
Most households buy short-term gilts, which could suit a war bonds model, says Jupiter's Irvine.
"The military experts say we don't have long to get our act together. A short-duration loan on the basis described above would be an active incentive to get cracking, to spend it wisely and well."
But Aberdeen's Amis warns the Government to tread carefully, with Britain's borrowing costs already higher than Italy, the US, and France.
"Any extra issuance means yields will go higher, which will add to borrowing costs.
That's not unpatriotic, says Amis. "That's just how markets work."