WASHINGTON, April 16 (Reuters) - British finance minister Rachel Reeves on Thursday raised the prospect of cuts to some areas of public spending to invest more in the military and said she was working on ways to counter the country's energy vulnerabilities caused by the Iran war.
Reeves, speaking to reporters during the International Monetary Fund and World Bank spring meetings in Washington, said she did not favour tax hikes or higher borrowing to pay for increases in defence spending, which has become a priority after Russia's full-scale invasion of Ukraine as well as the Iran war.
"Obviously we are working through a range of options, but my two budgets have both increased taxes substantially and I would prefer not to have to do that again."
In terms of borrowing, British government spending on debt interest costs is already too high, she said.
Prime Minister Keir Starmer has promised the largest sustained rise in defence spending since ?the Cold War, but with the public finances already under strain, his government has not yet published a 10-year defence investment plan.
If it ruled out raising taxes or borrowing more, the government would probably have to look at cutting other areas of public spending - possibly the big welfare budget - to fund a bigger defence budget.
Reeves said she was not worried about making difficult choices.
George Robertson, a former NATO chief who is a veteran of Starmer's Labour Party, criticised the government this week for failing to adequately fund defence.
ENERGY PLANS
As well as exposing shortcomings in the armed forces, the Iran war has underscored the vulnerability of Britain's economy to shifts in energy prices, which have surged due to the conflict in the Middle East.
Reeves said she hoped to announce in the coming days more details on ways to de-link UK electricity prices from gas prices, a change which could help to bring down the high cost of power in Britain.
"This is something that I've been attracted to for quite some time, de-linking electricity and gas prices," she said. "At the moment, when gas prices are so high, we end up paying more for our electricity, even though the cost of producing it doesn't change."
According to the International Energy Agency, large energy-intensive companies in Britain paid about four times more for electricity in 2024 than U.S. businesses, and more than double their competitors in France and Germany.
Separately, Reeves said the government was working "pretty intensely" with energy firms to finalise the details of so-called tie-back projects in the North Sea which would allow some new oil and gas production on or near existing fields.
The Labour Party pledged during its 2024 election campaign that it would stop awarding new oil and gas licences to help the move toward net-zero emissions. But its plan for tie-backs, announced in November last year, would allow for new oil and gas licences if they do not require new exploration.
(Writing by William Schomberg; Editing by Paul Simao)
By William Schomberg
