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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The Prime Minister was

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Speaker 1: saying that he wants to restore the aid budget to

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Speaker 1: zero point seven percent of GDP and to get defense

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Speaker 1: back up to or to get defense up to three

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Speaker 1: percent of GDP. This implies a much bigger state, and

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Speaker 1: even with strong growth, it seems not remotely possible within

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Speaker 1: the fiscal rules without big tax cut rises or big

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Speaker 1: spending cuts. Do you agree.

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Speaker 2: We set out a clear plan for taking defense spending

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Speaker 2: to two point five percent of a GDP by twenty

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Speaker 2: twenty seven, and that will be funded by cuts in

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Speaker 2: overseas development assistance. That is the right thing to do

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Speaker 2: given the threats we face from Russia on the continents

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Speaker 2: of Europe. As strong economy depends on strong national security

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Speaker 2: and strong defense, which is why we've made that decision

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Speaker 2: to invest in our defense capability.

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Speaker 1: But beyond for the next parliament would be three percent

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Speaker 1: of defense spending is the ambition, and that's when it

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Speaker 1: would get more difficult within the fiscal rules and without

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Speaker 1: big cuts or big tax races.

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Speaker 2: The Prime Minister was really clear yesterday, Yes, we want

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Speaker 2: to take defense spending to three percent of GDP. Given

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Speaker 2: the threats that we face, but that will be dependent

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Speaker 2: on economic and fiscal circumstances and also military need. But

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Speaker 2: we've set out that fully funded, fully costed plan in

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Speaker 2: the next two years to take defense spending to two

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Speaker 2: and a half percent of GDP, to improve our national

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Speaker 2: security and to make our economy and our country stronger.

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Speaker 1: The promise is going to be meeting President Trump on Thursday.

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Speaker 1: You have just increased defense spending, which is obviously what

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Speaker 1: he would like. Do we hope to get anything in return?

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Speaker 1: Do we hope, for example, for him to withdraw the

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Speaker 1: threats of twenty percent tariffs possible?

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Speaker 2: We've increased defense spending to improve the security of Britain

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Speaker 2: and it's in our national interests to do that. The

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Speaker 2: Prime Minister will be meeting President Trump to discuss a

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Speaker 2: range of issues. But it is important that right across

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Speaker 2: Europe we increase spending on defense to play our full

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Speaker 2: part within NATO and to keep the consonants of Europe

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Speaker 2: safe against Russian aggression. In terms of the future trading

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Speaker 2: relationship between the UK and the US, last time that

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Speaker 2: President Trump was in the White House, trade and investment

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Speaker 2: between our two countries increase, and I have every confidence

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Speaker 2: that that can happen again, and I know that the

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Speaker 2: Prime Minister looks forward to talking about those issues and

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Speaker 2: many others in his meetings with Donald Trump tomorrow.

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Speaker 1: Obviously there is talk about peace deal in Ukraine within weeks.

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Speaker 1: The US hope would be would that be good for

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Speaker 1: growth globally? Would it be good for growth in the UK?

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Speaker 1: Is this something you'd be hoping for?

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Speaker 2: I set out in my G twenty contribution at the

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Speaker 2: Finance Minister's meeting today the importance of peace. But are

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Speaker 2: just and durable at peace and that is what the

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Speaker 2: people of Ukraine need and deserve, and that is what

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Speaker 2: will contribute to a stronger economy. The human sacrifice in

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Speaker 2: Ukraine has been immense. But of course Russia's illegal invasion

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Speaker 2: of Ukraine has also placed a heavy burden on the

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Speaker 2: global economy, with higher energy prices, higher food prices, and

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Speaker 2: destruction to a global trade. But first and foremost, this

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Speaker 2: is about protecting the sovereignty of Ukraine and protecting the

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Speaker 2: security of Europe.

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Speaker 1: But you think a peace dividend might bring a growth

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Speaker 1: dividend as well.

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Speaker 2: Well. There's no doubt been the case that Russia's invasion

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Speaker 2: of Ukraine has played a role in the higher inflation

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Speaker 2: and the weaker growth that we've seen, but it is

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Speaker 2: essential that it's a just and a durable piece if

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Speaker 2: we are to get the benefits both the Ukraine and

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Speaker 2: indeed for the global economy.

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Speaker 1: We've had to slash our aid budget to afford the

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Speaker 1: defense spending. The US are doing the same, Sweden, France,

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Speaker 1: Germany they're also reducing their aid spending. Does this mean

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Speaker 1: that the test has given up on the developing world?

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Speaker 2: The world has changed hugely in just the last few

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Speaker 2: years since Russia's invasion of Ukraine. It's a wake up

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Speaker 2: call to countries around the world, but particularly in Europe.

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Speaker 2: And it's right that we have increased spending on defense.

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Speaker 2: To take us to two point five percent of a

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Speaker 2: GDP is a fully costed and a fully funded plan.

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Speaker 2: It's in our national interest to do so, and that

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Speaker 2: is why we're taking that action.

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Speaker 1: Do you think it's a risk that China and Russia

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Speaker 1: possibly could fill the gap if we leave, if we

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Speaker 1: take our foot off the pedal for development assistance in

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Speaker 1: the developing world.

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Speaker 2: I think it's important that countries play their full role

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Speaker 2: in both providing defense and in providing aid. Britain has

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Speaker 2: made the decision, the right decision, to protect our national security,

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Speaker 2: to strengthen our defense in the face of Russian aggression,

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Speaker 2: and that's why we've increased defense spending. Our increasing defense

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Speaker 2: spending to two and a half percent of GDP. That's

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Speaker 2: the choice that we have made. It's in the national interest.

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Speaker 2: It's also good for the economy because a strong economy

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Speaker 2: depends on strong defense and strong.

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Speaker 1: Security, and which just finally, then you've had two OBR

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Speaker 1: forecast rounds. Can you confirm that the March twenty sixth

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Speaker 1: fiscal event will not be the fiscal event It will

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Speaker 1: just be a group of OBR forecasts.

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Speaker 2: As you as you originally said it would be, but

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Speaker 2: the Officer Budget Responsibility going through their process at the

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Speaker 2: moment in terms of providing a forecast. I'm not going

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Speaker 2: to give a running commentary on that, but I will

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Speaker 2: respond to it on the twenty sixth of March. And

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Speaker 2: the fiscal rules that I set out in the budget

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Speaker 2: in October that Parliament have endorsed a non negotiable and

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Speaker 2: we will take whatever action is necessary to continue to

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Speaker 2: meet those fiscal rules.

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Speaker 1: So not ruling out a possible fiscal event.

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Speaker 2: I'm not going to provide a running commentary on the

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Speaker 2: ongoing OBR forecast. We took the action that was necessary

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Speaker 2: in October to put our public finances on a firm footing.

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Speaker 2: But whatever the OBI say in March, I am very

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Speaker 2: clear we need to go further and faster to grow

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Speaker 2: our economy, and further and faster to improve and reform

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Speaker 2: our public services, including improving productivity in our public services.