The UK will give Ukraine a £2.26bn loan to buy weapons and other support to fight Russia’s invasion, with the money effectively repaid to the British taxpayer by Moscow.
Rachel Reeves, the chancellor, and John Healey, the defence secretary, have fleshed out the British contribution to a pledge made in June by the G7 group of advanced economies to lend Kyiv a total of $50bn (£38.5bn) for its military, budget and reconstruction needs.
Rather than expect Ukraine to pay a penny back, the entire loan – once finalised – will instead be covered by the profits made from hundreds of billions of dollars’ worth of Russian sovereign assets that Western nations have frozen since the start of the full-scale war in February 2022.
This mechanism is seen as a way to force Vladimir Putin to start paying for the damage his invasion has inflicted on Ukraine – but one that has a lower risk of legal challenge than simply giving the frozen Russian assets directly to the Ukrainian government.
“By using the money generated from these sanctioned Russian assets, we can help turn the tables on Putin’s war machine,” the defence secretary said.
“This urgent funding will directly support Ukraine’s defence using the proceeds from assets that had helped fuel Putin’s aggression.”
The chancellor declined to give a timescale for when the British loan – which will be paid in instalments – will start arriving in Ukrainian coffers, but said further details would be included in next week’s budget.
“The key thing is we want to get the money out of the door, but we want Russia to pay, because in the end, they are responsible for what is happening in Ukraine,” Ms Reeves said.
The European Union, including G7 members France, Germany and Italy, has already signalled it will provide the bulk of the Russian asset-backed loan – up to $39bn (£30bn), while Canada has pledged to lend Ukraine $5bn (£3.9bn).
But the plan remains precarious.
Some two-thirds of the frozen Russian assets, worth €210bn euros (£175bn), are held within the EU but European sanctions on Russia must be renewed every six months – a move that requires the backing of all 27 member states.
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It raises a legal risk that a more pro-Moscow country such as Hungary might block the renewal, unfreezing the assets and making the repayment of loans much harder.
The chancellor, however, said she was confident the loans would be recovered from the profits made through the frozen Russian assets.
The US and Japan have yet to set out the part they will play in the loans for Ukraine but more details are expected this week as finance ministers and central bankers from around the world meet in Washington for an annual gathering of the International Monetary Fund (IMF).
The UK contribution adds to an existing pledge to provide £3bn worth of military assistance annually to Ukraine – though this covers everything from training and transportation to weapons.
Other G7 nations may attach conditions on how their loan can be spent, but the UK said it was happy for Ukraine to use the British offering for whatever it most urgently needs – a requirement that is thought to be focused on weapons, such as drones and missiles.