I began writing this before
@Simon Darkshade uploaded Post 14.
They plan on defending the £…
At this stage they had convinced foreign banks that paper £ was a good as gold.
IIRC civil servants in HM Treasury called sound government finances
"The fourth arm of defence" and if I have remembered correctly they had a point.
The [budget] money was there, they were running at surpluses .. . .
FWIW (1) the average surplus in the 14 financial years running from 1st April 1922 to 31st March 1936 was £7 million (the average revenue being £833 million and the average expenditure being £826 million) which was only 0.84% of the average revenue.
FWIW (2) in the last financial year before the Geddes Axe (1921-22) revenue was £1,125 million and expenditure was £1,079 million which produced a surplus of £46 million (4.1% of revenue).
If taxation & expenditure had been maintained at that level for the next 14 financial years the National Debt would have been reduced by £546 million by 31st March 1936. The National Debt of the United Kingdom was £7,901.6 million at that date IOTL and £7,356 million ITTL. However, that doesn't allow for the money saved by the reduction in interest payments and the money saved from that could have been used to pay off more of the National Debt.
. . . and subsidising armour manufacturers to maintain the capacity that they would be consuming in this case.
Although I have few facts to support my theory, I suspect that the capacity retention subsidies weren't anywhere near as large as you think and didn't maintain as much capacity as you think. The only example that I can provide is armour making capacity which was 60,000 tons at the end of World War One and about 3,500 tons by the middle 1920s. For more details see the transcript of the official history on British War Production on the Hyperwar website.