£25bn defence shortfall leaves Cameron and Osborne at odds

Exclusive: Chancellor holding back extra funding needed for modernisation, with MoD calling for PM to intervene David Cameron is locked in a standoff with his chancellor over defence spending after a secret study concluded the government will need to find an extra £25bn to pay for its modernisation of the armed forces. The Guardian has learned that a three-month internal analysis of the Ministry of Defence’s chaotic budget has found the department will not be able to pay for the programmes agreed in last year’s strategic defence and security review without a huge injection of cash – or a savage round of fresh cuts. George Osborne has been refusing to give the defence secretary, Liam Fox, any promises about funding beyond 2014/15, even though many programmes need to be signed off in the coming months to have any chance of coming in on time and on budget. From private discussions with the MoD’s most senior officials, the Guardian understands that the prime minister has also dug his heels in. He has refused to sanction any further cuts to defence capabilities before the next election, even though the department is already far over budget. One senior Whitehall official said the Cameron and his chancellor appeared to be in a power struggle – and they needed to resolve the situation quickly. “We are going round in circles,” said the source. The three-month review began in the spring as the MoD tried to tackle an estimated £1bn overspend for last year, as well as determine costs for the contracts that need to be signed for the changes set out in the SDSR. Downing Street has already conceded that if the armed forces are to become Future Force 2020 the MoD will need real-term budget increases from 2014/15 onwards. But defence officials were not sure how much extra money would be needed. In a series of secret meetings with top officials from the Treasury, Cabinet Office and No 10, the MoD argued it will need rises of inflation-plus-3% every year until 2020/21 to meet its targets. The Guardian understands the sums were not disputed. Without them the MoD will be unable to create Future Force 2020 within the timescale. If the MoD’s budget remains constant between 2014/15 and 2020/21 the department will be £20bn short of what it needs – at current prices. Allowing for inflation that rises to £25bn over six years. The MoD believes it has convinced officials across Whitehall that its problems are as great as it says. It does not want to set a precedent that other departments might seek to follow, and it points to the MoD’s well-earned reputation for mismanaging money as another reason not to make any commitments now. “The essential underlying problem remains the same,” said the source. “The chancellor doesn’t want to give defence any more money because if he makes a special case then what will happen next? “Every other department will be asking to be made a special case. But what the prime minister is not prepared to countenance is further cuts. Defence has been on this painful trajectory since the SDSR came out last year. “The only way the Treasury will move is if David Cameron comes down on the side of defence. The prime minister recognises that the MoD will need real term increases to meet the SDSR commitments.” Until then the permanent secretary at the MoD, Ursula Brennan, is stalling on signing contracts until she is sure she will have the money to pay for them. Professor Malcolm Chalmers, from the Royal United Services Institute thinktank, said there were “no easy choices left” and that the MoD needed to make decisions now about new tanks, submarines and aircraft. “Without an explicit commitment soon to significant real terms growth in defence spending between 2014 and 2020, the SDSR vision for UK forces in 2020 is not affordable. “Getting a commitment after the next election is too late unless the MoD is prepared to sign contracts without knowing whether it can afford to fund them. “If the defence budget does not grow significantly in real terms after 2014/15, there could be a six-year funding gap – between what is needed to fund Future Force 2020 and what is available – of around £25bn. “If decisions are not taken soon, either to approve significant real defence spending growth after 2014 or to make further cuts in capabilities, the MoD will become increasingly reluctant to approve new financial commitments.” Chalmers said the government had been “refreshingly frank” about the problems with the defence budget but if it could not commit to new spending “further difficult capability choices cannot be avoided”. The armed forces will have made redundant up to 17,000 servicemen and women by 2015, but further job losses are expected after the British mission in Afghanistan begins to wind down in the next parliament. Defence policy Military David Cameron George Osborne Nick Hopkins guardian.co.uk

Posted by on July 18, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.