MoD forced to cut budget by £1.5bn

The Ministry of Defence is being forced to slash its planned budget by £1.5 billion a year over the next three years, leaving the armed forces vying with each other to hold on to their new ships, aircraft and armoured vehicles.

The Royal Navy's two planned aircraft carriers, central to the armed forces' capabilities, will be postponed by up to two years in an attempt to delay paying much of the £4 billion bill for as long as possible.

The government announced in July it was increasing the defence budget by 1.5% a year taking it to £36.9 billion in 2010-2011.

It also committed itself to building the two giant carriers, a new series of armoured vehicles for the army and the new nuclear deterrent.

But the black hole in the defence budget is so large - close to £2 billion this year and as much as £5 billion over the next three years - that the budget increase will not prevent cuts.

While spending on a new nuclear deterrent is certain to go ahead, both the carriers and the new vehicles are again under threat.

Growing rows between the three services over the budget are set to escalate over the next few weeks as discussions known as "planning round 08" are finalised.

The budget problems are caused by the costs of a number of large equipment projects coinciding in this year's budget.

But they have been exacerbated by the Treasury's refusal to pay the full cost of operations in Iraq and Afghanistan.

In theory, the Treasury is supposed to pay the full bill, but in reality it reclaims the costs of any new equipment required for operations from subsequent defence budgets.

One industry source said the result was that "salami-slicing is going on across the whole equipment budget" with every equipment project affected.

The Treasury, meanwhile, has renewed its offensive against the RAF's planned fleet of 232 Typhoon aircraft, insisting the final tranche of 88 aircraft is not needed.

It is also demanding reductions in the planned 138 Joint Strike Fighters the MoD is considering buying from America to fly off the two new carriers.

The RAF is also expected to lose two of its frontline Tornado GR4 ground attack squadrons as part of cuts to existing forces.

The Royal Navy is now resigned to losing a further five escort vessels, all four Type-22 frigates plus one of the relatively new Type-23 frigates, in the attempt to rein back costs.

The delays to the carriers and cuts in frigates are particularly worrying for the navy which has already accepted drastic cuts in its surface fleet in exchange for the government's promise that the carriers will be built.

The government cut the Royal Navy's frigates and destroyers to 32, the minimum required to carry out its tasks around the world, in 2000.

But despite subsequent wars and protests from naval chiefs this number has since been reduced to 25 on the promise of the two new carriers, forcing the navy to cut a number of tasks.

The latest cuts reduce the number of escorts to just 20, compared with a cold war peak of 139.

The two carriers, Queen Elizabeth and Prince of Wales, are due to enter service in 2014 and 2016 respectively, a timetable already delayed by two years. They are to be built in tandem with a new French navy carrier and any further delays beyond two years would place major doubts over whether they will be built at all.

In an attempt to sort out its procurement system and put the budget on a firmer basis, the MoD is this week advertising for an industry executive to take over as the chief operating officer of the Defence Equipment & Support organisation.

Read Mick Smith's defence blog

http://www.timesonline.co.uk/tol/news/uk/article3177777.ece