Special pleading leads to increase for MoD

Defence spending will rise in real terms for the first time since the Cold War.

Defence spending will rise in real terms for the first time since the Cold War.

The Chancellor had intended to keep the Ministry of Defence's budget rise to the same level as inflation, but special pleading by officials led to a more generous settlement.

The budget will rise from £23bn to £25bn over the next three years - a real terms increase of 0.7 per cent. Although small, the rise represents a reversal of the harsh cuts that have been made over the past decade.

There are two spending priorities: buying new smart missiles for RAF planes and better ground-to-air communications equipment to put right weaknesses exposed in the Kosovo campaign; and improving living quarters for forces personnel to address long-standing concern about the state of accommodation.

The money will also be used to implement the Strategic Defence Review, which called for more focused and flexible armed forces, and to tackle "overstretch" by bringing the Navy and RAF to full strength.

Geoff Hoon, the Defence Secretary, suggested that despite "magnificent" work by Britain's armed forces in Kosovo, Sierra Leone, the Gulf, East Timor and elsewhere, the cracks were starting to show.

"Whilst the British armed forces have risen to every challenge, doing so has imposed strains on our people, and has exposed deficiencies," Mr Hoon said. "The Government is serious about relieving those strains and correcting thosedeficiencies."

The MoD would continueto strive to become more efficient, he said, and woulddispose of land, buildings, equipment and stores that were no longer needed.

There would be new budgets for conflict prevention, which would work across departments, Mr Hoon said.

However, defence sources warned against expecting a spending boom. "It is not anabsolute bonanza. We are not going to be announcing big new spending projects," said one.

Figures released last night showed the MoD budget increasing from £22.9bn in this financial year to £23.6bn next year - a rise of 0.1 per cent in real terms. In 2002-03 it will rise by a further 0.1 per cent to £24.1bn and in 2003-04 by 0.5 per cent to £24.9bn.

In addition, the department will receive £250m in 2001-02 from reserves on completion of a public-private partnership scheme for the Defence Evaluation and Research Agency (Dera). It must deliver efficiency savings of 3 per cent each year, must save £750m through "smart procurement" and must raise at least £600m from asset sales, apart from the Dera scheme.

The extra money comes after what the sources made clear was a tough battle with the Treasury.

The Treasury denied reports at the weekend that its review was changed at the last minute after a personal appeal to Tony Blair by the Chief of Defence Staff, Sir Charles Guthrie.

But defence sources said Sir Charles did have a meeting with the Prime Minister last week at which they discussed the budget. The sources also said the figures were finalised only after negotiations settled "late in day".