A cabinet dispute over the costs of a new Trident missile system erupted into the open today when the defence secretary, Liam Fox, said his department was being asked to foot the multi-billion bill for the cost of replacing Britain's nuclear deterrent.
Defence ministers have argued that the costs of a new Trident system – about £20bn over a decade – should come direct from the Treasury since it is a matter of national security.
Fox today confirmed that Treasury officials wanted costs to be borne by the Ministry of Defence. That would make it "very difficult" to maintain the MoD's other responsibilities, he said, amid fears that cuts in armed forces numbers would be made inevitable.
The annual defence budget is less than £40bn and while the chancellor, George Osborne, said in the Budget that it would be saved from the worst of the departmental cuts, the MoD is braced for reductions of 10-20%.
Some ministers fear Osborne and David Cameron are prepared to abandon Trident replacement on cost grounds, and that this latest row over funding makes that more likely, although No 10 insisted today that the deterrent would be replaced.
Fox told BBC 1's Andrew Marr Show: "There has always been an understanding that the budget for the nuclear deterrent came from outside the core defence budget. Running costs for the deterrent have always come from inside.
"That is something we are discussing in the run-up to the spending review. To take the capital cost would make it very difficult to maintain what we are currently doing in terms of capabilities."
Fox, a confirmed hawk on Trident, went on to suggest that the negotiations were questioning the feasibility of renewing the deterrent rather than being simply a question of who pays. "We really can't play fast and loose with the country's defence," he said. "We don't know what the threats will be between now and 2050 – no one could have predicted 40 years ago what the world would look like today. So we have to ensure we have the precautions to protect Britain from nuclear blackmail by any other state."
Asked if the consequences for Trident and other defence spending would be grave, he said: "I think you can leave that to me and the chancellor to have a discussion about."
A government source urged caution last night, saying the new government did "things differently" and the issue of who funds Trident will be resolved by a new "collegiate" star chamber reviewing where spending cuts should fall. Composed of Fox's colleagues, as opposed to civil servants, the defence secretary would have a chance to make his case.
Fox is not close to Cameron and Osborne and once angered the prime minister when he likened Afghanistan to "a broken 13th century country". But he has a constituency on the Tory right and, were he to resign, could cause problems for the government from the backbenches.
The two parties in the coalition have diametrically opposed policies on renewing Trident, with the Lib Dems against and the Tories in favour. The coalition agreement says Trident should be scrutinised to "ensure value for money" while the Lib Dems may "continue to make the case for alternatives".
Fox tried to stem Lib Dem dislike for Trident by expediting a "value for money" review to report before the summer. He was "pretty confident" this would identify savings.
Last week at a Chatham House event, Fox held out the prospect of fewer nuclear missiles and warheads, and even reducing the number of planned Trident submarines from four to three, but said that he had no intention of changing his decision to replace Trident.
But a minister and ally of Fox confirmed he would face a headache if he loses to the Treasury. "First there are the capital costs and then there will be overspend – projects of that size always overspend – so if they have a £17bn capital project, over 10 years, with an overspend about half that much again, absorbing its costs into the MoD budget would at least mean an annualised £1bn. That is a lot of money – I think they're looking at cuts in armed forces units – cuts in the numbers of men."
Sources suggested the latest developments made it more likely that Trident might not be renewed, saying they suspected the price tag meant Cameron and Osborne were no longer so "theologically wedded" to its replacement.
"Whereas the New Labour machine was very wedded to Trident, Cameron and Osborne appear to be more sceptical and Nick Clegg is, of course, hostile. It may be that these new leaders are more open to shelving Trident when faced with its cost," one source said.
By making Trident an MoD expenditure, the source added, the government would make funding priorities an internal debate for the military. As well as inside the Treasury, there is widespread scepticism within the MoD and army over the relevance of replacing the existing Trident ballistic missiles.
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