Government may face £80 billion pound hole in defence budget

Soldiers from the 1st Battalion The Royal Welsh wait for a chinook helicopter to land during a training exercise, ahead of their deployment to Afghanistan, at Dale Barracks in Chester, England December 3, 2009.

LONDON (Reuters) - The government could face a hole of up to 80 billion pounds in its defence budget within a decade and may have to cancel some equipment programmes to balance the books, a parliamentary report said on Tuesday.

"Britain's defence budget is fundamentally unaffordable," said Edward Leigh, chairman of parliament's Committee of Public Accounts which produced the report.

"Matters have worsened to the point where the department (Ministry of Defence) will have to take difficult decisions, such as to cancel whole equipment programmes," Leigh, an opposition Conservative, said.

The committee, which includes lawmakers from all major parties, released its report on the eve of Wednesday's budget and weeks before a national election which will be dominated by the question of how to rein in a government budget deficit forecast to reach 178 billion pounds this year.

Labour and the Conservatives, who lead in the polls, have both pledged to protect spending on health but have made no such commitment on defence, which is seen as a prime candidate for cuts.

The Ministry of Defence, with an annual budget of around 36 billion pounds, plans to spend about 60 billion pounds on major defence programmes in coming years.

BROWN ON DEFENSIVE OVER AFGHANISTAN

Prime Minister Gordon Brown's government is under pressure to find savings, but he has also faced politically damaging accusations that he has failed to give Britain's 9,500 troops fighting in Afghanistan the equipment they need.

The Ministry of Defence calculates it would have a deficit of six billion pounds after 10 years if its funding grows by 2.7 percent year-on-year, the parliamentary report said.

But if cash spending on defence was flat, the deficit would rise to 36 billion pounds over that period, and if defence spending was cut by four percent each year for the next five years, then the defence deficit could hit 80 billion pounds if the military stuck to its current spending plans, it said.

The government plans to spend billions of pounds to renew Britain's nuclear-armed submarine fleet, build two aircraft carriers, acquire A400M military transport planes and Joint Strike Fighters and buy new armoured vehicles.

On Monday, the government said it had awarded U.S. firm General Dynamics a contract for the first phase of a four billion pound programme to build armoured reconnaissance vehicles for the British army.

Both Labour and the Conservatives are committed to holding a defence review after the election which could set out a more limited military role for Britain in the world, in line with its straitened circumstances.

Leigh said the "mess" the Ministry of Defence had got into was an indictment of its governance and budgetary arrangements.

He said the ministry had reacted to cost pressures by arbitrarily delaying projects or reducing the amount or capability of the equipment on order.

"The problem is that such measures are often economies in the short term only, leading to higher overall costs and poor value for money in the longer term," he said.