Westminster Blog

It is now received wisdom in Westminster that Liam Fox emerged victorious from his battle with the Treasury over defence funding.

The official history has David Cameron making a last minute intervention to boost defence spending, particularly for the army. The Treasury were only able to secure cuts of around 8 per cent in real terms, rather than the 10 per cent cuts they were pushing for.

The alternative interpretation is that Fox was short-changed and that this will become clear in the months ahead. The argument runs in two parts:

1) The Treasury had planned to give defence a better settlement

It is notoriously hard to gauge what the Treasury’s bottom line is. Defence has certainly been given a relatively favourable settlement when compared to other Whitehall departments. But senior figures at the Treasury were preparing to give them more.

Indeed, when the Treasury simulated the spending review this summer, in advance of the emergency Budget, the model let defence off with just a 5 per cent cut in real terms. So somehow the Treasury became more mean over time. Perhaps the Fox letter was not that helpful after all?

2) Fox won’t have enough money to implement the defence review

One of the miracles of this review is that a cut of around 8 per cent has been agreed without triggering the resignation of a defence chief. Why? Well all the services have come out of this relatively unscathed — at least with regard to their main capabilities. The army has avoided deep cuts; the RAF has saved the Tornado; and the Navy have two carriers, even if they don’t have planes.

Given most capabilities will survive, the big question is: how can you make this add up? Where are the savings? That may not be as clear tomorrow as most people will have expected. Sure there will be some big sacrifices. But it there will be all sorts of fudges on orders for new equipment and on the size of the armed forces, as well as some heroic assumptions on efficiency savings.

Politically that is probably fine in the short term. But Fox will be left to settle a bill without necessarily having the cash he needs to do it. The inter-service battle on what to give up in order to balance the books is far from over. Fox may have to preside over months of cuts stories, which does no good for any defence secretary. The long grind is ahead. The Defence Review is dead — long live the defence review…