By Will Smale
Business reporter, BBC News
The first of the Type 45 destroyers was launched a year ago
The UK's armed forces face a cash crisis unless the Chancellor substantially increases funds in next month's budget, defence analysts have warned.
At a time when the Ministry of Defence (MoD) has major plans for new aircraft carriers, submarines, planes and other major replacement programmes - and ongoing commitments in Iraq and Afghanistan - analysts warn that something will have to give without a major increase in funds.
Charles Heyman, director of R&F International Defence & Security Consultancy, says that the Ministry of Defence needs at least another £10bn a year on top of its current £33.4bn for 2007/08.
"The UK's level of military spending is just not in balance with our current operational commitments, and our service men and women are being dreadfully let down," he says.
'War on Terror'
While the main UK defence budget has continued to increase in strict financial terms, from £29.7bn in 2004/05 to £33.4bn for the forthcoming financial year, the defence analysts focus on the fact that as a proportion of the UK's gross domestic product (GDP), it has fallen steadily under the Labour government.
Back in 1998/99, UK defence spending totalled 2.7% of GDP, compared with 2.2% for 2005/06.
By contrast, the US increased its defence spending over the same time period from 3.1% to 4%.
Experts say the comparison is valid, because the UK is America's main partner in the so-called "War on Terror", and the current UK government has sent more troops into conflict than any other administration since World War II.
And with the MoD aiming to replace or upgrade so many different items, such as two new aircraft carriers, 120 new Joint Combat Aircraft, and six new Destroyer ships, analysts say the funds are currently just not there to pay for everything.
The navy aims to get two new aircraft carriers
"The problem is that while funds have been squeezed, unit costs for defence projects are still rising at Cold War trends, such is the cost of new technology," says defence analyst Professor Keith Hartley, director of the Centre for Defence Economics at the University of York.
"Not getting significant new funds will cause major problems for our forces, which are already underfunded."
Sustained real growth
While a Treasury spokeswoman would only say that any discussions about future defence spending would be considered as part of this summer's comprehensive spending review, the MoD points out that UK defence spending as a proportion of GDP is above the Nato European average.
It further says that the UK spends about the same proportion as France, and more than Italy and Germany.
The government says the increase in defence funds from 2004 to 2008 amounts "to the longest period of sustained real terms growth in planned Defence spending".
It is also important to stress that the day-to-day funds for Iraq and Afghanistan - such as increased wages, munitions and fuel costs - do not come from the main defence budget.
Instead, this money - which currently totals £4bn for Iraq and £844m for Afghanistan - comes from the Treasury's contingency fund, a separate pool of funds used for one-off expenditures, typically everything from coping with the BSE crisis, to funds for the 2012 Olympic Games.
Yet defence analyst Paul Beaver of Beaver Westminster says the concern is that the Treasury will eventually seek to recover this money from future MoD budgets.
"There are two areas here," he says.
"One is the equipment programme, the other is the resource funding for the things the forces need today.
"There is no doubt that the UK armed forces do not have sufficient cash and as a result there are severe shortfalls in current capabilities.
"The problem is that senior civil servants in the Treasury don't have to go to war and get shot."
'Less nuclear spending'
Kate Hudson, chair of the Campaign for Nuclear Disarmament (CND), said the money the UK spends on its nuclear deterrent could be much better used elsewhere in our armed forces.
"We'd certainly prefer funds to be lowered on the UK's nuclear weapons spending," she says.
"The clear question is whether there will be massive spending on a Trident replacement.
"The estimates for this range from £20bn to £25bn initially, up to £76bn over its lifetime."