The Ministry of Defence (MoD) and the Treasury are in a spat over who should foot the 20 billion pound bill to renew the Trident submarine-based nuclear missile system.
The defence budget -- 36.9 billion pounds this year -- is likely to shrink by up to 20 percent by 2015 as the Conservative-led coalition takes drastic action to rein in a record peacetime budget deficit.
If the MoD has to pick up the bill for Trident, it could force even deeper cuts than expected to spending on conventional defence, leading to fewer equipment orders -- a worrying prospect for defence contractors.
Recent statements appear to throw doubt on the government's full commitment to the (nuclear) deterrent and suggest that its costs will fall on MoD, potentially at the expense of other expenditure, Ian Godden, chairman of the ADS aerospace, defence and security industries trade organisation, said in a letter to Prime Minister David Cameron.
I would therefore be grateful if you could provide the clarity that industry needs on the future of the nuclear deterrent, especially on how Trident will be funded and whether it will lead to extra cuts in the conventional capabilities required by our armed forces for the long run, he continued.
Trident is due for renewal in the early 2020s. Last week a senior MoD source told Reuters there were no plans to scale back the system, by using fewer submarines for example.
Defence Secretary Liam Fox has ordered a Strategic Defence and Security Review, due to report in late October, which is analysing future demands on the military and what equipment it needs to fulfil its role.
The review could pave the way for sweeping cuts in equipment and personnel.
(Reporting by Mohammed Abbas: editing by Andrew Roche)