The Armed Forces are facing the toughest battle for resources in living memory and face cuts of up to £1 billion next year, senior defence sources told The Times yesterday.

To meet the spending limits imposed by the Treasury in a three-year settlement announced last July, the Ministry of Defence is having to cut back planned equipment programmes by between £500 million and £1 billion a year for each of the next three years.

One source said that the two most vulnerable projects, the Royal Navy’s two large aircraft carriers, costing £3.9 billion, and the Army’s new generation of armoured vehicles called the future rapid effects system (FRES), costing £14 billion, could be further delayed.

Top military and civilian officials will be meeting today at the Ministry of Defence to review the latest proposals to try to balance the books.

The Defence Management Board, which is chaired by Sir Bill Jeffrey, the Permanent Secretary, and includes Air Chief Marshal Sir Jock Stirrup, Chief of the Defence Staff, and all three Service chiefs, will discuss a paper that outlines options for shrinking the equipment programme.

One senior defence source said that Gordon Brown had made it clear that he did not want the MoD to announce cancellations of key programmes because of the political impact it would have at a time when the Armed Forces are so heavily committed in Iraq and Afghanistan. “The MoD has been told to reprofile equipment programmes, which means delaying everything,” the source said.

An MoD official said there was no plan to announce a complete package of cutbacks but that changes in the long-term costing programme would be made public, case by case, when it was relevant to do so.

The official said that the Defence Management Board would not be making final decisions which could still be “some weeks or months away”. However, the sources said that despite a real-terms increase in the budget of 1.5 per cent, there were a number of programmes “ring-fenced” for political or security reasons, which meant that the MoD had to cut back in other areas of spending.

The ring-fenced programmes include better accommodation for Service personnel, improved welfare arrangements and replacements for the four Trident ballistic missile submarines, which could cost between £15 billion and £20 billion.

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