The government is planning further big cuts to the Royal Navy after deciding that terrorism is the only serious threat to Britain. Annual accounts from the Ministry of Defence (MoD) show that it is to cut funding for new ships and equipment by more than 20%, from about £1.8 billion a year to a maximum of £1.4 billion.

The cuts come as the MoD tries to fill a £2 billion shortfall in its budget over the next three years. Overspending has left funding even for this year uncertain. They will force the navy to shrink its commitments around the globe, further limiting Britain’s ability to play a role in world events at a time when the perceived threat from both Russia and China is increasing.

The Royal Navy has not sent any ships to join a Nato force in the Black Sea since the Georgia crisis began, in contrast to poorer countries such as Poland and Spain.

Gerald Howarth, the shadow defence spokesman, said the situation in the Caucasus and the navy’s inability to send any ships to the Black Sea “exposes the complete folly of the government's approach to the navy”. He added: “The procurement budget is shot to pieces and there is simply no money in it to buy the ships that the navy needs.”

Russia’s attack on Georgia has also alarmed new members of Nato and the European Union such as Estonia, Latvia and Lithuania, all of which have large Russian minorities. Other member countries would be required to come to their defence in the event of an attack.

The navy has secured its most important project – two giant aircraft carriers to replace three smaller ones. But the destroyer fleet will be cut from nine to six – half the number deemed necessary by the 1998 Strategic Defence Review.

Attack submarines will be reduced from 11 to seven and many of Britain’s 17 frigates will go. When Labour came to power the fleet had 35 destroyers and frigates. The defence review said it needed 32. There are now only 26 – and that figure could drop to as low as 15. The MoD cannot say how many frigates it will buy but the government has already indicated that large numbers are not needed.

Tony Blair had defended cuts to the navy before he left office, saying the threat from terrorism meant “the era . . . requiring large numbers of frigates is over”. This view was backed by the National Security Strategy published by Gordon Brown in March, which said there was no longer a threat to Britain from any leading state.

The Cabinet Office said there were no plans to change that assessment as a result of Russia’s attack on Georgia, although it could not rule out doing so in the future.

The reduced naval spending is shown deep inside the MoD’s annual report and accounts for 2007-8, released last month. It says £14 billion will be spent on new ships and naval equipment over the next 10-15 years. That equates to a maximum of £1.4 billion a year and a minimum of £930m, compared with a figure of £1.8 billion less than three years ago.

The MoD said the figure was enough to cover all its plans for new ships, but “costs are kept under constant review”.

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