U.K. to Press Ahead With Two Aircraft Carriers Amid 8% Defense Budget Cut

Defense Secretary Liam Fox said the U.K. will press ahead with building two aircraft carriers, though he declined to say which type of plane they will carry, amid the biggest government spending squeeze since World War II.

“There is a very good reason to have carrier strike; it’s about whether we can project air power where we will need it,” Fox told BBC1 television’s “Politics Show” yesterday. “The one thing we can be sure about a carrier is that it is a bit of sovereign territory.”

The defense ministry will have to cut its budget by 7 percent to 8 percent, a person involved in the discussions said. That represents a victory for Fox after Chancellor of the Exchequer George Osborne asked for reductions of as much as 20 percent. The U.S. said last week it was concerned the squeeze might damage NATO’s fighting abilities.

The carriers will be built by a group including BAE Systems Plc, Babcock International Group Plc and Thales SA at a cost of 4.9 billion pounds ($7.8 billion). Fox wouldn’t specify which variant of Lockheed Martin Corp.’s F-35 Joint Strike Fighter will be chosen to fly from the carriers, a decision that affects the ship’s cost, depending on whether more expensive planes that can take off over a short distance are used.

“It would have been more expensive to get out of the contract than to sustain it, but that is not to say there is not utility in it,” Fox said.

Job Losses

Prime Minister David Cameron will give details of cuts to weapons programs to help tackle the record budget deficit and redefine military needs for the post-Cold War era when he announces the results tomorrow of a review of Britain’s strategic defense capability. As many as 25,000 defense-ministry civil servants may lose their jobs, the person said.

“In terms of the new carriers that we are having, there will be new aircraft to launch the new carriers when the new carriers are built,” Fox said, dismissing suggestions that new planes might be delayed. “We are looking to the United States to the F-35, the Joint Strike Fighter, to be sure that we have proper interoperability with the United States. There are a lot of questions about which type, which variant.”

Harrier jump jets, made by Boeing Co. and London-based BAE, might be retired early under the plans, said the person, who declined to be identified because the talks are confidential.

Cameron personally intervened in the negotiations late on Oct. 16 to ensure the defense ministry had a budget it could work with, the person said.

‘Ghastly Legacy’

“It is always helpful to have the prime minister on your side when you get into any spending round,” Fox said. “It’s not a matter of winning or losing. Everybody in the country is having to undergo reductions in spending because of what we inherited. We were left a ghastly economic legacy by Labour,” which ruled for 13 years until losing the May 6 election.

Troop numbers will inevitably fall in future, Fox said, giving no further detail.

Osborne will give details of cuts to most other ministries’ spending on Oct. 20, a day after the defense announcement.

The dispute over the military budget has been the most public within Cameron’s coalition, with Fox dubbing it a “soap opera.” Fox told the premier in a letter leaked last month that deep cuts while Britain is at war in Afghanistan would hurt soldiers’ morale.

To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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