15 October 2010 Last updated at 15:55

Labour 'left £3.3bn black hole in defence budget'

The cost of building two aircraft carriers rose by £767m

Labour ministers wrote a £3.3bn cheque that could not be cashed in their last year in government, the defence secretary has said.

Writing in the Times, Dr Liam Fox said the Ministry of Defence had been "living beyond its means for too long".

Labour "incompetence" had contributed to a £38bn black hole over the next 10 years in equipment programmes, he said.

New shadow defence secretary Jim Murphy said Mr Fox was softening up the public ahead of next week's "reckless" cuts.

Meanwhile, US Secretary of State Hillary Clinton has said the UK's planned defence cuts are a "worry" to the US.

But Foreign Secretary William Hague insisted the UK would remain a military power of the first rank.`

The scale of overspending at the MoD has been revealed in a report by the National Audit Office.

The public spending watchdog said Labour had come up with unrealistic budgets and slowed down some of the largest defence equipment projects, resulting in a £3.3bn rise in costs in 2009/10.

The main areas of overspending were:

• An extra £2.7bn on the RAF's Typhoon fighter jets, after it was decided to buy 16 more aircraft to meet the UK's contractual obligations under the four-nation Eurofighter programme with Germany, Italy and Spain.

• Another £767m on the Royal Navy's two planned new aircraft carriers. The NAO said this was due to the decision in 2008 to slow down the programme to spread spending over a longer period.

The report also said decisions to progressively reduce the number of planned new Nimrod MR4A reconnaissance aircraft from 21 to nine had led to a tripling of the cost of each individual aircraft.

Dr Fox insisted in his article for the Times that the UK would remain "a big contributor" to Nato, but warned of a "hard road ahead".

The Spending Review will be announced next week, and the Treasury has been pushing for a reduction of up to 10% on the £37bn defence budget between 2011 and 2015.

The first defence review for 12 years is being carried out at the same time as the Spending Review, with deep budget cuts causing more tensions than in any other Whitehall department.

Mr Fox wrote: "Every department must make its own contribution to deficit reduction and the MoD is no exception.

"It will be painful, and sacrifices will be made, but we must get the economy back on track and we must get the defence programme balanced.

"There is a hard road ahead of us, but make no mistake, at the end of the process Britain will have the capabilities it needs for the future, we will continue to be a big contributor to Nato and our interests will be more secure."

Mr Fox said Labour ministers had agreed to spend £38m over the next 10 years - including £20bn on equipment and support, without any idea whether the budget would be able to cover it.

He added: "Some projects would actually be more expensive to cancel than to continue - which is an absurdity that you would only really find made in Whitehall.

"And some projects we may simply have to accept that we need them and we have to continue to spend on them, but some we may have to decide simply to pull the plug, because we can't continue in the current environment to afford them - despite the amount of money that has been sunk into them so far."

Mr Murphy said defence projects had gone over budget under Tory and Labour governments.

"Labour invested in defence supporting our armed forces and ensuring they had state-of-the-art kit and the support of helicopters, transport aircraft, fast jets and world-class ships," he said.

"It is clear that Liam Fox is using this report as an excuse to soften the country up for reckless cuts in next week's rushed defence review.

"The signs are that changes which could permanently affect our operational capabilities and ability to protect national security worry our allies as much as our top brass."

William Hague: "The UK will remain a military power of the first rank"

On Thursday, Mrs Clinton, visiting Brussels for a Nato meeting, admitted the scale of the coalition government's planned cuts was causing concern in Washington.

"It does [worry me], and the reason it does is because I think we do have to have an alliance where there is a commitment to the common defence," she said.

"Nato has been the most successful alliance for defensive purposes in the history of the world, I guess, but it has to be maintained.

"Each country has to be able to make its appropriate contributions."

Speaking on Friday in Brussels, William Hague said the UK would remain within the context of Nato and would continue to have an independent nuclear deterrent, formidable intelligence agencies and flexible and highly deployable forces.

He said he had spoken to Mrs Clinton and the US now had a "good understanding of the position".