The Balkans Truce: The Price Of War - MoD and Treasury row over who pays

A DISPUTE has broken out between the Defence Ministry and the Treasury over who should pick up the bill for Britain's military operations during the Kosovo crisis.

George Robertson, Defence Secretary, says his stretched budget should be given a special top-up from the Treasury's pounds 1.2bn "reserve kitty" to fund its work in the Balkans. But the Treasury insists the MoD meets a significant part of the spending from its own resources. So far the only costs disclosed by the Government are pounds 40m for humanitarian relief and pounds 37m for military operations. However, these figures exclude the cost of bombs dropped during the 10-week air campaign, which is expected to take the MoD's bill to more than pounds 200m.

Ministers say the military spending already incurred will be "peanuts" compared to the amounts Britain will have to contribute towards the cost of rebuilding the Balkans. The European Commission has estimated reconstruction costs at up to pounds 3.9bn a year for five years. EU leaders are divided over whether the money should come from the EU's existing funds or whether member-states should make top-up payments.

The Government may ask other countries to meet a higher share of the burden than Britain, on grounds that its 13,000 troops being sent to the region will play the leading role in enforcing the peace settlement accepted by President Milosevic last week.

The long-term presence of British servicemen in Kosovo will fuel the row between the the MoD and the Treasury. A Treasury source dismissed the MoD's request for its extra costs to be met from the Government's reserve fund as "a try-on". He added: "If the armed services are not there to fight a war, what are they there for? It is misleading to suggest that all the costs incurred are extra."

The Treasury is also unsympathetic to Mr Robertson's bid because, it claims, the MoD rejected its advice by refusing to set up a reserve kitty within its pounds 22.3bn-a-year budget. The war in the Balkans also threatens to provoke a long-term battle over the level of defence spending. MoD officials believe they will need a bigger budget for Britain to play its part in Nato's role as a "world policeman".

But Gordon Brown, the Chancellor, believes there is scope to secure a further "peace dividend" following the end of the Cold War. He sought pounds 2bn of defence cuts during last year's strategic defence review, but had to settle for pounds 500m after Tony Blair backed Mr Robertson.

Yesterday Mr Blair hinted that he might side with his Chancellor in the battle over the cost of military operations in Kosovo. Asked on BBC TV's Breakfast with Frost programme whether the Treasury would foot the bill, Mr Blair replied: "Not necessarily".

The Prime Minister insisted that the Government did not yet know how much it had spent during the Kosovo crisis. He said countries such as Macedonia, Albania, Romania and Bulgaria would would also need financial aid. "It is worth making that investment rather than coming back again and having to spend billions on fighting another conflict because we haven't given them the proper chance to rebuild themselves," said Mr Blair.