Spending on intelligence and counter-terrorism will soon exceed £2bn after Gordon Brown announced an extra £84m for the security services.
The cash will go to MI5, MI6, the police and GCHQ to fund their rapid expansion in response to fears that as many as 1,600 people with links to al-Qaeda could be laying low in Britain. The Treasury said: "While the UK has faced terrorist threats in the past, the global reach, capability and sophistication of international terrorist groups places the current threat on a scale not previously encountered."
The Chancellor also announced that the Ministry of Defence was being allocated an extra £600m to pay for operations in Iraq and Afghanistan. The money is coming from the Treasury's emergency reserves.
A report by the Parliamentary Intelligence and Security Committee into last year's 7 July bombings in London concluded that greater resources could have prevented the attacks.
The security agencies, whose attention was focused on Eastern Europe during the Cold War and Irish terrorism until the late 1990s, are transforming to respond to the activities of Islamic extremists.
MI5 is to double its staffing from before the 11 September 2001 attacks, to 3,000 by 2008. MI6 employs about 2,000 staff, while Scotland Yard's new Counter-Terrorism Command employs 1,500.
Before 11 September 2001, the UK's security budget was £950m a year, rising sharply to £1.5bn in 2004-05. It is set to reach £2.1bn by 2007-08.Reuse content