Des Browne is in desperate negotiations to prise out up to £1bn extra from the Treasury, amid complaints that the Government is treating the armed forces with "contempt".
The Secretary of State for Defence held an urgent meeting with Gordon Brown last week as both men came under increasing pressure to prove their commitment to the military.
The Independent on Sunday understands that Mr Browne failed in an initial attempt to convince the Prime Minister to sanction the extra cash – and was told not to trouble his boss with further concerns over the defence budget.
Mr Browne's allies last night claimed the plea for extra help proved he acknowledged the deepening concerns of service chiefs, but they dismissed claims that he was considering resigning over the stalemate. The frosty exchange at the top of the Government came as the Prime Minister faced escalating condemnation from senior defence figures over his "disinterest" in the forces.
The Prime Minister was last week subjected to an unprecedented personal attack from five former chiefs of defence staff with an across-the-board condemnation of his treatment of the forces.
The attack also revived complaints about the decision to make Mr Browne share his duties with the post of Secretary of State for Scotland. Mr Browne (below) railed against claims that he was a "part-time" Defence chief, protesting that he was effectively looking after Scotland in his spare time.
But an analysis of his diary reveals that he has had to travel regularly to Scotland and attend more than 40 separate Scotland Office engagements over the past four months alone. On some occasions he was attending Scottish events when the Ministry of Defence announced that British soldiers had been killed overseas.
David Cameron, the Conservative leader, has now seized on the complaints to demand that Mr Browne be permitted to concentrate on his main job.
"At a time when our forces are engaged in two highly dangerous missions in Iraq and Afghanistan," he said in a letter to the Prime Minister, "the need for the Defence Secretary to be able to concentrate full-time on his role is surely a matter of plain common sense. People do not understand why you have chosen to combine the job of Defence Secretary with Scottish Secretary at such a crucial time."
The crisis threatens Britain's national security, according to Baroness Park of Monmouth, who for 30 years combined a career as a diplomat with running spies for MI6.
She said the situation was "a major national crisis and a major national scandal," and has accused the Treasury of starving the forces year after year "while the Government continues to pile more tasks on them".
Lady Park warned: "Both strategically and practically, the defence of the realm is in greater danger than for many years. There is one major cause and one single remedy – resources, both human and financial.
"No one doubts the high morale of our forces in the field, made up of comradeship, courage, pride in their profession and battle skills, and their families do all they can to support that morale. Nevertheless, stretched elastic can break."
Mr Browne is believed to have spoken to the Prime Minister in his office early last week over the demand for an extra £1bn for the MoD from the recent government spending review. A central element of his case is a dispute with the Treasury over who will pay for equipment urgently requested by military commanders on the battlefield.
A little-noticed change, announced earlier this month means that the MoD will have to cover half the cost of "urgent operational requirements" above a fixed figure agreed with the Treasury. In the past, a special Treasury reserve fund has been used if troops on the battlefield urgently need to buy body armour, armoured vehicles and other military equipment.
The problems at the MoD have been laid bare by an internal briefing that reveals more than two-fifths of the British military would struggle to get on to a war footing in the timescale laid down by military planners.
Defence chiefs admit that fighting a war on two fronts has damaged the readiness of the armed forces to meet further commitments elsewhere. In a document passed to the MPs' Defence Committee, the MoD said: "Owing to the continuing high level of operational commitment, we do not now expect to reach the target level by April 2008."
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