Inside File: Spy services fear blow to US link

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INDIGNATION abounds in Britain's foreign intelligence community about a spending review of MI6 and GCHQ that they expect will lead to permanent cuts, primarily in the latter. They say hacking away at GCHQ, reponsible for spy satellites and listening stations, could do serious damage to Britain's Atlantic alliance. The less Britain is able to provide in the intelligence-sharing arrangement with the United States, the less it can expect in return from GCHQ's American cousin, the National Security Agency.

As one British official said: 'It is one of the few meaningful aspects left of the special relationship. It is genuinely a relationship of equals, covering the full range of signals intelligence.'

The review of the foreign intelligence capabilities is due to report to the Prime Minister before the summer recess. It was ordered by Sir Robin Butler, the Cabinet Secretary, in response to Treasury paranoia about public spending in general, and resentment of the diplomatic and intelligence services in particular. Because the GCHQ budget, at around pounds 500m, is almost two and a half times that of MI6, it can expect to be the bigger target. Intelligence sources point out that much of the GCHQ budget is spent on equipment for operations like satellite surveillance and that its flexibility is therefore limited.

The indignation of GCHQ staff was manifested in the recent leaking to a newspaper of a confidential letter by the GCHQ director outlining the review. An inquiry is under way at Cheltenham into those resonsible for the leak. 'People are as we speak being shot at GCHQ,' said one source.

But it seems many officials at the Foreign Office itself - which will have a strong voice in the conclusions of the review - are in favour of trimming the GCHQ operation. Their rivals in the intelligence services say that this is because the FCO - itself under the Treasury cosh - hopes to become the beneficiary of any cuts in the intelligence services, by being allowed to keep more funds. Since it is common knowledge that the Treasury is out to cut public services across the board, it is unlikely anybody in the FCO would be so foolish. 'It is a question of savings to the tax payer, not to anyone else,' said one official.

There is another school of thought - shared by some officials in the Foreign Office. It is that at more than 6,000 staff, GCHQ is seriously overstaffed. It is deemed to be peopled by 'numbercrunchers' who churn out a needless wealth of indigestible raw material, much of it never read; and that it should be restructured entirely to employ people capable of analysing what it finds out to establish if, and to whom, it is of any use.

It emerges that the American cousins, of whom the British service is so solicitous, have the same problem. A recent Congressional hearing focused on complaints by US government departments at the difficulty of accessing relevant information in the dense mass of raw material. 'The NSA doesn't even bother to provide a summary of its material to its consumers,' said one intelligence analyst. 'They just tell them 'This is the access code, find it yourself'.'

Since the end of the Soviet Union, all Western intelligence services have been forced to re-examine their roles in life. It is no secret that the reason MI6 has decided to go public is not because of lofty government aspirations to openness but because it is trying to defend its funds. It defines its post-Cold War role as threefold: the fight against terrorism, nuclear proliferation and drugs.

A further problem of what to do with the intelligence community in the new world disorder will arise in 1997, when the large British base in Hong Kong will have to make way for the Chinese.

There is speculation that some of them will transfer to an American base in Taiwan - a sensitive move diplomatically - and others go to Malaysia and Singapore. The cosiest scenario is that some will join their Australian allies at a signals intelligence base in Shoal Bay, near Darwin.