Defence secretary Liam Fox warned the Prime Minister of "grave consequences" if "draconian" spending cuts are made while the country is at war.
In a private letter leaked to The Daily Telegraph, he advised David Cameron the risk of "seriously" damaging morale across the Armed Forces "should not be underestimated".
And he warned the Government could provoke a "brutal" international reaction if it failed to "recognise the dangers and continue to push for such draconian cuts at a time when we are at war".
In his letter, written before a National Security Council (NSC) meeting yesterday on the Strategic Defence and Security Review (SDSR), the Defence Secretary refused to back any substantial reduction in the Armed Forces.
Setting out some specific spending implications, Dr Fox said losing amphibious landing ships would leave the country unable to mount missions such as that in Sierra Leone 10 years ago.
The Navy could be forced to withdraw from areas such as the Indian Ocean, Caribbean or Gulf, while a cancelled Nimrod MR4 reconnaissance plane programme created "some risk" to civil contingent capability around Mumbai-style terror attacks and the 2012 Summer Olympics, he warned.
Dr Fox said last night he was "appalled" his letter had been handed to the press and would "stop at nothing to ensure that the culprit is found".
"It is entirely normal that ministers should make representations to the Prime Minister during the Strategic Defence and Security Review and the Comprehensive Spending Review. That is an entirely proper part of the process of government," he said.
"The Prime Minister is fully entitled to expect that those representations to be made in private and kept private.
"I am extremely angry that this confidential communication has been made public."
And he insisted the Government would "collectively" reach decisions that were "in the national interest".
"It is totally unacceptable that a highly confidential letter from me to the Prime Minister should be leaked to the Daily Telegraph," he added.
"I am utterly appalled by this breach of trust and have ordered a full investigation to find out how it happened. We will stop at nothing to ensure that the culprit is found."
In his letter, written exclusively to Mr Cameron, Dr Fox insisted: "I wanted to let you know my views, which are shared by my ministerial colleagues."
"Our decisions today will limit severely the options available to this and all future governments."
He added: "If it continues on its current trajectory it is likely to have grave political consequences for us, destroying much of the reputation and capital you, and we, have built up in recent years.
"Party, media, military and the international reaction will be brutal if we do not recognise the dangers and continue to push for such draconian cuts at a time when we are at war."
Yesterday's meeting of the NSC in Downing Street was chaired by the Prime Minister.
While discussions between senior ministers, officials and military top brass at Downing Street were described as "substantial", it is understood no final decisions were taken on where the spending axe would fall.
Instead officials were instructed to carry out more work in preparation for a further meeting of the NSC, possibly as early as the end of next week, once Conservative ministers are back from their party conference in Birmingham.
During the meeting - attended by both the outgoing chief of the defence staff, Air Chief Marshal Sir Jock Stirrup, and his successor as the head of the armed forces, General Sir David Richards - it was broadly agreed nothing in the SDSR should undermine current operations in Afghanistan.
This will be seen as a sign the Army has been largely successful in its battle to maintain troop numbers until at least 2015.
Mr Cameron also emphasised that while the SDSR was being conducted against the backdrop of the tightest government spending review in a generation, it should not be driven purely by the need for cuts.
The Prime Minister was said to have stressed the importance of ensuring that military capabilities were matched to future potential threats, while at the same time delivering efficiency savings at the Ministry of Defence.
Nevertheless with ministers talking of a £38 billion "black hole" in the MoD budget over the next 10 years, it is being acknowledged that difficult decisions will have to be taken regarding the future equipment programme.
There is intense speculation that the Royal Navy's surface fleet and the RAF's fleet of fast jets could face hefty cuts as the MoD struggles to get its finances back on a sustainable footing.
Mr Cameron is due to hold fresh talks on the future shape of the armed forces following next week's Tory Party conference.
General Sir Richard Dannatt, head of the Army between 2006 and 2009, said it was "most unfortunate" that the "very private letter" had entered the public domain.
He told BBC Radio 4's Today programme: "When this Government came into power it inherited a 10% deficit left over from the previous government of over-ambition in the MoD's plans.
"So even if the MoD is being asked to make a 5% or 10% cut, it has already got to find 10% to get back to zero, so effectively defence is being asked to take a 15% or 20% cut which is very, very difficult."
Sir Richard said a consensus is emerging that the number of fast jets will be "slashed hugely" and there is a question mark over the carrier programme.
But he added: "If the UK wants to go on playing a significant role in the world, it has got to have some sort of power projection."
He called for a "proper analysis" of the threats to the UK's national security otherwise "it is simply a cuts exercise".
UK defence and aerospace industry body ADS said it "made no sense on any level" to cut military spending.
ADS chairman Ian Godden said: "Defence is 10% of UK manufacturing and Britain is currently number one in Europe and second only to the US in terms of the global defence exports market, but this position would be under threat if investment is cut, leading to a dearth of new programmes to export.
"There is, of course, room for reform within the armed forces, the industry and the Ministry of Defence to deliver even greater improvements and we are committed to playing a full part in these changes that will also deliver savings.
"But the implications for any further cuts in defence spending in terms of their impact on our troops, our national security, our global trading position, our economy and on the long-term capability of our industry to continue to supply the best possible equipment to our armed forces cannot be ignored."
Dr Fox said today he had received "tremendous support" from Mr Cameron but admitted it would take years to tackle the hole in defence funding.
The Defence Secretary told reporters in central London: "It's appalling that a secretary of state can't write to the Prime Minister in confidence and we will be looking into that this morning.
"We were left with an appalling legacy of defence by Labour. It was a shambolic financial position they left behind.
"We are trying to sort it out. It's very difficult. We're in a spending round, it's likely to be robust when there's tight finances.
"The Prime Minister has set up the mechanics by which we can have a proper, collegiate and collective debate about this, and that's where we will be.
"I've had tremendous support from the Prime Minister and he fully understands the problems that Labour left behind.
"We will continue to work together collectively to ensure that we get a good outcome to the SDR (strategic defence review)."
He added: "We won't be able to do it overnight. It will take us, I imagine, several years to get out of the position that we're in." _____
Dr Liam Fox's letter to David Cameron in full
Here is the letter from Defence Secretary Dr Liam Fox to Prime Minister David Cameron in full. The letter, leaked to the Daily Telegraph, was written before Tuesday's National Security Council meeting on the Strategic Defence and Security Review.
We are nearing the culmination of the work we promised to deliver on our approach to national security; the NSC meeting tomorrow is a key opportunity to set out the risk and consequences of that work for our NSC colleagues. This is not a letter I am copying to others ahead of tomorrow's NSC but I wanted to let you know my views, which are shared by my ministerial colleagues.
Frankly this process is looking less and less defensible as a proper SDSR (Strategic Defence and Strategy Review) and more like a "super CSR" (Comprehensive Spending Review). If it continues on its current trajectory it is likely to have grave political consequences for us, destroying much of the reputation and capital you, and we, have built up in recent years. Party, media, military and the international reaction will be brutal if we do not recognise the dangers and continue to push for such draconian cuts at a time when we are at war. I am very grateful to Peter Ricketts and Jeremy Heywood for the help they have given officials who have worked strenuously to bridge a gap that is, financially and intellectually virtually impossible. I am concerned that we do not have a narrative that we can communicate clearly.
On 22 July the NSC endorsed the 'Adaptable Britain' posture because we decided that it was impossible to predict what conflict or global security scenarios may emerge in the years ahead. That meant ensuring the maintenance of generic defence capability across all three environments of land, sea and air - not to mention the emerging asymmetric threats in domains such as cyber and space -with sufficient ability to regenerate capability in the face of these possible future threats were it required.
How do we want to be remembered and judged for our stewardship of national security? We have repeatedly and robustly argued that this is the first duty of Government and we run the risk of having those words thrown back at us if the SDSR fails to reflect that position and act upon it.
I suggest we start tomorrow's discussion by asking whether we are really prepared to see Defence spending reduced to this level. The impact on capability, particularly in the maritime domain, would be more substantial than one might imagine from the paper.
Our decisions today will limit severely the options available to this and all future governments. The range of operations that we can do today we will simply not be able to do in the future. In particular, it would place at risk:
The reduction in overall surface ship numbers means we will be unable to undertake all the standing commitments (providing a permanent Royal Navy presence in priority regions) we do today. Assuming a presence in UK waters, the Falklands and in support of the deterrent is essential we would have to withdraw our presence in, for example, the Indian Ocean, Caribbean or Gulf.
Deletion of the amphibious shipping (landing docks, helicopter platforms and auxiliaries) will mean that a landed force will be significantly smaller and lighter and deployed without protective vehicles or organic fire. We could not carry out the Sierra Leone operation again.
Deletion of the Nimrod MR4 will limit our ability to deploy maritime forces rapidly into high-threat areas, increase the risk to the Deterrent, compromise maritime CT (counter terrorism), remove long range search and rescue, and delete one element of our Falklands reinforcement plan.
Some risk to civil contingent capability, including but not limited to foot and mouth, fire-fighting strikes, fuel shortages, flu pandemics, Mumbai style attacks and the 2012 Summer Olympics
The potential for the scale of the changes to seriously damage morale across the Armed Forces should not be underestimated. This will be exacerbated by the fact that the changes proposed would follow years of mismanagement by our predecessors. It may also coincide with a period of major challenge (and, in all probability, significant casualties) in Afghanistan.
Even at this stage we should be looking at the strategic and security implications of our decisions. It would be a great pity if, having championed the cause of our Armed Forces and set up the innovation of the NSC, we simply produced a cuts package. Cuts there will have to be. Coherence, we cannot do without, if there is to be any chance of a credible narrative.
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