EXCLUSIVE

THE Treasury has declared war on the UK's supposedly ''sacrosanct'' defence budget and will try to claw back more than #4bn over the next four years to fund health, education and social services initiatives, Sir George Young, Shadow Defence Secretary, claimed yesterday.

Speaking in Edinburgh, he said the #21.8bn defence allocation was in danger of being ''slashed'' and morale among service personnel would plummet unless Defence Secretary George Robertson managed to raise enough support among his Cabinet colleagues to resist the assault on his department's resources.

Labour's Strategic Defence Review, the first long-term bid to marry foreign policy objectives to force levels and structures for more than 30 years, has already fallen behind schedule under financial pressure. Hard decisions expected by April have been postponed until at least June.

Prime Minister Tony Blair's pledge that defence spending would be pegged at its current level for at least two years was undermined by Chancellor Gordon Brown in his autumn budget. Brown served notice that the Defence Ministry could pare at least 4% a year from its budget to free cash for other ministries.

Sir George said: ''Labour has still not made public the baseline of foreign policy assumptions on which the entire exercise was supposed to be based. The delay is already sapping morale across the services. It is also increasingly obvious that it will be another Treasury-led project.

''It appears that the budget will be cut before the likely risks have been identified and assessed. Bosnia looks like a medium-term commitment and the Northern Ireland situation is not particularly hopeful. Both are manpower-intensive and likely to remain so. We may also be about to go to war with Iraq.

''My own government was criticised for salami-slicing in regular, Treasury-led reviews. The SDR was meant to be different, although I feel that while it is easy to plan for health or housing because the numbers remain fairly constant and practical decisions can be taken in advance, defence is an imponderable and long-term changes cannot be set in tablets of stone.

''The changing nature and attitude of foreign governments makes accurate prediction impossible. Planners have to cope with a huge range of random possibilities. Who could have foreseen that Britain would be involved in wars in the Falklands and the Gulf within a nine-year period?

''It might be more prudent for Labour to build in a flexibility which allows intervention in procurement and force structure on an almost annual revisiting basis. However, all politics are about priorities, and budgetary priorities are a fact of life. The success or failure of SDR may come down to whether Tony Blair is prepared to risk the wrath of his backbenchers and overrule Cabinet colleagues pitching for resources.''

Sir George added that the Conservatives supported the Royal Navy's lobbying for a continued aircraft carrier capability to help project power globally. There was also an argument for expanding rather than contracting the Territorial reserves, and transferring expensive support and maintenance roles to part-timers.

Meanwhile, the Government yesterday signalled that Armed Forces' pay should not fall below the proposed national minimum wage - even though service personnel are now set to be outside the arrangements.

Ministers were accused by the Opposition of an embarrassing climbdown when they announced on Tuesday that service personnel would be exempt from the new national minimum.

But Trade and Industry Minister Ian McCartney said that service pay should not be allowed to fall below that figure.

He told the Commons committee now scrutinising the Government's National Minimum Wage Bill that service pay would be handled by the existing Armed Forces Pay Review Body.