Hammond hits back after claims of £2bn underspend at MoD

Philip Hammond was responding to a Daily Telegraph article in which unnamed senior defence sources were quoted as saying: “Philip Hammond is being overzealous in his pursuit of austerity at the MoD. His cuts to the budget have been unnecessarily hard.”

A senior military officer told the paper: “The MoD can hardly expect the Treasury to increase the budget for capital equipment when we can’t even spend the budget we’ve been allocated. It just makes us look incompetent.”

The MoD only spent £37.7 billion of its £39.5 billion budget in 2012-13, according to the newspaper.

The unspent £1.8 billion was said to include £250 million from the budget for new equipment while another £200 million was allocated for wages but was not spent because more personnel than expected chose to leave.

Traditionally, government departments that underspend their budget in any given year have had to return the surplus cash to the Treasury, leading to a last-minute scramble to sign new procurement contracts as the end of the financial year looms.

But MoD officials told the Defence Committee earlier this year that the department had reached an agreement with the Treasury that underspends can now be carried over to future budgets.

Mr Hammond said: “These retired ‘senior military figures’ are presumably the same people who presided over an out of control defence budget that led to the previous government sending troops into battle without the proper equipment needed to protect them.

“They clearly have no idea how the defence budget now works. Instead of having to delay and cancel programmes as in the past, we now budget prudently and then roll forward any underspend to future years, allowing us to place new equipment orders.”

The Ministry of Defence described the complaints as “financially illiterate”.

A spokesman said: “Rather than rushing money out of the door for the sake of it within a financial year, we are committing money as and when projects require it.

“We make no apologies for having a proper grip on the equipment plan and running a tight ship with a cautious approach that, with the support of the Treasury, allows us to roll forward cash to next year, thereby ensuring the money will still be spent on equipment.”

The spat comes after Mr Hammond was heckled by ex-soldiers during his speech to the Conservative Party conference in Manchester over cuts to the Army.