Challenge to Brown on defence cuts

Tony Blair has been asked to overrule Gordon Brown over a planned cut in defence spending in a row which threatens fresh tension between the Prime Minister and Chancellor.

The rare challenge to Mr Brown's authority is said to have come from Defence Secretary Geoff Hoon.

Mr Hoon was today reported to have written directly to Mr Blair to protest at a Treasury demand for £1.2 billion in cuts. His letter is said to warn that the squeeze will put "current and future" military operations at risk.

The Chief of the Defence Staff, General Sir Michael Walker, is also said to have voiced "profound unhappiness" to Downing Street. The Treasury has already accused defence officials of "creative accounting" to stretch the department's spending beyond the permitted limits.

But Mr Hoon's readiness to go over Mr Brown's head could foreshadow big trouble for the Chancellor. Mr Brown is already squaring up for the real battle with the Defence Ministry and the other big Whitehall departments in the negotiations over the Government's spending plans for the next two years. That confrontation will only begin after next week's Budget. Mr Hoon's appeal also puts the Prime Minister in a difficult position.

Mr Blair has been at pains to show strong backing for the armed forces. But he has also over recent months appeared to make peace with Mr Brown, a ceasefire which could be imperiled if he is now seen to overrule the Treasury.

Mr Brown was under pressure on another front today, with a warning not to punish homeowners in the Budget. Figures from the Council of Mortgage Lenders and the Organisation for Economic Co-operation and Development suggested British homebuyersare already paying more than twice the EU average in tax.

The Chancellor is expected to avoid increases in VAT or the other major tax rates in next week's package. But the Tories and others were today warning of a big new crop of stealth taxes, pointing out that the Chancellor needs to fill a £10 billion "black hole" in his finances.

There were fears of another rise in stamp duty. The Council of Mortgage Lenders also called on the Chancellor to reaffirm the pledge, made by Tony Blair, that the Government would not slap capital gains tax on the profit from the sale of a main home.