Forces 'face worst cash crisis in 20 years'

The armed forces are facing their worst cash crisis "in 20 years", according to insiders.

It is feared Britain will have to cut back on at least one major defence project.

The economy measures, to be announced in a White Paper next month, are likely to cost defence industry jobs.

The forces are at least £7 billion over their budget for new equipment for the next 10 years. The Treasury has insisted on a squeeze on at least one major new order - such as the Typhoon Eurofighter or the Navy's two new aircraft carriers.

Tony Blair is hoping a "peace dividend" after a new settlement in Northern Ireland will allow the withdrawal of some 8,000 troops from the province.

"We need this desperately," said one insider last week.

The defence budget is just over £30 billion following the award of extra cash in last year's public expenditure review.

But with commitments in Iraq running at roughly £1.5billion, and involvement in some 80 countries across the world, it is stretched to breaking point.

The new blueprint will be for a much lighter and more flexible Army. Artillery and tank units will be cut.