£3.5bn to fight new terrorism

Defence has been given its biggest budget increase for 20 years. The extra £3.5 billion over three years - roughly £2.5 billion in real terms - will go largely on fighting terrorist threats emerging after 11 September. A senior officer in Whitehall said: "It's much better than expected."

What it means

Tony Blair and Gordon Brown were said to have been impressed by a recent presentation from all three service chiefs on the urgency of being able to deal with serious threats emerging across Asia, Africa and the Mediterranean. New equipment is needed to enhance "network enabled capability" - links between intelligence, headquarters and reaction forces must work more quickly for more rapid intervention.

The preparations to combat terrorism are to be announced by the end of the week in a major defence policy statement. The catch with the funding is that quite a bit of the new home security programme, including a new form of home guard and civil defence, will be paid from defence funds instead of usual Home Office funding.

The extra money means that the building of two big aircraft carriers will now go ahead, although the Treasury and MoD are desperate to reduce the order for 232 Euro fighters, a plane designed in the 1970s for the Cold War.