In an interview with The Daily Telegraph, Dr Fox said the dire state of the public finances meant the Armed Forces could no longer be equipped to cover every conceivable danger.
Since the Second World War, the nation has maintained a force that can conduct all-out warfare, counter-insurgencies such as in Afghanistan or medium scale campaigns like the Falklands or Sierra Leone.
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But Dr Fox has given the strongest signal yet that it will have to give up one or more of these capabilities, which have been maintained at the same time as contributing to collective security pacts such as Nato. “We don’t have the money as a country to protect ourselves against every potential future threat,” he said. “We just don’t have it.”
The military had to be configured only for “realistic potential future threats”, he said, hinting at a substantial cut to conventional forces such as tanks and fighter aircraft.
“We have to look at where we think the real risks will come from, where the real threats will come from and we need to deal with that accordingly. The Russians are not going to come over the European plain any day soon,” he added.
Dr Fox’s frank admission also casts doubt on the future of the 25,000 troops currently stationed in Germany. The Defence Secretary has previously said that he hoped to withdraw them at some point, leaving Britain without a presence in the country for the first time since 1945.
“I would say, what do Challenger tanks in Germany and the costs of maintaining them and the personnel required to train for them, what does that contribute to what’s happening in Afghanistan?” he asked.
The Ministry of Defence is facing a substantial squeeze on resources, with indications that 30,000 servicemen may be sacrificed to meet the Government’s stringent review of departmental budgets.
Dr Fox signalled in a speech at Farnborough air show this week that Britain’s fleets of warships, fighters and armoured vehicles would be reduced because the MoD’s equipment programme was “entirely unaffordable”.
A National Audit Office report on Tuesday also found that the MoD was already £500 million over budget for the current financial year with “insufficient funds to meet planned expenditure”.
There has been growing speculation that the Army could be reduced by a quarter of its strength to 75,000 under the defence review.
But Dr Fox insisted that no troops would be made redundant until the fighting in Afghanistan was over.
“Everything that we might want to do with the Army will be constrained by what’s happening in Afghanistan,” he said.
“Any changes will have to be phased in. But with the Army in particular the difficulties come with how stretched we currently are providing forces in Afghanistan.”
He added: “I did not come into politics to see reductions in the Armed Forces but I also did not come into politics to see the destruction of the economy.”
He described as “nonsense” the idea that the Ministry of Defence would sacrifice personnel before equipment to make savings to a budget shortfall estimated at £36 billion over the next decade.
“I am not planning for any particular size for the Army,” Dr Fox said. “This idea that we are coming at the review with a particular size for the Army or the Navy or the Air Force is nonsense.”
In the last week Dr Fox has been fighting the Treasury to ensure that cash for the replacement of the Trident nuclear deterrent comes from outside the MoD’s core budget.
Asked if he would be prepared to resign if he did not get what he wanted, he said: “I am in the middle of complex negotiations and I am not in the business of megaphone diplomacy with the Treasury.
“The country is in an economic crisis, defence cannot be exempted from it.”
Despite the likelihood of a 20 per cent cut to the MoD’s £37 billion annual budget, he insisted that Britain would remain in the “first division” of armed forces alongside America.
“We have to keep sufficient land forces to hold territory if required, we have got to maintain enough maritime power and we have got to maintain air power to maintain air superiority.”
Dr Fox hopes that substantial savings can be found by renegotiating defence contracts. Companies supplying the MoD have been threatened with the loss of lucrative orders unless they lower prices.
“Either companies reduce the costs or we cancel whole projects,” he said. “Either we cut costs or cut programmes. The defence industry will understand that helping us over the short term will give them greater security over the longer term.”
It has been suggested that the Defence Secretary favours the Navy above the other two Services.
But Dr Fox criticised the fleet’s obsession with hi-tech ships such as the Type 45 destroyer, described by BAe Systems, its makers, as the most advanced warship of its kind, or Astute submarines.
“If I had a criticism of the Navy it is that it’s been too centred on a high specification end and not had sufficient platform numbers (ships) in a world that requires presence,” he explained.
He also questioned the number of different transport aircraft required by the RAF. It has a fleet of 36 Hercules, planes, seven C17 Globemasters and about 22 A400M transporters on order.
“Do we have to have all these different fleets or can we reduce them down?” Dr Fox asked.
“Fewer types means less training and fewer spare parts.” He admitted that for a political “hawk” the prospect of reducing the Forces was difficult.
“It is very difficult for someone like me who is a fiscal hawk and hawkish on defence policy to arrive here at a time when the previous government have bankrupted us,” Dr Fox said. “It is really difficult and we will have to make really hard choices.
“Labour have left us with such a car crash that next year the interest on the national debt will be nearly one and half times the defence budget. That is not sustainable.”
