Chancellor dips into reserves to fund soaring war costs

Gordon Brown nearly doubled the budget set aside to cover the rising costs of the military campaign in Iraq yesterday, pouring £1.25bn from reserves into an emergency fund.

The increase means the Ministry of Defence has £3bnto spend on the military campaign to topple Saddam Hussein, which is more than the final cost of the 1991 Gulf War.

The Chancellor has now trebled the original £1bn set aside for military action, fuelling speculation that British troops will be in Iraq for a long time.

Mr Brown also announced that he was setting aside an extra £120mon top of the £90m already allocated to the Department for International Development to cover the cost of humanitarian aid and reconstruction in Iraq.

Clare Short's department has already spent £50m preparing an aid programme for Iraq, and has set aside £40m for reconstruction.

Mr Brown made the unscheduled announcement during Commons Question Time ahead of next month's Budget.

Treasury insiders insisted that the Government had sufficient resources to cover the eventual costs of the war, which some estimates suggest could run as high as £5bn.

Independent experts believe the effect of war on economic growth could help to push Britain as much as £12bn deeper into debt.

Treasury sources denied claims that the war in Iraq could force Mr Brown to increase borrowing next month. It is thought unlikely that he will use the Budget to allocate yet further funds to the war.

Yesterday's announcement reflects the huge cost of waging war in the Gulf, with each cruise missile fired at President Saddam's forces costing up to £1m. Before the start of military action the Chancellor said Britain would "pay what it takes" to deal with Iraq's weapons of mass destruction.

Mr Brown told MPs yesterday: "I am allocating today a further £1.25bn to increase the special reserves to £3bn to be drawn by the Ministry of Defence as necessary for action in Iraq.

"I think the whole House will want to make clear our gratitude to our armed forces, our determination to ensure they are fully supported and will want to send our condolences to the families of the 22 British servicemen who have lost their lives."

Michael Howard, the Shadow Chancellor, welcomed the increase in funds for the war and humanitarian aid, declaring that "as long as British forces are active in Iraq we must give them our full support". But he criticised the Chancellor for his predictions of lower growth and increased borrowing in November's pre-Budget report.

He said: "Suspicions are growing that Gordon Brown intends to use the war as an alibi for his forecasts and failed policies."

Yesterday marked the second time that the Chancellor had announced an increase in funding available for military operations since the pre- Budget report, when he set aside £1bn to pay for the conflict. The Chancellor announced a further £750m from reserves last month.

The 1991 Gulf War cost the country the equivalent of about £2.5bn at today's prices but much of the bill was picked up by allies, including Japan and Germany. British expenditure on military action in Afghan-istan has reached £600m.

By comparison the foot-and- mouth crisis cost the British taxpayer about £3bn.