Major General Tim Cross: Not even Philip Hammond knows if the problem's been fixed

In his first appearance in front of the House of Commons Defence Select Committee, Philip Hammond's predecessor, Liam Fox, prefaced his statement by asserting that he was first and foremost a member of a Cabinet determined to deal with the public spending deficit. Eliminating the assessed £38bn black hole in the defence budget was therefore his first strategic objective.

Many argued at the time that the scale of the problem was exaggerated, as it not only included the equivalent of the invoices about to land on the doormat and the mounting credit card bills that were accruing, but also a large aspirational list of programmes that had not actually been formally authorised. But whatever the size and shape of the actual hole, there were few, if any, who could convincingly argue that the new government faced anything other than a huge problem.

Fox initiated a series of actions including a Strategic Defence and Security Review with deep cuts in the size and shape of the services and some savage equipment reductions and cancellations; but there was much work still to be done.

Hammond's assumption of power was timely. He brought a deeply analytical approach, and a hard-headed refusal to accept MoD orthodoxy. Papers produced for Fox were sent back to their originators with demands for greater clarity.

The inevitable question now, though, is has the financial black hole actually been closed or is this mere political spin? The reality is that we don't know – and neither I suspect does the MoD, but, and it is an important but, we are definitely in far better shape than we used to be.

The second question that follows, however, is at what cost: how much damage has been done? The bottom line is that the cuts have hurt in all sorts of ways. Fighting power is not just about equipment and doctrine, at its heart is people and their determination – their will – to fight and win. So the fundamental question is not just about balancing the financial accounts but rather: are we left with a force that is capable in dealing with whatever the future holds – within reason? What the army calls the moral component of fighting power has taken a hit – and if things don't now settle, and in post-2015 the promised real-terms increases in defence expenditure don't materialise, then there is a real danger that the British military will fall below a critical mass; a failure to stay within the premier division.

Hammond is reputed to be brimming with confidence. To present a balanced budget is indeed a formidable achievement but he – and we – need to remember that this is not just about financial balance, it is about an ability to deliver military capability to where it is needed and to deliver success when it gets there. Only time will tell if Hammond's confidence is well-founded or whether he has simply fallen victim to his own spin.

The writer is a retired British Army officer and a defence commentator.