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Could Liam Fox be the first cabinet minister to walk out?

Leaked letter reveals high tension between the Defence Secretary and the Treasury over "indefensible

A leaked letter from the Defence Secretary, Dr Liam Fox to the Prime Minister, David Cameron, has exposed strained relationships with the Treasury, which has asked the Ministry of Defence to find 10 per cent savings from its annual £37bn budget.

In the letter, seen by the Daily Telegraph, Fox says that he will refuse to back any serious cuts, stressing the potential to "seriously damage morale" among the armed forces, particularly as cuts would coincide with "a period of major challenge (and, in all probability, significant casualties) in Afghanistan".

Here are some of the key passages:

"Frankly this process is looking less and less defensible as a proper SDSR [Strategic Defence and Security Review] and more like a "super CSR" [Comprehensive Spending Review]. If it continues on its current trajectory it is likely to have grave political consequences for us, destroying much of the reputation and capital you, and we, have built up in recent years. Party, media, military and the international reaction will be brutal if we do not recognise the dangers and continue to push for such draconian cuts at a time when we are at war."

"How do we want to be remembered and judged for our stewardship of national security? We have repeatedly and robustly argued that this is the first duty of Government and we run the risk of having those words thrown back at us if the SDSR fails to reflect that position and act upon it."

Downing Street was keen to downplay the letter, saying that it was perfectly normal for a secretary of state to make "robust" presentations to the Prime Minister. However, the strong wording of the letter is unusual, and the fact that Fox has gone directly to Cameron indicates tensions with the Treasury. It's certainly rather a change of tack from June, when Fox promised to drive through a "major reform agenda" encompassing cuts, "ruthlessly and without sentiment".

Fox appears to be furious at the breach, saying in a statement that he is "extremely angry this confidential communication has been made public" and will "stop at nothing" to discover who is responsible.

Could Fox now become the first to resign from the cabinet? The Daily Mail reported earlier this month that the right-winger was considering stepping down over plans to delay a decision on the renewal of the Trident programme. It is difficult to guage how many concessions will be won by Fox -- remember that there is strong support for protecting defence spending among Tory party members and MPs, so it's possible that enough ground will be ceded to keep him on board. But if it does not go his way when the review reports in October -- and it currently does not look likely that spending at its current level can be retained -- perhaps he will be sufficiently inflamed to take the stand and walk out.