UK Prime Minister Gordon Brown has broken one of the Ministry of Defence's (MoD's) main accounting rules by freeing up hundreds of millions of pounds to give a £4bn contract for two aircraft carriers the go-ahead.
Under the accounting changes, defence officials will be able to move some funds between the three years of the Comprehensive Spending Review and use money allocated for annual capital spending for resource spending.
This freedom will allow officials to more easily delay, cancel or reconfigure commitments.
In return, the MoD has been forced to order a 'no-holds-barred' look at other defence projects, the Financial Times reports.
The "examination of the defence equipment programme" will be a "short and sharp" process to prioritise frontline needs and squeeze savings from industry, according to defence sources.
The Treasury is insisting the MoD use the process to address its budget shortfall, which is estimated to be almost £2bn.
By Elizabeth Clifford-Marsh