Rachel Reeves has outlined a limited increase in defence spending despite warnings Britain’s national “security and safety is in peril”.
The Chancellor is expected to raise spending by less than £10billion over the next four years, after Lord George Robertson - author of last year’s Strategic Defence Review - accused Labour of “corrosive complacency”.
The armed forces say they are facing a funding gap of around £28billion over the next four years under current plans.
A Government source told The Times that Mrs Reeves has proposed an increase of less than £10billion during talks with Sir Keir Starmer, amid concerns a larger rise would not be affordable.
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Defence chiefs are meeting this week to discuss potential budget cuts of around £3.5billion, sources told Sky News.
Officials from the British Army, Royal Navy and Royal Air Force are understood to be pushing for funding to be made available more quickly as part of the defence investment plan.
Without additional funding, military planners have been forced to look for ways to cut costs.
Despite the pressure, Mrs Reeves is unwilling to break her fiscal rules or raise taxes to boost defence spending, according to The Times.
Rachel Reeves is understood to have proposed a limited defence spending increase of £10billion over four years
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Defence Secretary John Healey is understood to be pushing for a larger increase, amid concerns £10billion will not be sufficient if British troops are deployed to Ukraine or the Middle East.
The dispute has further delayed the defence investment plan, which was due to be published more than six months ago.
Lord Robertson said: “We are underprepared. We are underinsured. We are under attack. We are not safe.”
The Labour peer also argued the welfare budget should be reduced to boost defence spending.
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Lord George Robertson argued the welfare budget should be cut to fund defence
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He said "We cannot defend Britain with an ever-expanding welfare budget.
"We are simply not ready and we need to rebuild war readiness in order to deter any adversary."
Lord Geoff Hoon, himself a former Labour Defence Secretary, told GB News it was "remarkable" for his fellow Labour peer to attack the Government.
"My suspicion is that something has gone wrong inside the Treasury. It's not unusual for defence ministers, and former defence ministers to complain about the Treasury, and I suspect that's really his target," he told the People's Channel.
Sir Keir Starmer 'completely rejected' Lord George Robertson's claims on Tuesday
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Sir Keir “completely rejected” Lord Robertson’s claims, with No10 insisting Britain’s “armed forces are among the best in the world”.
The Prime Minister’s spokesman added: “Our armed forces are working around the clock... Our armed forces are among the best in the world and work 24/7 to keep us safe - we have made the largest defence investment since the Cold War.”
A Government source said that both previous Conservative administrations and Labour had failed to cut the welfare budget.
The insider also pointed to Sir Keir’s abandonment of welfare reforms following a backbench rebellion by more than 100 Labour MPs in July last year.
A Government spokesman said: “We have delivered the largest sustained increase in defence spending since the Cold War - taking the total investment to more than £270 billion across this parliament.
“We are finalising our defence investment plan that we will publish as soon as possible, rebuilding British industry to make defence an engine for growth and doubling down on our own commitment to Nato.”