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Mr Wallace was said to have warned Mr Sunak that Britain would not meet the 2% spending commitment because of rising inflation and the move to arm Ukraine’s battle against Russia.
The Chancellor did not increase defence spending in his statement and the Treasury did not deny that he failed to respond to his Cabinet colleague’s letter.
A Treasury spokeswoman said: “This Government has provided the largest increase in defence spending since the Cold War, increasing the defence budget by £24 billion.
“This was an exceptional uplift in defence spending and the decision to prioritise taxpayers’ money on our security was the right one.”