A debt is an obligation owed by one party (the debtor) to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.

A debt is created when a creditor agrees to lend a sum of assets to a debtor. Debt is usually granted with expected repayment; in modern society, in most cases, of the original sum plus interest.

In finance, debt is a means of using anticipated future purchasing power in the present before it has actually been earned. Some companies and corporations use debt as a part of their overall corporate finance strategy.

Etymology

The word comes from the French ''dette'' and ultimately Latin ''debere'' (to owe), from ''de habere'' (to have). The letter ''b'' in the word ''debt'' was reintroduced in the 17th century, possibly by Samuel Johnson in his Dictionary of 1755 – several other words that had existed without a ''b'' had them reinserted at around that time.

Payment

Before a debt can be made, both the debtor and the creditor must agree on the manner in which the debt will be repaid, known as the standard of deferred payment. This payment is usually denominated as a sum of money in units of currency, but can sometimes be denominated in terms of goods or services. Payment can be made in increments over a period of time, or all at once at the end of the loan agreement.

Types of debt

A company uses various kinds of debt to finance its operations. The various types of debt can generally be categorized into: 1) secured and unsecured debt, 2) private and public debt, 3) syndicated and bilateral debt, and 4) other types of debt that display one or more of the characteristics noted above.

A debt obligation is considered secured, if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company. Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims.

Private debt comprises bank-loan type obligations, whether senior or mezzanine. Public debt is a general definition covering all financial instruments that are freely tradeable on a public exchange or over the counter, with few if any restrictions.

A basic loan or "term loan" is the simplest form of debt. It consists of an agreement to lend a fixed amount of money, called the , for a fixed period of time, with this amount to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date, or may be paid periodically in the interval, such as annually or monthly. Such loans are also colloquially called bullet loans, particularly if there is only a single payment at the end – the "bullet" – without a "stream" of interest payments during the "life" of the loan. There are many conventions on how interest is calculated – see day count convention for some – while a standard convention is the annual percentage rate (APR), widely used and required by regulation in the United States and United Kingdom, though there are different forms of APR.

In some loans, the amount actually loaned to the debtor is less than the principal sum to be repaid; the additional principal has the same economic effect as a higher interest rate (see point), and is sometimes referred to as a banker's dozen, a play on "baker's dozen" – owe twelve (a dozen), receive a loan of eleven (a banker's dozen). Note that the effective interest rate is not equal to the discount: if one borrows $10 and must repay $11, then this is ($11–$10)/$10 = 10% interest; however, if one borrows $9 and must repay $10, then this is ($10–$9)/$9 = 11 1/9 % interest.

Rather than the entire principal amount of the loan being due at the end of the loan, the principal may be slowly repaid or "amortized" over the course of the loan – see amortizing loan. This is particularly common in mortgages and in the minimum payment on credit cards.

A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, usually many millions of dollars. In such a case, a syndicate of banks can each agree to put forward a portion of the principal sum. Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity.

A bond is a debt security issued by certain institutions such as companies and governments. A bond entitles the holder to repayment of the principal sum, plus interest. Bonds are issued to investors in a marketplace when an institution wishes to borrow money. Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over 30 years, being less common. At the end of the bond's life the money should be repaid in full. Interest may be added to the end payment, or can be paid in regular installments (known as coupons) during the life of the bond. Bonds may be traded in the bond markets, and are widely used as relatively safe investments in comparison to equity.

Debt syndication

A syndicated loan is one that is provided by a group of lenders, and is structured, arranged, and administered by one or several commercial banks or investment banks known as arrangers.

Non Fund Base

Letter of Credit:

The LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and a document proving the shipment was insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin.

Accounting debt

In national accounting, debts are added according to those who are indebted. Household debt is the debt held by households. "National" or Public debt is the debt held by the various governmental institutions (federal government, states, cities ...). Business debt is the debt held by businesses. Financial debt is the debt held by the financial sector (from one financial institution to another). Total debt is the sum of all those debts, excluding financial debt to prevent double accounting. These various types of debt can be computed in debt/GDP ratios. Those ratios help to assess the speed of variations in the indebtness and the size of the debt due. For example, the USA has a high consumer debt and a low public debt, while in eastern European countries the opposite tends to be true .

There are differences in the accounting of debt for private and public agents. If a private agent promises to pay something later, it has a debt, and this debt is enforceable by public agents. If a public body passes a law stating that it'll pay something later (a kind of promise), it keeps the right to change the law later (and not to pay). This is why, for instance, the money governments promised to pay for retirements does not show up in the public debt assessment, whereas the money private companies promised to pay for retirements do.

Securitization

Securitization occurs when a company groups together assets or receivables and sells them in units to the market through a trust. Any asset with a cashflow can be securitized. The cash flows from these receivables are used to pay the holders of these units. Companies often do this in order to remove these assets from their balance sheets and monetize an asset. Although these assets are "removed" from the balance sheet and are supposed to be the responsibility of the trust, that does not end the company's involvement. Often the company maintains a special interest in the trust which is called an "interest only strip" or "first loss piece". Any payments from the trust must be made to regular investors in precedence to this interest. This protects investors from a degree of risk, making the securitization more attractive. The aforementioned brings into question whether the assets are truly off-balance-sheet given the company's exposure to losses on this interest.

Debt, inflation and the exchange rate

As noted below, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or deflation, so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common to agree to "US dollar denominated" debt.

The form of debt involved in banking accounts for a large proportion of the money in most industrialised nations (see money, broad money, and demand deposits for a discussion of this). There is therefore a relationship between inflation, deflation, the money supply, and debt. The store of value represented by the entire economy of the industrialized nation, and the state's ability to levy tax on it, acts to the foreign holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide.

Inflation indexed debt

Borrowing and repayment arrangements linked to inflation-indexed units of account are possible and are used in some countries. For example, the US government issues two types of inflation-indexed bonds, Treasury Inflation-Protected Securities (TIPS) and I-bonds. These are one of the safest forms of investment available, since the only major source of risk – that of inflation – is eliminated. A number of other governments issue similar bonds, and some did so for many years before the US government.

In countries with consistently high inflation, ordinary borrowings at banks may also be inflation indexed.

Debt ratings, risk and cancellation

Risk free interest rate

Lendings to stable financial entities such as large companies or governments are often termed "risk free" or "low risk" and made at a so-called "risk-free interest rate". This is because the debt and interest are highly unlikely to be defaulted. A good example of such risk-free interest is a US Treasury security - it yields the minimum return available in economics, but investors have the comfort of the (almost) certain expectation that the US Treasury will not default on its debt instruments. A risk-free rate is also commonly used in setting floating interest rates, which are usually calculated as the risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor (in other words, the risk of him or her defaulting and the creditor losing the debt). In reality, no lending is truly risk free, but borrowers at the "risk free" rate are considered the least likely to default.

However, if the real value of a currency changes during the term of the debt, the purchasing power of the money repaid may vary considerably from that which was expected at the commencement of the loan. So from a practical investment point of view, there is still considerable risk attached to "risk free" or "low risk" lendings. The real value of the money may have changed due to inflation, or, in the case of a foreign investment, due to exchange rate fluctuations.

The Bank for International Settlements is an organisation of central banks that sets rules to define how much capital banks have to hold against the loans they give out.

Ratings and creditworthiness

Specific bond debts owed by both governments and private corporations is rated by rating agencies, such as Moody's, Fitch Ratings Inc., A. M. Best and Standard & Poor's. The government or company itself will also be given its own separate rating. These agencies assess the ability of the debtor to honor his obligations and accordingly give him or her a credit rating. Moody's uses the letters ''Aaa Aa A Baa Ba B Caa Ca C'', where ratings ''Aa-Caa'' are qualified by numbers 1-3. Munich Re, for example, currently is rated ''Aa3'' (). S&P; and other rating agencies have slightly different systems using capital letters and +/- qualifiers.

A change in ratings can strongly affect a company, since its cost of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody's/S&P;) are considered junk- or high risk bonds. Their high risk of default (approximately 1.6% for Ba) is compensated by higher interest payments. Bad Debt is a loan that can not (partially or fully) be repaid by the debtor. The debtor is said to default on his debt. These types of debt are frequently repackaged and sold below face value. Buying junk bonds is seen as a risky but potentially profitable form of investment.

Cancellation

Short of bankruptcy, it is rare that debts are wholly or partially relinquished. Traditions in some cultures demand that this be done on a regular (often annual) basis, in order to prevent systemic inequities between groups in society, or anyone becoming a specialist in holding debt and coercing repayment – see debt relief. An example is the Biblical Jubilee year, described in the Book of Leviticus.

Under English law, when the creditor is deceived into relinquishing the debt, this is a crime: see Theft Act 1978.

International Third World debt has reached the scale that many economists are convinced that debt cancellation is the only way to restore global equity in relations with the developing nations.

Effects of debt

Debt allows people and organizations to do things that they would otherwise not be able, or allowed, to do. Commonly, people in industrialised nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their assets, "leveraging" the return on their equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier. For both companies and individuals, this increased risk can lead to poor results, as the cost of servicing the debt can grow beyond the ability to pay due to either external events (income loss) or internal difficulties (poor management of resources).

Excesses in debt accumulation have been blamed for exacerbating economic problems. For example, prior to the beginning of the Great Depression debt/GDP ratio was very high. Economic agents were heavily indebted. This excess of debt, equivalent to excessive expectations on future returns, accompanied asset bubbles on the stock markets. When expectations corrected, deflation and a credit crunch followed. Deflation effectively made debt more expensive and, as Fisher explained, this reinforced deflation again, because, in order to reduce their debt level, economic agents reduced their consumption and investment. The reduction in demand reduced business activity and caused further unemployment. In a more direct sense, more bankruptcies also occurred due both to increased debt cost caused by deflation and the reduced demand.

It is possible for some organizations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the creditor hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The "repayments" are therefore proportional to what the borrower earns and so can not in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt.

Arguments against debt

Some argue against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Islam forbids lending with interest even today, while the Catholic Church allowed it from 1822 onwards, and the Torah states that all debts should be erased every 7 years and every 50 years (in the Jubilee year, as described in the Book of Leviticus).

Debt will increase through time if it is not repaid faster than it grows through interest. This effect may be termed usury, while the term "usury" in other contexts refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted.

In international legal thought, Odious debt is debt that is incurred by a regime for purposes that do not serve the interest of the state. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state.

In an economy with high interest rates, debt will be more costly to a business than more flexible dividends on equity investment. It may be easier for a struggling business to be financed through equity investment as it may be possible to avoid paying a dividend if times are hard.

At the household level, debts can also have detrimental effects. In particular when households make spending decisions assuming income to remain the same -or increase- for the years to come. When households take-on credits based on this assumption, life events can easily change indebtedness into over-indebtedness. Such life events include unexpected unemployment, relationship break-up, leaving the parental home, business failure, illness or home repairs. Over-indebtedness has severe social consequences, such as, financial hardship, poor health (physical and mental), family stress, stigma, barriers to obtaining employment, exclusion from basic financial services (European Commission, 2009), work accidents and industrial disease, a strain on social relations (Carpentier and Van den Bosch, 2008), absenteeism at work and lack of organisational commitment (Kim et al, 2003), feeling of insecurity, and relational tensions.

Levels and flows

Global debt underwriting grew 4.3% year-over-year to $5.19 trillion during 2004. It is expected to rise in the coming years if the spending habits of millions of people worldwide continue the way they do.

See also

Derivative (finance)

Debt bondage

Debtors' prison

Dissaving

Financial markets

List of finance topics

Odious debt

Revolving account

Saving

Equity

Time value of money

Thomson Financial League Tables

References

Category:Credit * Category:Core issues in ethics Category:Personal financial problems

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Coordinates	°′″N°′″N
Honorific-prefix	The Right Honourable
Name	Dr Liam Fox
Honorific-suffix	MP
Office	Secretary of State for Defence
Primeminister	David Cameron
Term start	12 May 2010
Predecessor	Bob Ainsworth
Office2	Shadow Secretary of State for Defence
Leader2	David Cameron
Term start2	6 December 2005
Term end2	11 May 2010
Predecessor2	Michael Ancram
Successor2	Bob Ainsworth
Office3	Shadow Foreign Secretary
Leader3	Michael Howard
Term start3	10 May 2005
Term end3	6 December 2005
Predecessor3	Michael Ancram
Successor3	William Hague
Office4	Chairman of the Conservative Party
Leader4	Michael Howard
Alongside4	The Lord Saatchi
Term start4	6 November 2003
Term end4	4 May 2005
Predecessor4	Theresa May
Successor4	Francis Maude
Office5	Shadow Secretary of State for Health
Leader5	William HagueIain Duncan Smith
Term start5	15 June 1999
Term end5	6 November 2003
Predecessor5	Ann Widdecombe
Successor5	Tim Yeo
Office6	Member of Parliament for North SomersetWoodspring (1992-2010)
Term start6	9 April 1992
Predecessor6	Constituency Created
Majority6	7,862 (13.6%)
Birth date	September 22, 1961
Birth place	East Kilbride, South Lanarkshire, Scotland
Spouse	Jesme Baird
Party	Conservative
Alma mater	University of Glasgow
Occupation	Physician
Religion	Christian (Roman Catholicism)
Website	Conservative Party website }}

Dr Liam Fox, MP (born 22 September 1961) is a British Conservative Party politician who currently serves as the Secretary of State for Defence in the British cabinet and has been the Member of Parliament (MP) for the North Somerset constituency (previously Woodspring) since 1992.

Fox was born in East Kilbride, Scotland and studied medicine at the University of Glasgow. Fox worked as an NHS general practitioner (GP) in Nailsea, Somerset and served as a Civilian Army Medical Officer, which enabled him to see army life first-hand . He was elected as the Conservative MP for Woodspring at the 1992 general election. After holding several ministerial roles in John Major's Conservative government, Fox entered the shadow cabinet in 1999, holding the positions of Shadow Health Secretary (1999-2003), Conservative Party chairman (2003-05), Shadow Foreign Secretary (2005) and Shadow Defence Secretary (2005-10).

He stood in the 2005 Conservative leadership election, but was eliminated in the second round of voting. When the Conservatives entered government in 2010, Fox was appointed the Secretary of State for Defence

Early life

Fox was born and raised in East Kilbride, Scotland and brought up in a council house that his parents later bought. The along with his brother and two sisters he was educated in the state sector, he attended St. Bride's High School. He studied medicine at the University of Glasgow Medical School, graduating with MB ChB degrees in 1983. Fox is a general practitioner (he was a GP in Beaconsfield, Buckinghamshire, before his election to Parliament), a former Civilian Army Medical Officer and Divisional Surgeon with St John Ambulance. He is a member of the Royal College of General Practitioners.

Whilst studying at the University of Glasgow, he was a member of the Dialectic Society and became president of the Glasgow University Conservative Association. From there he advanced through the Conservative ranks. Fox contested the Hairmyres Ward of East Kilbride District Council in May 1984, coming second – 210 votes – to the incumbent Labour Councillor, Ed McKenna.

While studying medicine at Glasgow University in the early 1980s, Fox resigned his position on the university's Students Representative Council (SRC) in protest at the council passing a motion condemning the decision of the university's Glasgow University Union (GUU) not to allow a gay students society to join the union. The SRC motion called both the union's decision and the explanations given for it "bigoted". The GUU maintained its stance regardless and the controversy was reported in the national media while leading to many other university student unions up and down the country, including Edinburgh, cutting ties with their Glasgow counterparts. Explaining his decision to resign from the SRC and support the GUU's position, Fox was quoted as saying "I'm actually quite liberal when it comes to sexual matters. I just don't want the gays flaunting it in front of me, which is what they would do." When asked about the controversy in 2008, Fox remarked that "fortunately most of us have progressed from the days when we were students more than a quarter of a century ago".

Member of Parliament

His first attempt to get elected as an MP for a Scottish constituency ended in failure when he contested Roxburgh and Berwickshire in the 1987 general election. Thereafter, he sought and won nomination for the English constituency of Woodspring and was successful in being elected MP for that constituency at the 1992 general election.

In government

A little over a year after his election in 1992, Fox was appointed Parliamentary Private Secretary to the Home Secretary, Michael Howard, in June 1993. Thereafter, in July 1994, he was appointed an Assistant Government Whip. Following a limited government reshuffle in November 1995, he was appointed a Lord Commissioner of Her Majesty's Treasury – a Senior Government Whip. He was Parliamentary Under-Secretary of State at the Foreign and Commonwealth Office from 1996 to 1997.

In 1996, he brokered an accord in Sri Lanka, called the Fox Peace Plan, between Chandrika Bandaranaike Kumaratunge’s PA and the opposition UNP of Ranil Wickremesinghe, on a bipartisan approach for ending the ethnic war. However, little has happened since then to suggest that the various parties have acted in good faith in the interests of peace.

In opposition

Shadow Cabinet

In June 1997, Fox was appointed Opposition Front Bench Spokesman on Constitutional Affairs. Between 1999 and 2003 he was the Shadow Secretary of State for Health.

In November 2003, Fox was appointed campaign manager for Michael Howard following the no-confidence vote against the Conservative leader, Iain Duncan Smith. Fox was made co-chairman of the party by Michael Howard when he became party leader in November 2003. After the 2005 general election he was promoted within the Shadow Cabinet to become Shadow Foreign Secretary. On 7 December 2005 he was moved to Defence by new Leader of the Opposition David Cameron MP.

Leadership bid

In September 2005, Fox announced he would join the contest to be the next leader of the Conservative party.

His campaign theme for the 2005 leadership race was based on the "broken society" theme, which he says Conservatives can address by returning emphasis to marriage and reforming welfare.

In the initial ballot of Conservative MPs, on 18 October, he gained enough support (42 votes) to avoid coming last, and put himself through to the second ballot to be held two days later.

He was eliminated with 51 votes in third place behind David Cameron (90 votes) and David Davis (57 votes). Cameron, who eventually won the leadership election, gave Fox the role of Shadow Defence Secretary.

Secretary of State for Defence

He was appointed as Secretary of State for Defence in the cabinet of David Cameron on 12 May 2010 and that weekend flew out to Afghanistan with the Foreign Secretary, William Hague and the International Development Secretary, Andrew Mitchell to see first hand the issues facing the troops based there.

In July 2010 he said that the dire state of the public finances meant the Armed Forces could no longer be equipped to cover every conceivable danger. He said that the strongest signal that it will have to give up one or more of these capabilities, which have been maintained at the same time as contributing to collective security pacts such as NATO. “''We don’t have the money as a country to protect ourselves against every potential future threat,''” he said. “''We have to look at where we think the real risks will come from, where the real threats will come from and we need to deal with that accordingly. The Russians are not going to come over the European plain any day soon,''” he added. Dr Fox’s admission casts doubt on the future of the 25,000 troops currently stationed in Germany. The Defence Secretary has previously said that he hoped to withdraw them at some point, leaving Britain without a presence in the country for the first time since 1945.

The Ministry of Defence is facing budget cuts of up to 8% over the next five years, according to some analysts, and the department is already grappling with a £37bn shortfall on programmes it has signed up to. The results of the Strategic Defence and Security Review (SDSR) are expected around the same time as the cross-Government comprehensive spending review, which will be published on 20 October. The defence industry is very concerned that the review is being led by budget concerns rather than military need. Speaking in September 2010 Fox said on the possibility of sharing aircraft carriers with the French Navy that "''I think it is unrealistic to share an aircraft carrier but, in other areas like tactical lift we can see what we can do,''" Liam Fox, said at a meeting in Paris with Herve Morin. "''I can't deny that there is an element of urgency added by budget concerns.''"

In September 2010 Fox in a private letter to David Cameron, Fox refuses to back any substantial reduction in the Armed Forces. He says it risks seriously damaging troops’ morale. The letter was written the night before a National Security Council (NSC) meeting on the Strategic Defence and Security Review (SDSR). In the letter Fox wrote that: "''Frankly this process is looking less and less defensible as a proper SDSR (Strategic Defence and Strategy 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''". Fox continued saying that "''Our decisions today will limit severely the options available to this and all future governments. The range of operations that we can do today we will simply not be able to do in the future. In particular, it would place at risk''"

In February 2011 Fox launched an attack on “ballooning” spending in his own department as figures show projects are running at least £8.8 billion over budget. The top 15 major procurement projects are now running at £8.8 billion over budget and, between them, are delayed by a total of 32 years. That includes the A400M transporter aircraft order that is £603 million over budget and six years behind schedule. He will criticise what he calls a “conspiracy of optimism based on poor cost-estimation, unrealistic timescales” at the MoD and in industry. “These practices in the MOD would simply not be tolerated in the private sector, and they will no longer be tolerated in the MoD.” A “new, frank and honest relationship between Government and industry” is needed and Mr Fox will signal that change must come.

In March 2011 Fox defended the decision to make 11,000 redundancies in the armed forces, insisting that personnel who have recently returned from Afghanistan will not be sacked. Cameron has conceded that axing around 5,000 personnel from the army, 3,300 from the Navy and 2,700 from the RAF will be ''difficult'' for those affected. Strategic Defence and Security Review (SDSR) set out plans for reducing the size of the armed forces by 17,000 in total. Some of that number will be met by not replacing people who were retiring or leaving for other reasons. Defence officials said 11,000 personnel still face being redundant on a compulsory or voluntary basis. Dr Fox said it was essential that service personnel were made "fully aware of the options available and the timescales involved". "That means that a timetable needs to be adhered to for the sake of themselves and their families," he said. "It would simply be wrong to alter that timetable for the convenience of the Government.

In light of the 2011 Libyan protests Fox warned that Libya could end up split in two as Colonel Muammar Gaddafi unleashed the full fury of his military arsenal, sending warplanes and ground troops to attack rebel-held positions across the country. "We could see the Gaddafi forces centred around Tripoli," Dr Fox said. "We could see a de facto partition of the country."

In May 2011 Dr Fox, opposed plans to sharply increase Britain's aid budget, in a direct challenge to David Cameron's authority. In a leaked letter to the Prime Minister, Dr Fox said he could not accept plans to increase the development budget to 0.7 per cent of gross domestic product. The aid pledge, made in the Conservative election manifesto last year, was at the heart of Mr Cameron's attempts to change his party's image. It has gained opponents among Right–wing Tories, many of whom voted for Dr Fox when he fought Mr Cameron for the party leadership in 2005. "I cannot support the proposal in its current form," Dr Fox told the Prime Minister. Dr Fox suggested that development funding should be diverted to the defence budget, writing that reneging on the aid pledge would release more public money to be spent on "other activities or programmes rather than aid". The letter is the second significant private message from Dr Fox to Mr Cameron that has leaked. Last year, The Daily Telegraph obtained a letter in which the Defence Secretary warned the Prime Minister that "draconian" cuts in the defence budget could cripple the Armed Forces. Dr Fox's rejection of the aid commitment and the leaking of his letter will fuel suspicion among Mr Cameron's allies that the Defence Secretary is trying to undermine the Prime Minister and may one day seek the Conservative leadership again. He finished third in the 2005 contest, behind Mr Cameron and David Davis.

After negative comments by Sir Simon Bryant and Sir Mark Stanhope, Secretary Fox said admirals and air marshals who have voiced concerns were giving strength to Col Muammar Gaddafi’s regime. He also warned that high-ranking members of the Armed Forces were facing the sack because the Government wanted to reduce bureaucracy by cutting “the star count”. The Daily Telegraph has learnt that the redundancies will include up 500 starred officers, equivalent to the rank of an Army brigadier and above. Dr Fox said: “We must be very careful, those of us who have authority in defence, when discussing the sustainability of a mission. People’s lives are at stake and there can only be one message that goes out on Libya.” Admiral Sir John “Sandy” Woodward, a former deputy chief of the defence staff, suggested Dr Fox was trying to blame military chiefs for “his own failings”. He said: “Of course the service chiefs should not be talking outside the MoD, but when politicians have got it so wrong they have no other choice.”

Levene report

On 27 June Fox announced that Baron Levene had completed his report on the reform of the MoD and suggested that will cut the number of senior officers and could also lead to ministerial posts being axed. The army, navy and air force will each be run by a single chief. Currently, the services have two commanders, one in charge of strategy, the second in charge of day-to-day operations. The reforms would see operational control pushed down the chain of command. In addition, the three service chiefs will be removed from the defence board, a powerful committee the defence secretary chairs. The overall head of the military, the chief of the defence staff, currently General Sir David Richards, will represent them. A committee chaired by an independent non-executive director, chosen by the defence secretary, will be in charge of appointments to the services' top ranks. The MoD is expected to axe up to 8,000 civil servants in 2012. Senior commanders would be given more overall control of their budgets and internal appointments. The report also suggested that a new joint forces command structure should be created with senior appointments in the MoD lasting longer than every two years by making sure people stay in post for longer. Levene says that "finance and the need for affordability are not regarded as sufficiently important throughout the organisation." He says that the "lack of trust" which pervades the MoD has led to a tendency for those at the top to try to micromanage, while the individual services look out for themselves rather than thinking of defence as a whole. This has led to a "predisposition to overcomplicate ... and a culture of reinventing the wheel".The role of the chief of the defence staff should also be enhanced so that "he alone will be responsible for representing the military voice." Levene says that the new defence board "should be the primary decision-making body for non-operational matters", and should meet 10 times a year. It will have nine members, but only one will be from the military, the chief of the defence staff, currently General Sir David Richards.

Defence and Security Review

In a speech on the future of the Armed Forces to the House of Commons on 19 October 2010 Prime Minister David Cameron set out plans that would mean cuts 7,000 jobs go in the British Army; 5,000 in the Royal Navy; 5,000 in the Royal Air Force; and 25,000 civilian jobs at the Ministry of Defence. In terms of equipment, the RAF will lose the Nimrod reconnaissance aircraft programme, the entire Harrier jump-jet fleet will be scrapped, and bases will be turned over to the Army. The Army will have its tanks and heavy artillery cut by 40%, and half of the soldiers in Germany will return to the UK by 2015, with the rest brought home by 2030 and housed in former RAF bases. The Navy will have its destroyer and Frigate fleet cut from 23 to 19 (by cutting the type 22 frigates) and will be provided with less expensive frigates. It will also be affected by the loss of the Harriers. Overall, the defence budget is to be cut by 8% but Mr Cameron insisted that Britain would continue to meet the Nato target of spending 2% of GDP on defence. In the same speech Cameron announced a national cyber security programme, costing £500m, "to fix shortfalls in cyber infrastructure", while more focus will be given to tackling terrorists such as Al Qaeda and dissident Irish republicans in what he said would be "continuing investment in our world class intelligence agencies". Army numbers will fall to 95,500 by 2015 - 7,000 fewer than today - but ground forces will continue to have vital operational role in the future, he said.

Positions

Iraq

He voted for the 2003 invasion of Iraq. As Shadow Defence Secretary he has supported the Government’s position of maintaining British troops in Iraq until the security situation on the ground allows for a withdrawal of troops but has been critical of the lack of post-invasion planning and poor equipment initially provided to British troops. He supported the idea of the American Surge and believes that it has been successful. Since becoming Shadow Defence Secretary he has visited Iraq on a number of occasions.

Afghanistan

He has been an outspoken supporter of the war in Afghanistan and the British presence there. He has been critical towards some of the European NATO partners whom he believes are not contributing enough to the effort in the more dangerous southern and eastern parts of Afghanistan. Since becoming Shadow Defence Secretary he has visited Afghanistan on five occasions.

In July 2010 Fox said that an early withdrawal of coalition troops from Afghanistan would risk a return of civil war and act as a "shot in the arm to jihadists" across the world, the defence secretary, Liam Fox, warned.In marked contrast to David Cameron, who pledged over the weekend to withdraw all British troops by 2015, Fox said Britain would be betraying the sacrifices of its fallen soldiers if it left "''before the job is finished''". British forces would be among the last to leave Afghanistan, he added, because they are stationed in Helmand, one the most dangerous provinces in the country. He said that "Were we to leave prematurely, without degrading the insurgency and increasing the capability of the Afghan national security forces, we could see the return of the destructive forces of transnational terror," he said. "Not only would we risk the return of civil war in Afghanistan, creating a security vacuum, but we would also risk the destabilisation of Pakistan with potentially unthinkable regional, and possibly nuclear, consequences."

British troops in the Sangin area of Afghanistan's Helmand province are to be replaced by US forces, the UK's Defence Secretary Liam Fox has said. The UK has suffered its heaviest losses in the area, with 99 deaths since 2001. About 1,000 Royal Marines are expected to leave and be redeployed to central Helmand by the end of 2010. Dr Fox told MPs UK forces had made "good progress" in Sangin, but the move would enable Britain to provide "more manpower and greater focus" on Helmand's busy central belt, leaving the north and south to the US. "The result will be a coherent and equitable division of the main populated areas of Helmand between three brigade-sized forces, with the US in the north and the south, and the UK-led Task Force Helmand, alongside our outstanding Danish and Estonian allies, in the central population belt," he told the House of Commons.

On 19 July 2010 Fox said that within four years the Afghan army and police should take responsibility for security, leaving British troops to work only as military trainers. The date is a full year earlier than the deadline suggested by David Cameron this month, who said he wanted most troops back by 2015. Dr Fox said: "It has always been our aim to be successful in the mission and the mission has always said that the Afghan national security forces would be able to deal with their own security by 2014. We recognise that there will be further work to do in terms of training and improving the quality of those forces beyond that, which is why we have said training forces may be available after that date. But we have made it very clear that that will not be combat forces."

Iran

He has spoken on a number of occasions regarding Iran’s nuclear ambitions and believes that all options, including the use of military force, have to be on the table. He is opposed to an Iran with a nuclear weapons capability. In July 2007 he travelled to Iran.

NATO

He has very strong Atlanticist views. He believes that NATO is the cornerstone of the United Kingdom and Europe’s defence and that NATO must have primacy over the European Union including the right of first refusal for all matters relating to the defence of continental Europe. He has been critical of the common funding mechanism within NATO and has called for a system to be used that allows for more proportionate burden sharing between NATO member states for NATO led military operations.

The European Union

He is considered to be staunchly Eurosceptic and opposed to European defence integration as well as European political integration. He is opposed to the European Commission having any role in defence policy. He believes that the European Security and Defence Policy duplicates and takes away scarce national resources from NATO. He specifically opposes the defence provisions in the Lisbon Treaty.

Capital punishment

He does not support capital punishment.

Abortion

Dr. Fox is critical of abortion and has called for "huge restriction, if not abolition" on the UK's "pro-abortion laws" . In an interview with Morgan and Platell, Dr. Fox elaborated on these views, stating that he would "like to see [abortion limits] brought down...well below 20 weeks; I'd like to see us look at limits more akin to some of the European countries at 12 or 14 weeks."

He went on to state that "a society that actually aborts 180,000 unborn children every year is a society that needs to be asking a lot of questions about itself. For me it's a simple personal belief. It says, "thou shall not kill", it doesn't say, thou shall not kill unless Parliament says it's OK. For the same reason I'm against the death penalty. However, I do accept...that if the majority of the population decide that it's something they find acceptable, I've got to live with that. But I'm not going to be quiet and I'm not going to pretend that my views are other than they are for the sake of political convenience."

Military welfare

He has claimed on a number of occasions that the Military Covenant is broken and that the British Armed Forces are being asked to do too much for what they are resourced to do.

Along with the leader of the Conservative Party, David Cameron, he established the Military Covenant Commission headed by Frederick Forsyth with the aim of finding ways to improve the welfare of service members, veterans, and their families under a future Conservative Government. Fox has a particular interest in mental health issues and has criticised the current British Government for failing to adequately address the problem.

Israel

Fox is a strong supporter of Israel and is a member of Conservative Friends of Israel. In 2006 he said, "Israel’s enemies are our enemies and this is a battle in which we all stand together or we will all fall divided." In January 2009, referring to Israel, he also said, "British support for any ally is never unqualified. International law and values must always be obeyed." In May 2011, Fox was booed at the ''We Believe in Israel'' event for saying that Israeli settlements "are illegal and an obstacle to peace".

Nuclear deterrent

Fox believes that Britain should maintain its continuous at sea, independent, submarine based strategic nuclear deterrent based on the Trident missile system. Fox believes that Britain is vulnerable to an electromagnetic pulse that would disable electrical circuits after the detonation of a nuclear device in the atmosphere.

Defence procurement

Fox has pledged to restructure the defence procurement process in the Ministry of Defence. He has also stated that it would be a matter of policy to see Britain’s share of global defence exports increasing under a Conservative Government.

Elevated bilateral defence relationships

Fox believes that it is in Britain’s national interest to build bilateral defence relations with key strategic partners. Fox has mentioned the United States, France, Norway, Turkey, Saudi Arabia and the other Gulf States.

The United States of America

He is a strong believer in the Special Relationship between the United Kingdom and the United States. He is the UK Director and founding member of The Atlantic Bridge. A UK based charity that aims to preserve and promote the Special Relationship.

Fox was able to retain a good relationship with the administration of George W. Bush, despite a five year break down in relations between the Conservative and Republican parties over the Iraq War. He led the Conservative delegation to the 2008 Republican National Convention.

Expenses

In March 2010 Fox appealed Sir Thomas Legg's decision that he had over claimed £22,476 in mortgage interest payments. Fox immediately repaid the money, then appealed the decision. Fox's appeal was rejected and the decision was upheld by Sir Paul Kennedy, a former high court judge.

Fox stated that his decision to remortgage his second home to pay for redecorations and claim the higher interest repayments on his expenses represented value for money because he could have charged the taxpayer for the decorating bills directly. In his response, Sir Paul Kennedy stated: "What you claimed was not recoverable under the rules then in force. I entirely accept that, like many others, you could have made other claims if the fees office had rejected your claims for mortgage interest, and that you may well have spent some of what you raised by increasing your mortgage on your constituency home, but the evidence is imprecise, and my terms of reference only allow me to interfere if I find special reasons in your individual case showing that it would not be fair and equitable to require repayment, either at all or at the level recommended." This reportedly made him the Conservative Shadow Cabinet member with the largest over-claim on expenses, and as a result, he has been forced to repay the most money.

It was reported in June 2009 that Fox claimed expenses of more than £19,000 over the last four years for his mobile phone. Fox claimed the high bill was due to regular trips overseas, in his capacity as Shadow Defence Secretary and said he was looking for a cheaper tariff.

Breaches of parliamentary rules

In March 2010, Fox admitted breaking parliamentary rules on two occasions by visiting Sri Lanka on a trip paid for by the Sri Lankan government without declaring the trip in the Register of Members' Financial Interests in the required time of 30 days and failing to declare an interest in Sri Lanka when asking ministers how much UK aid had been given to Sri Lanka. In fact, Fox has declared all of his trips to Sri Lanka paid for by the Sri Lankan government in the Register of Members' Financial Interests. However, one trip he took in November 2007 was declared two months late. Fox blamed a "changeover of staffing responsibilities" for this error.

Of the five trips to Sri Lanka mentioned in the BBC article only three were paid for fully by the Sri Lankan government. Those not paid in full by the Sri Lankan government were paid for by the Sri Lankan Development Trust.

In a statement, Dr Fox said: "I have been involved in attempts to promote peace and reconciliation in Sri Lanka, involving all sides of the ethnic divide, since I was a foreign minister in 1997. During my most recent visit I spoke at a press conference to outline my reasons for being there. The declaration of the visit you refer to in November 2007 was highlighted in an end-of-year audit following a changeover of staffing responsibilities. The registrar was immediately notified and my register entry was updated accordingly. All visits have been fully declared on the House of Commons Register of Members' Interests and are therefore public knowledge and entirely legitimate.I do, however, recognise that when asking one question in 2008, I should have noted an interest and will be writing to the registrar to make this clear".

Finances

Dr Fox is a registered shareholder of the medical educational firm Arrest Ltd. His estimated wealth is £1m.

Fox accepted a £50,000 donation from Jon Moulton, whose investment firm, Better Capital, later went on to own Gardner Aerospace, an aerospace metallic manufactured details supplier which includes component parts for both military and civilian aircraft. This potentially exposed Dr Fox to conflict of interest but neither Fox nor Moulton violated any rules with this donation. Since all Members of Parliament are required to state in what capacity they receive any donation Fox stated in his entry in the Register of Members’ Interests that he accepted the cash “in my capacity as Shadow Secretary of State for Defence”.

Personal life

On 10 June 2005, he announced his engagement to longtime girlfriend Dr Jesme Baird, 37, a fellow doctor who works at the Roy Castle Lung Cancer Foundation and is also an alumna of the University of Glasgow. They married at St Margaret's Church opposite Parliament on 17 December 2005.

Styles

Mr Liam Fox (22 September 1961-1983)

Dr Liam Fox (1983-9 April 1992)

Liam Fox MP (9 April 1992-13 May 2010)

The Right Honourable Liam Fox MP (13 May 2010– )

See also

Cameron Ministry

References

External links

Dr Liam Fox MP ''official constituency website''

Profile at the Conservative Party

Profile: Liam Fox, ''BBC News'',_16_October 2002

Profile: Liam Fox, ''BBC News'',_10_November 2003

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