Audio Transcript:

LISA MULLINS: I'm Lisa Mullins and this is The World. Today, the British government announced the biggest cuts to its military since the Cold War came to an end. Britain is shrinking the defense budget by more than 8%. Thousands are losing their jobs. And ships, fighter jets and tanks are all being scrapped. It's all causing concern in Washington, where Britain is seen as a key ally. The World's Laura Lynch reports.

LAURA LYNCH: Britain, historically one of the world's mightiest military powers, is fighting a different kind of battle, controlling its ballooning debt. Today came news of some of the first victims. The armed forces are about to shrink. 42,000 jobs cut, ships decommissioned, planes grounded and tanks brought to a halt. Still, Prime Minister David Cameron says Britain will continue to punch above its weight on the world stage.

DAVID CAMERON: This review is about how we project power and influence in a rapidly changing world. We are the sixth largest economy in the world and even after this review, we expect to continue with the fourth largest military budget in the world.

LYNCH: That's cold comfort for the men and women who serve at the Royal Air Force base Kinloss in Scotland. The reconnaissance planes they fly have been scrapped, the base may close altogether. Station commander, Group Captain James Johnston says there was disbelief when the announcement was made.

JAMES JOHNSTON: The reaction was stunned silence. Clearly there's been a lot of speculation that's been running for the last few days which I have to say by and large has been unhelpful, but inevitable. But at the end of the day the decision's been made and we have to move on.

LYNCH: The reality is sinking in at home. But the cuts are also an issue overseas. Just last week, Hillary Clinton was asked whether the talk of defense cuts in Britain concerned her.

HILLARY CLINTON: It does. And the reason it does is because we do have to have an alliance where there's a commitment to the common defense. NATO has been the most successful alliance for defensive purposes in the history of the world, but it has to be maintained. Now each country has to be able to make its appropriate contributions.

LYNCH: Perhaps it's no surprise then, that the Prime Minister revealed details to the US president before he told the British public.

CAMERON: I talked to President Obama last night about some of the decisions that we're taking. And the Americans and he absolutely believes that it will allow us to maintain that very strong partnership with the United States and with NATO. And I believe that we will answer the difficult questions that have been put to us and we will emerge from this with extremely strong and well equipped armed forces that rightly our whole country can be proud of.

LYNCH: It seems the partnership may become even closer. In the plans unveiled today, Britain put one aircraft carrier out of commission, but left intact plans to finish two others within the decade. And the government is selling the idea that US aircraft will use British carriers. The official word from top officers is that they can live with the cuts. But retired commander Stuart Tootal says he's heard something different, even from those working at the Ministry of Defense, or MOD.

STUART TOOTAL: Some of these cuts probably make a degree of sense, but I think a profound concern in the defense community, including inside the MOD, is that this is being driven by cost rather than strategy.

LYNCH: Another retired officer, Richard Kemp, says the impact will be far greater than the politicians suggest.

RICHARD KEMP: That is a huge, a huge blow to a defense organization that's already pretty much underfunded and is fighting a major war in Afghanistan.

LYNCH: Amidst all the talk of cuts, the Prime Minister says he won't take a penny out of the budget for the mission in Afghanistan. That may be additional comfort for President Obama, especially as troops from other nations prepare to pull out. But Cameron's words may not comfort the critics who see Britain withdrawing from its traditional role in the world, one that saw it projecting power far beyond its own shores. For The World, I'm Laura Lynch in London.