A DEAL has been struck to limit cuts to the defence and education budgets in next week’s comprehensive spending review.

Chancellor George Osborne had ordered the MoD to find savings of at least 10 per cent. But late last night sources said a deal had been reached, describing it as “a settlement we can work with”.

Similarly, schools will also escape severe cuts and could see increases in their budgets.

It emerged today that Prime Minister David Cameron spoke up personally for the armed forces.

The MoD is now facing a reduction of eight per cent cent to its £37 billion annual budget on Wednesday, when Mr Osborne unveils the deepest cuts in public spending of modern times.

Mr Cameron stepped in after the new head of the Army, General Sir Peter Wall, warned him that excessive cuts would threaten Britain’s mission in Afghanistan.

Reports say the Royal Navy will get two new aircraft carriers, which were widely seen to be at risk from the cuts. But the number of fighter planes which the new ships will carry is to be cut from 138 to 40.

Meanwhile, the Navy’s fleet of larger ships, such as frigates, will be cut from 24 to 16. And the Army will face a 7,000 cut in manpower and a reorganisation into five combat brigades of 6,000 troops each, down from the current eight.

The reorganisation will be made possible by the withdrawal of troops from Afghanistan and bases in Germany.

Meanwhile Deputy Prime Minister Nick Clegg has announced a £7 billion “fairness package” for education, including a premium for schools which take children from disadvantaged background, which could see a real terms budget increase. A Department for Education spokesman said discussions on the settlement were continuing.

Mr Cameron will spend the weekend ensconced in last-minute talks with other ministers to finalise the CSR.

His spokesman said that the Government was “nearly there” and all settlements will be completed before Monday.

By Rob Hess