Non-consolidated performance pay is part of pay for the majority of MOD staff. Last year, as in previous years, 2.7% of the pay bill was distributed in the form of awards ranging from £360 to £5,635, depending on the grade and performance of individuals. In 2012, this would cost the MOD a total of £30 million – just 0.1% of the defence budget.

This money is an integral part of the pay bill and was built up over years as cash was moved out of basic, pensionable pay into a cheaper, non-consolidated performance pot.

Without negotiation, the Defence Secretary announced yesterday that he had decided to cut the performance pot by at least a third - £10 million, meaning an actual pay cut for the majority of staff. This follows a pay freeze for all MOD staff for the last two years and a 1% pay cap for the next two years.

Prospect National Secretary Steve Jary said: "Even from a management perspective, this is sheer madness. The MOD has shed around 15,000 staff over the last 18 months and those who remain have kept the department afloat while supporting military operations in Afghanistan. The government has been testing their commitment and yesterday Hammond shattered that loyalty."

Prospect and the other defence unions wrote to Jon Thompson, MOD's new Permanent Secretary, a week ago in a last-ditch attempt to stop this irrational decision. Jary said: "We wanted to warn the MOD that this would destroy morale in the department. We believe the government's action amounts to theft of members' pay. You can't expect to cut people's pay and for them to continue to go the extra mile."

He added that MOD has been promising a new deal for its 'survivors' – civilians who have not left during the four-year programme to cut over a third of staff. "It sounds as though the Defence Secretary will be letting them down and I fear a reaction. The government should be reminded that Prospect members in the MOD work in operationally critical areas including communications, intelligence and support for the nuclear deterrent."

Hammond has refused to meet with the unions to justify his decision. Prospect represents over 6,000 specialist staff in the MOD – including engineers, scientists, logisticians, intelligence analysts and communications experts.