The £200 million successor to the royal yacht Britannia will be paid for from the defence budget and share crews with naval frigates, Ben Wallace has insisted, saying reports of a Whitehall funding row were "fiction".

Mr Wallace said he had already appointed a project team to work up the plans for a replacement and "will have the funding to develop and deliver a UK national flagship".

Boris Johnson, the Prime Minister, announced plans for a new national flagship to give British businesses a new global platform to win trade deals at the end of last month.

It marked a major victory for a long running campaign by The Telegraph for a replacement for HMY Britannia since Britons voted to leave the European Union in 2016.

The original Britannia is now a highly popular tourist attraction in Edinburgh, after it was controversially decommissioned by Tony Blair’s Labour government in 1997.  

The Royal Yacht Britannia, seen leaving Portsmouth, was decommissioned in 1997

Credit: Tim Graham/Getty Images

A report in the Sunday Times claimed that Chancellor Rishi Sunak was refusing to pay for the new flagship which is due to enter service in four years’ time.

However Mr Wallace told GB News that the claim in the article was "as close to fiction as Harry Potter. Some of the things in there were just blatantly not true".

He said: "The MoD knew all about the announcements of the national flagship, so much so that we actually helped draft the announcement.

"I already have a team lined up to project-lead and move it into the next phase of design, and that’s all funded. I am very confident that we will have the funding to develop and deliver a UK national flagship."

Under the plans being developed in a Whitehall scheme known was "Project Leith", sailors from the Royal Navy’s new Type 26 and Type 31 frigates will be asked to crew the new ship.

Mr Wallace told MPs in a Parliamentary answer: "Crewing the national flagship is being factored into a wider assessment of the workforce necessary to operate the Royal Navy’s new generation T26 and T31 frigates.

"The national flagship will provide valuable experience for our personnel including other high-profile Defence Engagement tasking which our ships undertake in support of wider government objectives."

Cost will be ‘underwritten by the Government’

Mr Wallace added that ministers would make an announcement about the design tender phase was expected "in due course", insisting that its cost will be "underwritten by the Government".

It was "too early to say" whether the ship – which will be built in Britain – will use British steel, Mr Wallace said.

"It will be for the Prime Contractor to make its steel requirements known to the UK steel industry in order that they may consider bidding," he said.

The Cabinet Office had "conducted cross Government discussions on the merits of a national flagship", he said, adding that "potential costs are commercially sensitive and will be tested through the design phase".

Separately Kwasi Kwarteng, the Business secretary, insisted that the new ship will be a "symbol of Britain", and give the UK "more bang for our buck" when negotiating trade deals.

Mr Kwarteng told Sky News: "I think it is a good idea, it represents Britain, it is a symbol of Britain and if we are going on trade missions that is exactly the way that we would drive trade.

"I am sure we will get more bang for our buck from something like that than the opposite."

On funding Mr Kwarteng said the new ship would cost "a huge amount of money", adding: "There is a discussion in Government about the yacht, I am not sure any conclusions have been reached."

He said: "The decision to spend that money will only be made if we felt that we can get a return from something as symbolic of that and it would really enhance our soft power in terms of doing deals."