London — One of the grimmer battles of modern-day Britain is being fought out along the faceless corridors of a huge gray stone building on Horseguards Parade, just off Whitehall -- not far from the gleaming breastplates and helmets of the horseguards themselves.
This is the British Ministry of Defense, London's version of the Pentagon, once hub of a world empire, now fallen on lean times.
On the one side is Margaret thatcher's Conservative government, committed to a strong defense, a British nuclear role within NATO, and a "special relationship" with the Reagan administration in Washington.
On the other, the specter of decades of economic decline, and the impact of the spending cuts Mrs. Thatcher has imposed throughout Britain.
Ask Mrs. Thatcher herself about defense, and she will tell you, as she told this correspondent and other Americans recently, that in real terms, British defense spending will be up by almost 9 percent in the first three years of her government.
This was one message she will take to Washington for talks with President Reagan Feb. 26 to 28.
Yet Britain's long-drawn-out economic crisis is having inevitable effects. Officials insist operational readiness is not impaired. But economies are being enforced, and more cuts are considered certain.
Next year's defense budget is to be reduced by an extra L260 million ($620 million) because that amount has been overspent this financial year.
The overspending has just been announced by Defense Secretary John Nott in the House of Commons. It is the second time in the financial year that the great gray building has gone over budget.
This follows L200 million ($575 million) worth of cuts announced last month -- and a decision to extend for the next financial year -- cutbacks in fuel that have already been in force for five months
The Royal Navy withdrew two frigates from a NATO exercise late last year to comply with a 30 percent reduction in fuel. It will now, according to new reports, have to cope with a 20 percent cutback through April 1982.
The Royal Air Force is losing 25 percent of the fuel allocated to its transport fleet, according to The Times of London, and 16 percent used by its frontline fighters.
Pilots will fly only about 17 hours a month, instead of the 22 until now. The RAF is said to be more than 300 pilots short. It is said to have been trying to save money by sending men and families to and from Hong Kong by commercial jet rather than in RAF aircraft.
Government officials say they are confident Britain will not give up its army on the Rhine, or its naval presence in the North Atlantic. They acknowledge that Britain's shortage of cash and industrial output has caused widespread cutbacks, but they insist operational readiness has not been affected.
Bureaucratic infighting produces press reports designed to make the situation look worse than it sometimes is, in an effort to produce a strong reaction and thus to ward off cuts.
Some recent reports talk of plans to cut back the Army from its current level of 167,000 men to several thousand less -- perhaps even to bring home one of the four armored divisions on the Rhine.
PRessure has risen to cut back on the Rhine Army, since last March, when an arrangement by which British costs were shared by West Germany came to an end. This is said to have added about L300 million ($715 million) to the British defense budget.
Officials say flatly that it is not the Tory intention to wreak havoc on Horseguards Parade. They say the decision to build new long-range submarines and equip them with US Trident intercontinental nuclear missiles still stands (though it is also said that the government will build only four submarines instead of the once-planned five).
They point to the success of the Harrier Jump-Jet and the Rapier low-level antiaircraft missile (the US Air Force has just agreed to buy 28 Rapier launchers and four trainers to defend US air bases in Britain in a deal worth L 140 million ($333 million). The defense budget for 1981-82 is L12.25 billion (about $40 billion).
Waiting in the wings is the opposition Labour Party, which is officially committed to shedding Britain's nuclear deterrent. But the more immediate problem is day-to-day attrition and cutbacks along those faceless Horseguards corridors.