If the company does not bring in anyone else -that is, will actually reduce the number of employees for a certain period - and can show that it is financially necessary to reduce the staff ,then letting go of the last person to join the company will not be considered as unfair dismissal. (I am assuming the the company will claim that the two roles will be merged into one -a very common procedure in these difficult times, and one that the authorities recognise may be necessary).
From what the OP says, it would suit the company better if the OP remained, but the more expensive employee - who has been there longer - may then have better rgounds for unfair dismissal.
It may not be "fair" but nor are the redundancy rules, and it appears that the company is adopting the less bad option from a legal point of view ,even though commercially it would make more sense to retain the OP