MoD’s equipment plan faces potential ‘£21bn black hole’

Written by Jim Dunton on 11 May 2018 in News
News

Department accused of lacking cost control as affordability gap opens up in 10-year programme

The Ministry of Defence Main Building in Whitehall Credit: PA

The Ministry of Defence’s 10-year plan to provide the armed forces with the equipment needed for the years to 2027 is “not realistic” and could potentially face a funding shortfall of £20.8bn, MPs have warned.

A new report from spending watchdog the Public Accounts Committee cautions that the cost of the MoD’s latest equipment plan is projected to be “at least £4.9bn” ahead of its £179.7bn budget just one year in, and says the department lacks cost control with its nuclear programme a key concern.

The report says the MoD has “put its faith” in the Modernising Defence Programme to fix affordability issues and prepare for new challenges such as cyber, chemical, biological, radiological, nuclear and electromagnetic attacks. But committee member said they were “highly sceptical” that the programme would balance the books.


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Last year the PAC said the equipment plan was at greater risk of becoming unaffordable than at any time since its 2012 inception. Its latest report says financial risk has increased since last year, and notes that despite acknowledging that the affordability gap is in the billions of pounds, the MoD “is unable to quantify the size of the gap with any degree of precision”.

The committee said the department’s failure to balance its 2017 equipment plan budget arose from a lack of control of the commands – principally the Army, Royal Navy, and Royal Air Force – by the centre, resulting in £9.6bn of forecast costs being excluded from the plan. “The department lacks an understanding of what comprises that £9.6bn, and could provide no meaningful explanation for excluding the costs of buying Type 31e frigates,” members observed.

MPs also pointed to a “lack of flexibility” in the current 10-year plan, which they said “contained no headroom or unallocated contingency, with spending dominated by a number of large platforms which take years to build”. They cautioned that there could be a need for “some big changes” in the equipment plan if the new projects needed to be introduced and others were de-scoped, deferred or cancelled to compensate.

The PAC said the cost of the nuclear programme to introduce the next-generation Dreadnought Class submarines was the biggest risk to the equipment plan. “The costings of the nuclear enterprise in the plan have continued to grow,” they said. “The department says that a recent review indicates that costs for the Dreadnought submarine need to be brought forward, which will further increase short term pressures in the plan.”

Committee members said the costs of the related warhead programme had also increased and said the long-term nature of the programme – the submarines are due to enter service in the late 2020s and remain in use until at least the 2060s – meant there was a potential for “big cost changes throughout its lifecycle”.

Committee chair Meg Hillier said that while the MoD’s national security responsibilities gave it a “unique and critical place in the public sector”, that uniqueness was “no excuse” for a lack of financial rigour.

“It is concerning that the department could find itself more than £20bn short of the funding required to buy the equipment it says it needs,” she said.

“The MoD’s inability to better quantify that affordability gap has consequences not just for its confirmed spending plans, but also its ability to prepare for serious challenges in national defence.

“The department must be more rigorous and realistic in its approach to costing its equipment plan. It also needs to be more open with parliament and the public about its finances, commitments and their costs to taxpayers.

“We heard a lot in evidence about the Modernising Defence Programme but I am concerned this may end up adding more costs to what is already an overstretched budget.”

The MoD said the £20.8bn figure put forward by the PAC was a worst-case-scenario in which all of the equipment plan’s financial risks materialised and no further efficiencies were achieved from those currently identified.

“We are committed to delivering large, complex and technologically challenging defence programmes as part of our £180bn plan to give our military the very best equipment,” a spokesman said.

“We recognise financial risk comes with that, but the potential affordability gap highlighted by this report reflects an unlikely, worst-case scenario in which all possibilities materialise.

“We are on track to meet our £16bn savings target and will also review these recommendations as part of our Modernising Defence Programme, which aims to strengthen our armed forces in the face of intensifying threats.”

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