The Ministry of Defence’s 10-year equipment plan is on track to be £7.3bn over budget by 2030 but could exceed the available funding by £17.4bn in the worst-case scenario, the National Audit Office has said.
It is the fourth consecutive year that the plan – which sets out the MoD’s intended investment in equipment – has failed to stay within allocated funding limits.
The magnitude of the projected 2020-2030 overspend is also greater than the £2.9bn-£13.0bn figure quoted last year. However, the NAO said the department had presented the latest equipment budget on a different basis to previous years, meaning the latest shortfall was not directly comparable.
The public-spending watchdog said the plan also excluded the full costs of replacing equipment that was becoming obsolete, such as the Navy’s mine-hunting capability. It added that the full costs of major procurement projects, including new submarines, combat aircraft and space capabilities, had also not been included.
According to the plan, the MoD has allocated £190bn to equipment projects over the spending period, a figure that represents 41% of the overall defence budget.
However, the NAO noted that the plan had been produced before November’s Spending Review, when the government announced an additional £16.5bn to support the development of military capabilities.
The watchdog said the funding was intended to allow the MoD to modernise and invest in new technologies, including its cyber and space capabilities and presented the ministry with an opportunity to develop a more affordable programme for the military capabilities it needs.
But it also said the ministry “continues to make over-optimistic and inconsistent judgements when forecasting costs” and pointed to a £25.1bn reduction in its overall cost forecast designed to “reflect adjustments for expected savings” and its ability to deliver projects in line with original timetables.
NAO head Gareth Davies said the watchdog had ongoing reservations about the MoD’s cost forecasting and urged it to ensure that long-term decisions on equipment projects were based on a realistic assessment of costs.
“As it decides how to allocate this funding, the MoD will need to ensure that long-term decisions on equipment projects are based on a realistic assessment of costs," he said.
"To date, the MoD’s fundamental problem has been that the cost of delivering its ambition far exceeds its available budget. Faced with an unaffordable equipment programme, it has adopted a short-term approach to financial management that restricts the military commands from developing the equipment they need and leads to increased costs in the longer term.
“The government’s announcement of additional investment gives the MoD an opportunity to develop a more balanced equipment programme. It now needs to make tough decisions on its priorities, if it is to avoid a continuation of the increasing cost pressures we have seen in recent years.”
In a letter to Public Accounts Committee chair Meg Hillier, dated 12 January, MoD perm sec Sir Stephen Lovegrove stressed that the 2020-2030 equipment plan had been created before the settlement contained in November's Spending Review was confirmed.
“Delivering our plans within budget in 2020-21 is proving challenging and is demanding difficult decisions on spending priorities, but we are working closely with HM Treasury to ensure we deliver our plans within budget,” he said.
“Following the announcement of a four-year settlement at the Spending Review, we are now working on our plans for implementing the changes needed to modernise the armed forces and pursue our radical transformation programme.
“The settlement gives us confidence in our future funding and a clear basis on which we can now plan and make decisions. By the end of the financial year, we expect to have developed a new and affordable set of spending plans enabled by the Spending Review settlement.
“While the full details of these plans might take longer to establish, we expect to be able to set out the main implications for equipment spending in our equipment plan financial summary for 2021.
“In the meantime, we continue to drive our ambitious transformation plans, which will help us deliver the equipment plan more efficiently in the coming years. These include continuing to improve the capability of our finance function and acquisition system.”