The spending plan resolves missing costs in a new fleet of frigates, but still runs £7bn over budget © BAE Systems
The spending plan resolves missing costs in a new fleet of frigates, but still runs £7bn over budget © BAE Systems

Military spending plan 'remains unaffordable'

6 November 2018

The UK’s plan for the next decade’s defence spending “remains unaffordable”, according to the government’s spending watchdog.

The Ministry of Defence’s (MoD) Equipment Plan for 2018-19 is £7bn over budget and is “not sustainable if the department wants to deliver longer-term value for money,” the National Audit Office (NAO) has said.

In a report, the watchdog said the annual spending update was an improvement from last year’s forecast, which missed out key procurement projects leading to a potential £21bn black hole. But the costs could still vary, it added, growing this year’s gap to £14.8bn in a “worst case scenario”.

The MoD plans to spend £193.3bn over the next 10 years, but it only has a budget of £186.4bn. 

The updated plan resolved issues identified with last year's plan, such as failure to take into account £4.6bn in extra costs related to a poor sterling-to-dollar exchange rate and failure to include the price of a new fleet of Type 31e frigates, making it “more realistic than in previous years”, the report said. But these costs are still potentially understated by £3bn, it added.

The MoD’s analysis also remains “optimistic”, and the NAO still “lacks full confidence in the robustness” of its assumptions around efficiencies, it said.

The forecast costs provided for £7.3bn in efficiency savings, “for which there are firm plans in place”, but another £2.2bn for savings in outline form, with “no detailed cost estimate available”.

Measures recommended by the NAO to tackle the affordability gap include making in-year decisions to bring the plan back into balance. This is something the introduction of the Equipment Plan in 2012 was “meant to prevent”.

“The NAO recommends that the department decides which programmes to defer, de-scope or delete as soon as possible,” it said.

Amyas Morse, head of the NAO, said: “The Equipment Plan 2018-28 shows that the Ministry of Defence has a clearer understanding of the affordability issues that it faces, but it equally shows how urgently it needs to get on and tackle them.”

Meg Hillier, chair of the Public Accounts Committee, said: “The announcement in the budget of an extra £1bn for defence doesn’t deal with the gap in the MoD’s budget. 

“With the ongoing financial pressures, the MoD need to be clear about what equipment they will or will not be funding.”

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