The UK's next decade of defence spending is plagued by "unrealistic" savings and overspending of up to £17.4bn, according to the spending watchdog.
The Ministry of Defence’s (MoD) Equipment Plan for 2020-30 faces its fourth consecutive year of “unaffordable” equipment planning, which has been further exacerbated by its “over-optimistic and inconsistent” cost forecasts, the National Audit Office said.
In a report, the watchdog said the latest spending review highlighted a "fundamental problem" affecting the department, as “costs of delivering its ambition far exceeded its available budget”.
Estimated equipment and support costs are £197.4bn for next decade, and while this is £7.3bn over budget, under a worst-case scenario this figure could rise to £17.4bn.
Previous Equipment Plans have also contained significant overspends, with the 2018-28 plan showing an overspend of £7bn on a £186.4bn budget.
While new efficiency savings processes have helped, the NAO shared affordability concerns made by the Public Accounts Committee in 2019 over the MoD’s failure to accurately cost programmes and assumptions of cost savings.
The report said the MoD “continues to make over-optimistic or inconsistent adjustments to reduce cost forecasts and is likely to have underestimated the risks across long-term equipment projects”.
It concluded that the department needs to “break its cycle” of short-term financial management, which has led to increased future costs and deficits, delayed projects, and “restricted” ability to develop capabilities “in a way that will deliver value for money”.
It added: “The growing financial pressures have also created perverse incentives to include unrealistic savings, and to not invest in new equipment to address capability risks.”
The NAO has “reservations'' about the costs presented and believes the department has not made “enough progress” in its ability to adjust cost forecasts with a “consistent and evidence-based approach”.
However, the plan was created before the government’s £16.5bn additional fund was announced on November 2020 for modernising technology used in cyber and space projects, and this could give the MoD an opportunity to close the financial gap.
The NAO said: “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.”
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