Following the scrutiny of its spending costs by the National Audit Office (NAO) in 2011, the UK MoD has now made ‘significant positive steps’ to deal with the defence budget’s multi-billion pound deficit, the office has announced.
The MoD’s Defence Equipment Plan 2012 was officially released on 31 January, which outlined details of the £159 billion that the government plans to spend over a ten year period on new equipment, data systems and equipment support.
The NAO reviewed the equipment plan, and concluded that progress had been made to balance the expenditure to meet the requirements of the National Security Strategy over the years between 1 April 2012 and 31 March 2022.
‘Since the beginning of 2011 the department has substantially revised the way it compiles and manages the equipment plan, and is now approaching the task on a more prudent basis,’ the NAO said in the executive summary of its report on the equipment plan. ‘It has taken difficult decisions to address what was estimated to be a £74 billion gap between the department’s forecast funding and cost of the defence programme as a whole and to try to bring the equipment plan itself into balance.’
The increase resulted from the MoD trying to cut costs and balance the budget in the short term following the Strategic Defence and Security Review (SDSR). However, in 2012 Philip Hammond, Secretary of State of Defence, announced that the budget has been balanced for the first time in a decade.
Programme delays included the Astute submarine project which was estimated to take a decade per unit to produce. In the new equipment plan £35.8 billion will be invested in submarines and nuclear deterrent programmes, the largest of the planned budget areas, which included the cost of the remainder of the 7 Astute attack submarines.
The plan also stipulated that £18.5 billion be spent on combat air requirements, that includes ‘a growing investment’ in UAVs.
In the equipment plan £13.9 billion is allocated to air support, including the A400m, additional C-17s, the Voyager tanker aircraft, and new Airseeker ISR aircraft that will replace the Nimrod R1.
Interestingly, earlier this month another NAO report said that the Future Strategic Tanker Aircraft (FSTA) programme had recorded a net cost increase of £257 million over the last year, while the A400M transport aircraft programme had seen a £163 million increase.
A planned spending of £12.1 billion will be allocated to rotary platforms, including taking forward the assessment phase for work to address the obsolescence and ship optimisation of the Merlin Mk3s. Continuing the development of this programme was marked as a ‘high priority for future investment later in the decade’.
Remaining budgets include £15.7 billion for ISS, £4.4 billion on ISTAR, £12.3 billion on land equipment, £17.4 billion on ships, and £11.4 billion on weapons.
According to the MoD the £159 billion also includes for the first time a contingency of £4.8 billion to manage cost variation and protect existing projects. This is in addition to £8.4 billion of risk funding that is accounted for inside individual costing budgets.
‘Essential equipment enhancements’ in the form of UORs are covered by a Treasury Special Reserve. Programmes such as the Foxhound patrol vehicle and TRUST, an electronic vehicle protection system, were covered by the Treasury. However the equipment plan also referred to an £8 billion unallocated budget for the latter part of the decade, which is ‘over and above’ the funding required for delivery of core programmes.
‘This will allow us to fund, incrementally and flexibly, a number of additional programmes that are a high priority for defence, as soon as we can be sure that they are affordable,’ the paper explained.
However the NAO did highlight some areas of concern for the MoD’s spending plans.
‘We have constructed an affordability assessment model that breaks the department’s assertions down into assumptions covering costs and funding against which we can test the realism of its approach,’ the NAO explained. ‘To increase confidence in the realism of its assumptions and the consistency with which its forecasts are calculated, the department will need to demonstrate their reasonableness over a period of years.
‘The department does not yet have in place all of the necessary measures to do this.’
In addition to this equipment support costs were not reviewed by the NAO this year, which makes up some 54% of the total ten-year cost. This is because the MoD concentrated on increasing ‘the robustness of its procurement costings’ alone this year, but will apply its efforts to both elements next year.
‘The crucial test will be whether the department is able to deliver the equipment plan within planned expenditure limits,’ the NAO concluded.
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