Defence deficit lagging

Posted on 15 Dec 2009 by The Manufacturer

The current defence programme is unaffordable, according to a report from the National Audit Office.

As part of its annual review of major defence projects, the National Audit Office has found that the current cost of 15 major military projects has risen by £3.6bn, compared with the expected costs when the investment decisions were taken. The total slippage, averaged over the 14 major projects with in service dates, is over two years per project.

While the Ministry of Defence has already reduced the deficit between the defence budget and planned expenditure by £15bn, a shortfall of between £6bn and £36bn remains. The financial crisis means a substantial increase in funding is unlikely, and closing the gap will require bold action as part of the Strategic Defence Review which is expected after the General Election.

To address the deficit the Ministry of Defence has reduced equipment numbers being bought on some projects and taken short-term decisions to slip other projects. This short-term approach to savings will lead to long-term cost increases. In 2008-09, costs on the 15 major defence projects examined by the NAO increased by £1.2bn — with two thirds of this increase (£733m) directly due to the decision to slow projects.

One example of a project slowed is the Queen Elizabeth Class aircraft carriers. Although this action is forecast to save £450m in the next four years, it is forecast to add £1,124m in costs in subsequent years. This is a net increase in the forecast cost of £674m. The NAO judges that this is poor value for money.

On some projects, the MOD has taken the decision to reduce the amount of equipment being purchased. For example, the MOD has taken the decision to save £194m by reducing Lynx Wildcat numbers by 23%, from 80 to 62 helicopters. This has reduced planned flying hours by a third.

Amyas Morse, head of the National Audit Office, said: “The Ministry of Defence has a multi-billion pound budgetary black hole which it is trying to fix with a ‘save now, pay later’ approach. This gives a misleadingly negative picture of how well some major projects in MOD are managed, represents poor value for money and heightens the risk that the equipment our Armed Forces require will not be available when it is needed or in the quantities promised.

“Bold action will be required to prioritise defence spending as part of the planned Strategic Defence Review after the General Election.”