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MOD warned it needs to make savings of £6Bn

Homeland January 30, 2017

A report from the National Audit Office has told the Ministry of Defence that it will need to make an extra £6Bn of savings in its Equipment Plan if it is to remain affordable.

Head of the National Audit Office, Sir Amyas Morse, described affordability of the Equipment Plan as at “greater risk than at any time since its inception.”

Spending on equipment and associated support in the 2016 Plan is estimated to reach £178Bn, a rise of 7% in comparison to an increase of just 1.2% between 2013 and 2015.

The Strategic Defence and Security Review added £24.4Bn of new commitments to the MoD budget, including the Mechanised Infantry Vehicle, the Poseidon Maritime Patrol Aircraft and an acceleration of purchases of the F-35 Joint Strike Fighter.

To meet the funding requirements proposed by the Review, the MoD must use all the £10.7Bn headroom previously reserved to meet future emerging requirements.

The NAO’s report states that the MoD must also make savings of £5.8Bn from existing projects in the next 10 years.

£1.5Bn will be saved from other parts of the defence budget, such as military and civilian pay restraint, or reducing the running costs of the defence estate.

These savings need to be made in addition to £7.1Bn of brought forward savings already assumed in the Plan, with £2.5Bn not yet generated.

The MoD’s independent Cost Assurance and Analysis Service estimates that currently the Plan is underestimating financial risk by £4.8Bn.

This figure is within the contingency provision of £5.3Bn but it doesn’t include estimates for the new Review commitments. Major changes to the requirement for the Type 26 Global Combat Ship mean that costings for this, the largest non-nuclear programme in the Plan, will be unclear until 2018. The Plan also reports cost increases to various parts of the nuclear submarine programme.

Sir Amyas described the dilemma facing the MOD: “It is worrying to see that the costs of the new commitments arising from the Review considerably exceed the net increase in funding for the Plan. The difference is to be found partly by demanding efficiency targets.

“There is little room for unplanned cost growth and the MoD must actively guard against the risk of a return to previous practice where affordability could only be maintained by delaying or reducing the scope of projects.”

image © Crown copyright

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Equipment Plan Ministry of Defence MOD National Audit Office

Post written by: Matt Brown