Ministry of Defence Equipment Plan deemed ‘unaffordable’ by NAO

Louisa Brooke-Holland

The Ministry of Defence (MoD) has set out how much it plans to spend on equipment for the armed forces over the next ten years. The £181 billion announced on Thursday (27 February) accounts for more than 42% of the department’s spending for this period.

The National Audit Office (NAO) says the plan is unaffordable. Both the MOD and the NAO estimate costs are £2.9bn higher than the MoD’s budget over 2019 to 2029.

This shortfall could rise to £13bn if all identified risks materialise. Here we look at what the equipment plan is and the NAO’s concerns.

What is the Defence Equipment Plan?

The MoD has published an annual Defence Equipment Plan every year since 2012.

Alongside the budget, it includes forecasted expenditure over a rolling ten-year period. It includes spending on both new equipment and support costs for equipment already in use.

These include some of the largest and most complex procurement projects currently underway, such as the £31bn Dreadnought-class submarine programme that forms part of the UK’s strategic nuclear deterrent. Other major programmes include frigates (a type of warship), armoured vehicles (known as Ajax) and F-35 Lightning combat aircraft.

Is the plan affordable?

Not according to the NAO, which scrutinises the plan and publishes its own report alongside the MoD’s. The NAO has assessed the last two equipment plans as ‘unaffordable’. The NAO said the 2019 plan is also unaffordable.

The MoD has identified a £2.9bn shortfall (using its central estimate). The upper estimate of the funding shortfall is £13.0bn if all identified risks materialise.

The Defence Secretary, Ben Wallace MP says the MOD has reduced the financial shortfall from £7bn in the 2018 plan to £2.9bn this year. However, the NAO says the reduction is based on the MOD revising its approach to assessing affordability “rather than the result of actions to address the 10-year funding shortfall.”

The NAO says that because of the revised approach, the 2019 assessment is not directly comparable to the 2018-2028 plan.

The 2019 plan includes more analysis of changes to the affordability of the plan and background information on individual projects. The MoD says this was in response to recommendations made by the Public Accounts Committee in 2018.

What risks could impact the equipment plan?

Possible risks affecting the budget include exchange rate fluctuations, failing to achieve required efficiency savings and programme cost increases. Pressure on the whole defence budget means there is little room for manoeuvre.

In addition, the NAO says the MOD has not made provision in the plan to meet all the commitments in the 2015 Strategic Defence and Security Review. It has yet to decide its requirements on the number of Lightning F35 aircraft it needs, for example.

Can the MoD delay programmes to save money?

The MoD has in the past delayed or reduced the scope of major projects to find short-term savings, which can end up adding to the overall cost of programmes. The NAO says the MoD has “again delayed the difficult decisions,” to make the equipment plan affordable and is “locked into a cycle of responding to short-term financial pressures.”

The cost of delaying by two years the Protector remotely piloted aircraft programme has added £187 million to the cost of the programme. The RAF is also reducing the number of Sentry surveillance aircraft and retiring them nine months before its replacement, the Wedgetail, enters service.

Decisions to delay can also add further costs if equipment that is already in service is extended to compensate for a delayed replacement. The delay to Protector, for example, means a further £50 million will need to be spent to retain existing, less capable equipment until it enters service.

Support activities, such as maintenance may be reduced to save money but this can have consequences. The NAO says the RAF believes that inadequate spending on maintaining its surveillance aircraft has limited their availability for operations.

When is the financial pressure highest?

The pressure is highest over the next five years. The NAO says there is a £6.0bn shortfall in the plan between 2019-20 to 2023-24.

How does it fit with the Integrated Review?

On 26 February 2020 the Government set out plans to conduct an Integrated Review of Security, Defence, Development and Foreign Policy this year.

Previous defence reviews have made substantial changes to the MOD’s procurement plans. The Government says the Integrated Review will “determine the capabilities we need for the next decade and beyond.”. This could mean the Government chooses to delete or amend existing programmes or add new programmes to the equipment plan.

How does Parliament scrutinise the Equipment Plan?

The Public Accounts Committee (PAC) usually takes evidence on the Equipment Plan using information provided by the NAO and produces a report. Past reports can be found on the PAC website.

MoD accounting officers are responsible for providing assessments of programmes in the Government’s Major Projects Portfolio. These are published on Gov.uk and inform Parliament of major changes to a programme.