"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."
Amyas Morse, head of the National Audit Office, 15
December 2009
The current defence programme is unaffordable,
according to a report from the National Audit Office. The Ministry
of Defence has already reduced the deficit between the defence
budget and planned expenditure by £15 billion, but a shortfall of
between £6 billion and £36 billion 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 £1.2 billion, with two thirds of this increase (£733
million) directly due to the decision to slow projects. Attempting
to save money in this way does not address the fundamental
affordability problems, increases through-life costs and represents
poor value for money on the specific projects affected.
One example of a project slowed is the Queen
Elizabeth Class aircraft carriers. Although this action is forecast
to save £450 million in the next four years, it is forecast to add
£1,124 million in costs in subsequent years. This is a net increase
in the forecast cost of £674 million. 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 £194 million by
reducing Lynx Wildcat numbers by 23 per cent, from 80 to 62
helicopters. This has reduced planned flying hours by a third.
These actions make it difficult to conclude on
the effectiveness of the delivery of individual projects. Analysis
by the NAO suggests signs of improvement in project cost control
with innovative decisions being taken to ensure progress. Unless
the MOD addresses the underlying budgetary and governance issues it
will not consistently deliver value for money nor, vitally, will
the operational benefits of expensive new capabilities be available
to the Armed Forces in a timely manner or in the numbers originally
planned.
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 £3.6 billion, 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.
Publication details:
HC: 85, 2009-10
ISBN: 9780102963342