Today the National Audit Office (NAO) reports that the Ministry of Defence’s Equipment Plan (the Plan) is still unaffordable, with the MoD estimating that costs will be £2.9 billion higher than its budget over 2019-2029.
The Plan sets out the MoD’s equipment and support budget over the next 10 years. It includes spending on equipment already in use and equipment in development. It accounts for 42% of the MoD’s total spending, meaning stability of the wider defence budget depends on effective management of the Plan.
The Plan forecasts spending £183.6 billion on equipment and support costs over the next ten years, against a £180.7 billion budget. These costs could vary, and in a worst case scenario, should all the risks identified by the MoD materialise, this gap could grow to £13 billion.
This is the third successive year that we have concluded the Plan is unaffordable. Although the MoD’s reported funding shortfall is less than last year, it is not possible to directly compare the affordability gap over time as the Department has presented it on a different basis to before. In particular, it has made more optimistic judgments than last year, which removed £7.8 billion costs from the Plan. In spite of this, it is clear that the MoD faces more significant shortfalls over the next five years – it estimates the shortfall is £6 billion up to 2023-24 – and it now has less flexibility to respond to short-term financial pressures.
The MoD is managing these financial pressures by establishing tighter control of in-year expenditure and has undertaken a detailed analysis of investment options. However, it has again delayed the difficult decisions to make the Equipment Plan affordable and determine its priorities on future major capabilities. Its continued short-term focus on living within its annual budget is increasingly leading to reduced capabilities. For example, unless action is taken, MoD will lose existing capabilities, such as the medical facilities provided by the ship RFA Argus, during the period covered by the Plan. Decisions to defer project expenditure are also reducing value for money. For example, affordability-driven decisions to delay the introduction of Protector (remotely piloted aircraft) will increase costs by £187 million, plus a further £50 million to retain existing equipment for longer.