Recommendations & Conclusions
16 items
4
Recommendation
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
The Department’s assessment of the Equipment Plan’s affordability still relies on over-optimistic assumptions about the cost of programmes and the efficiencies and cost reductions it will achieve. Although the Department assesses that the Equipment Plan is affordable over ten years, this obscures significant financial pressure. There is a deficit of …
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The Department’s assessment of the Equipment Plan’s affordability still relies on over-optimistic assumptions about the cost of programmes and the efficiencies and cost reductions it will achieve. Although the Department assesses that the Equipment Plan is affordable over ten years, this obscures significant financial pressure. There is a deficit of £2.6 billion over the first seven years of the Plan and the ten-year plans of four of the six Top Level Budgets are in deficit. Most notably the Army’s forecast costs are £2 billion more than its budget. Overall affordability is based on potentially over-optimistic assessments of project costs, with the Department’s Cost Assurance and Analysis Service estimating that costs could be at least £5 billion higher than forecast. The Plan’s affordability also relies on the Department achieving a £5.2 billion surplus in the final three years of the Plan, and on the Department achieving all cost reductions and efficiency savings included in the Plan. This includes £2.1 billion in the next three years which Top Level Budgets do not yet have plans to achieve. We doubt that the Department can achieve all these savings, but its contingency to cover any shortfall during this period is just £0.5 billion. The Plan’s affordability also relies on some projects being delayed, the Department having reduced project cost forecasts by £13.2 billion to reflect this. Recommendation 4: In future Equipment Plans, the Department should explain the uncertainties that exist in its assumptions. It should present the affordability position as a range, based on a full assessment of internal and external uncertainties, and candidly set out what the best- or worst-case scenarios would mean for our Armed Forces’ capabilities. MoD Equipment Plan 2022–2032 7
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Government response AI summary
The government states that the department carries out a rigorous annual process to review and challenge delivery teams’ costings and will provide an assessment of the key sources of uncertainty and risk in the forward plan in the next update to the committee.
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HM Treasury
6
Recommendation
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
We are concerned that the Department has not yet developed a supply chain that can reliably and quickly deliver the capabilities and stockpiles it needs. The Department has started to replenish stocks gifted to Ukraine, the cost of which HM Treasury will cover through the Reserve. It is also working …
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We are concerned that the Department has not yet developed a supply chain that can reliably and quickly deliver the capabilities and stockpiles it needs. The Department has started to replenish stocks gifted to Ukraine, the cost of which HM Treasury will cover through the Reserve. It is also working with HM Treasury on a case-by-case basis to agree on a reasonable replacement when items are no longer in production or where the UK’s requirement has changed. However, the Department does not expect to replenish all depleted stocks, such as NLAW anti- tank weapons, for at least two years. The Department says that one important lesson from the Ukraine conflict has been the need to shift from its approach of buying batches of munitions to supporting continuous production lines which suppliers can ramp up when required. It says it has started to work with key UK suppliers to secure production lines, and the 2022 Autumn Statement provided an additional £560 million over the next two years to help support this. The Department is also discussing with NATO allies how to stimulate the wider supply chain to meet the alliance’s long-term needs. Recommendation 6: The Department should write to us alongside its Treasury Minute response setting out its progress in developing a plan with the wider defence industry to improve the scale and efficiency of its supply chain. 8 MoD Equipment Plan 2022–2032 1 The Equipment Plan in a more volatile world
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Government response AI summary
The government agrees and says it has published a Defence Supply Chain Strategy last year and is implementing initiatives including a MOD Supply Chain Development Programme, a Supply Chain Contingency Fund, and a tool to manage supply chain issues. It recognises collaboration with the defence …
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HM Treasury
9
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
The Department has been slow to implement the capabilities set out in the March 2021 Integrated Review, several of which it has not fully funded despite publishing two Equipment Plan reports since then.23 Furthermore, as part of the Integrated Review, the Department set aside £6.6 billion from 2021–22 to 2024–25 …
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The Department has been slow to implement the capabilities set out in the March 2021 Integrated Review, several of which it has not fully funded despite publishing two Equipment Plan reports since then.23 Furthermore, as part of the Integrated Review, the Department set aside £6.6 billion from 2021–22 to 2024–25 for research and development. This is already generating ideas to address future threats, including the accelerated adoption of Artificial Intelligence and next-generation Directed Energy Weapons. However, the £4.4 billion set aside to exploit this investment, and turn these ideas into capabilities, is only available from 2025–26.24 Delivering enhanced capabilities
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Government response AI summary
The government agrees with the committee's observation and commits to providing updates on its plans for the Integrated Review Refresh and equipment plan by Summer/Winter 2023, while continuing to develop its strategy with HM Treasury.
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HM Treasury
10
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
The Ukraine conflict has demonstrated the renewed importance of land capabilities, but the Department acknowledged that there has been slippage in several major programmes.25 We are unconvinced by the Department’s assertion that it is doing all it can to speed up these programmes, or its claim that it could only …
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The Ukraine conflict has demonstrated the renewed importance of land capabilities, but the Department acknowledged that there has been slippage in several major programmes.25 We are unconvinced by the Department’s assertion that it is doing all it can to speed up these programmes, or its claim that it could only go faster if it took more risks.26
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Government response AI summary
The government recognizes the need to balance risk with speed and will write to the Committee with more detail on the department’s approach, including the scope to increase the pace of delivery to the front line, and provide an update on the implications for the …
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HM Treasury
11
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
In the meantime, the Department’s struggles to deliver projects to modernise land capabilities leaves the Army reliant on out-dated vehicles.27 Although the first Boxer armoured fighting vehicle is due to be delivered in 2023, it will not achieve initial operating capability until 2025.28 The Department recently updated us on the …
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In the meantime, the Department’s struggles to deliver projects to modernise land capabilities leaves the Army reliant on out-dated vehicles.27 Although the first Boxer armoured fighting vehicle is due to be delivered in 2023, it will not achieve initial operating capability until 2025.28 The Department recently updated us on the ongoing saga of the delayed Ajax armoured vehicles.29 The Department was finally able to report some positive news about the programme, as the user validation trials had been completed successfully.30 However, it was unable to give us a revised initial operating capability date.31
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Government response AI summary
The government agrees with the committee's recommendation and will provide an update on the implications for the Army's forward equipment programme and more detail on the department’s approach to balance risk with the speed of capability delivery.
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HM Treasury
12
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
Even when Ajax is finally introduced, it will not operate to its full potential without the Morpheus communications system. This will integrate Ajax across the land, air and sea domains, allowing real-time information-sharing and connectivity with other capabilities, such as Lightning II jets, on the battlefield.32 However, Morpheus has also …
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Even when Ajax is finally introduced, it will not operate to its full potential without the Morpheus communications system. This will integrate Ajax across the land, air and sea domains, allowing real-time information-sharing and connectivity with other capabilities, such as Lightning II jets, on the battlefield.32 However, Morpheus has also been delayed, having originally been due by the end of 2021.33 As a consequence, Ajax will be fitted initially with Morpheus’s predecessor, Bowman, which does not have the same 21 Integrated Review Refresh 2023, P34 22 House of Commons Defence Committee, 2 November 2022, US, UK and NATO, Q275 23 C&AG’s Report, para 1.16 24 Q111; Letter from Permanent Secretary to Chair, 23 January 2023, p.3 25 Q 31 26 Qq 36–38 27 Q 104 28 Q 35 29 Committee of Public Accounts, Armoured Vehicles: the Ajax programme, Seventh Report of Session 2022–23, HC 259, June 2022 30 Q 96 31 Q 99 32 Q 105 33 Q 41 MoD Equipment Plan 2022–2032 11 integration capabilities. The Department was unable to tell us when Morpheus would enter service, but the military planning assumption is that this will be towards the end of the decade.34
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Government response AI summary
The government recognizes the need to balance risk with speed and will write to the Committee with more detail on the department’s approach, including the scope to increase the pace of delivery to the front line, and provide an update on the implications for the …
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HM Treasury
13
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
Furthermore, the Department acknowledged that even if all the Army equipment in the Plan was delivered, that would not guarantee it could provide an operational division. This is because the current Plan does not address some risks, such as the need for “joint enablers” which facilitate operations.35 The Department provided …
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Furthermore, the Department acknowledged that even if all the Army equipment in the Plan was delivered, that would not guarantee it could provide an operational division. This is because the current Plan does not address some risks, such as the need for “joint enablers” which facilitate operations.35 The Department provided examples of the capabilities that the Army would need to address these risks, such as an improved ability to strike with precision at long-range, more comprehensive integrated missile defence against air attack and medical supply chains able to deal with multiple casualties.36 34 Qq 105, 106 35 Q 33 36 Qq 48, 94 12 MoD Equipment Plan 2022–2032 2 Delivering the Equipment Plan Internal savings and adjustments
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Government response AI summary
The government agrees with the committee's recommendation and will provide an update on the implications for the Army's forward equipment programme and more detail on the department’s approach to balance risk with the speed of capability delivery.
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HM Treasury
14
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
The Department told us that its 2022–2032 Equipment Plan is affordable, as the equipment budget exceeds forecast costs by £2.6 billion (1% of budget). However, we noted that the aggregate surplus obscures financial pressures in the short-term and in some Top Level Budgets – those organisations, including front line commands, …
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The Department told us that its 2022–2032 Equipment Plan is affordable, as the equipment budget exceeds forecast costs by £2.6 billion (1% of budget). However, we noted that the aggregate surplus obscures financial pressures in the short-term and in some Top Level Budgets – those organisations, including front line commands, responsible for delivering defence outcomes within budgets delegated by the Department. The Plan is in deficit for the first seven years by £2.6 billion and is only affordable because of a £5.2 billion surplus in the final three years. Furthermore, over the full ten years, four out of six Top Level Budgets are in deficit.37 Most significantly, the Army’s equipment programme is more than £2 billion in deficit over the ten years of the Plan.38
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Government response AI summary
The department will provide an assessment of the key sources of uncertainty and risk in the forward plan in the next update to the committee; forecasting across ten-years is inherently uncertain, plans need to be flexible to adapt to change, and the equipment plan report …
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HM Treasury
15
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
We also noted that the Plan is only affordable if the Department achieves intended £13.8 billion of savings, £5 billion of which it has not yet developed plans to achieve.39 The Department may be over-optimistic in expecting to achieve all intended cost reductions and efficiency savings.40 In addition, of the …
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We also noted that the Plan is only affordable if the Department achieves intended £13.8 billion of savings, £5 billion of which it has not yet developed plans to achieve.39 The Department may be over-optimistic in expecting to achieve all intended cost reductions and efficiency savings.40 In addition, of the savings for which it does not yet have clear plans, the Department must find £2.1 billion of these in the next three years. The Department’s contingency over those three years is only £0.5 billion, which means it has limited ability to absorb any failures to achieve savings, or unexpected cost increases.41
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Government response AI summary
The government agrees with the committee's recommendation and will provide an assessment of the key sources of uncertainty and risk in the forward plan in the next update to the committee.
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HM Treasury
16
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
The Department may be over-optimistic in its assessment of project costs. The Department’s Cost Assurance and Analysis Service estimates that project costs could be between £5.2 billion and £14 billion higher than those in the Plan. The Department told us that the latter figure was a worst-case scenario and that …
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The Department may be over-optimistic in its assessment of project costs. The Department’s Cost Assurance and Analysis Service estimates that project costs could be between £5.2 billion and £14 billion higher than those in the Plan. The Department told us that the latter figure was a worst-case scenario and that the different cost calculations are a matter of professional judgement.42 The National Audit Office report highlighted the need for the Department to consider project risks more fully, including reflecting these independent project costings in its own forecasts.43
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Government response AI summary
The government agrees with the committee's recommendation and will provide an assessment of the key sources of uncertainty and risk in the forward plan in the next update to the committee.
Read full response →
HM Treasury
17
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
We are concerned that the Department seems reliant on delaying delivery of capabilities to keep the Plan affordable.44 The Department told us that the £13.2 billion management adjustment for realism represented a small amount of over-programming, and was based on historical performance and its assessment of deliverability, with supply chain …
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We are concerned that the Department seems reliant on delaying delivery of capabilities to keep the Plan affordable.44 The Department told us that the £13.2 billion management adjustment for realism represented a small amount of over-programming, and was based on historical performance and its assessment of deliverability, with supply chain issues making it harder to spend money as planned.45 We are also concerned that the Plan does not include all the capabilities set out in the Integrated Review; if these were included in future years it would add further pressure on the affordability of the Plan.46 37 C&AG’s Report, paras 6, 7, Figure 4 38 Q 51 39 Qq 55, 56, 64 40 Q 54; C&AG’s Report, para 7 41 Q 54 42 Q 79 43 C&AG’s Report, para 10 44 Q 58 45 Qq 52, 56 46 C&AG’s Report, para 1.16, Figure 6 MoD Equipment Plan 2022–2032 13 External pressures
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Government response AI summary
The department will provide an assessment of the key sources of uncertainty and risk in the forward plan in the next update to the committee; forecasting across ten-years is inherently uncertain, plans need to be flexible to adapt to change, and the equipment plan report …
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HM Treasury
18
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
The affordability of the Plan is also under pressure from external economic factors, including rising inflation and unfavourable exchange rate movements. In March 2022 the Office of Budget Responsibility forecast that inflation would reach 8.7% by the end of 2022.47 The Department reported that this would increase cost pressure on …
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The affordability of the Plan is also under pressure from external economic factors, including rising inflation and unfavourable exchange rate movements. In March 2022 the Office of Budget Responsibility forecast that inflation would reach 8.7% by the end of 2022.47 The Department reported that this would increase cost pressure on the Plan by £2.1 billion, but acknowledged that this estimate might not accurately reflect rising inflation.48 By November 2022 inflation was higher than this forecast, at 10.7%, suggesting that this cost pressure is higher. The Department told us it seeks to mitigate the effect of inflation by using forward purchasing and firm price contracts, but we are unconvinced that this will substantially reduce the pressure.49 We are also concerned about the impact of unfavourable exchange rate movements with the pound-dollar exchange rate below the Department’s worst-case scenario in December 2022. The Department mitigates the volatility of exchange rate fluctuations with forward purchases. But, given the major purchases made from the United States, notably £6.5 billion over the next 10 years for F-35 aircraft, this could significantly affect the affordability of the Plan.50
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Government response AI summary
The department continuously updates its forecast of the cost of the equipment plan and reviews its affordability through the annual financial planning process. The government announced an additional £5 billion for defence in the remaining two years of the 2020 Spending Review settlement at the …
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HM Treasury
19
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
Economic factors such as inflation and exchange rates will cause significant risks to the plan’s affordability. The Department told us that it has £25 billion of risks that are not included in its forecast costs because it deems these unlikely to occur, compared to £13 billion of more-likely risks that …
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Economic factors such as inflation and exchange rates will cause significant risks to the plan’s affordability. The Department told us that it has £25 billion of risks that are not included in its forecast costs because it deems these unlikely to occur, compared to £13 billion of more-likely risks that it does include in project cost forecasts.51 It will only take a relatively small change to significantly affect affordability, given that the Department currently has only a £2.6 billion surplus on the Plan and £4.3 billion of equipment contingency over 10 years.52
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Government response AI summary
The department continuously updates its forecast of the cost of the equipment plan and reviews its affordability through the annual financial planning process. The government announced an additional £5 billion for defence in the remaining two years of the 2020 Spending Review settlement at the …
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HM Treasury
20
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
We are also concerned about the impact of inflation on the Plan’s delivery, particularly the Department’s ability to obtain the skills required. The Department told us that it and its suppliers do not have enough data scientists, software engineers or project managers. This puts at risk the delivery of a …
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We are also concerned about the impact of inflation on the Plan’s delivery, particularly the Department’s ability to obtain the skills required. The Department told us that it and its suppliers do not have enough data scientists, software engineers or project managers. This puts at risk the delivery of a range of information, communication, and technology programmes.53 This risk may increase if staff leave due to below-inflation pay rises. The Department has offered staff a pay rise of 3.75% and every future additional 1% pay rise above those planned will cost £1.4 billion over the next nine years. The Department acknowledged that the pay settlement was challenging and would remain so.54 Supply chain
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Government response AI summary
The department continuously updates its forecast of the cost of the equipment plan and reviews its affordability through the annual financial planning process. The government announced an additional £5 billion for defence in the remaining two years of the 2020 Spending Review settlement at the …
Read full response →
HM Treasury
21
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
The Department acknowledged that inflation also makes it difficult for suppliers to deliver due to rising staff and material costs.55 As a result, the Department is changing its contractual approach to take account of the inflation risk and avoid suppliers charging a higher premium for continuing to take this risk …
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The Department acknowledged that inflation also makes it difficult for suppliers to deliver due to rising staff and material costs.55 As a result, the Department is changing its contractual approach to take account of the inflation risk and avoid suppliers charging a higher premium for continuing to take this risk on.56 47 Q 95 48 C&AG’s Report, para 2.14; Ministry of Defence, The Defence Equipment Plan 2022–2032, P11 49 Q 88 50 Q 89, C&AG’s Report, para 1.15 51 Q 86 52 Qq 79, 81 53 Q 51 54 Q 112 55 Q 52; C&AG’s Report, para 2.13 56 Q 88 14 MoD Equipment Plan 2022–2032
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Government response AI summary
The government agrees with the committee's recommendation and states that the department continuously updates its forecast of the cost of the equipment plan and reviews its affordability through the annual financial planning process.
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HM Treasury
24
Conclusion
Forty-Eighth Report - MoD Equipment Pla…
Acknowledged
HM Treasury has provided the Department with £560 million to restart production lines in UK companies.62 The Department told us that it is working closely with key suppliers in the UK, including BAE Systems, MBDA and Thales, to invest in long-term strategic capabilities. The Department subsequently wrote to us outlining …
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HM Treasury has provided the Department with £560 million to restart production lines in UK companies.62 The Department told us that it is working closely with key suppliers in the UK, including BAE Systems, MBDA and Thales, to invest in long-term strategic capabilities. The Department subsequently wrote to us outlining its acquisition reform initiatives and explaining that DE&S is implementing a refresh of its strategy under its new Chief Executive.63 Improving the supply chain will also require working with allies. The Department has also placed requests for supply with US companies and has engaged with fellow NATO countries to discuss how they can collectively stimulate the industrial supply chain to meet the alliance’s long-term needs.64 We note that attempts to increase supply will be challenging given the current inflationary economic environment, particularly given that inflation tends to be higher in the defence industry than the general economy.65 57 Q 22; Letter from Permanent Secretary to the Chair, 23 January 2023, p.1 58 Q 25; Letter from Permanent Secretary to the Chair, 23 January 2023, p.1 59 Q 21 60 Q 17; Royal United Services Institute, Preliminary Lessons in Conventional Warfighting from Russia’s Invasion of Ukraine: February-July 2022, P55 61 Q 20 62 Q 22 63 Letter from Permanent Secretary to the Chair, 23 January 2023, p.4 64 Q 20 65 Q 88 MoD Equipment Plan 2022–2032 15
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Government response AI summary
The government agrees with the committee's recommendation and outlines actions being taken in relation to defence supply chain strategy, including the creation of a MOD Supply Chain Development Programme, a Supply Chain Contingency Fund, and implementation of a tool to proactively manage supply chain issues.
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HM Treasury