The Defence Equipment Plan inquiry
Closed
What the inquiry looked at
“The risks to the affordability of the 'Ministry of Defence Equipment Plan' are greater than at any point since reporting began in 2012, according to a report from the National Audit Office . Spending on equipment and associated support in the 2016 Plan is projected to be £178 billion, an increase of 7%, compared to an increase of just 1.2% between 2013 and 2015. The Strategic Defence and Security Review added £24.4 billion 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. In order to meet the funding requirements proposed by the Review, the MoD must use the entirety of the £10.7 billion headroom previously set aside to meet emerging requirements in future years. To further ensure the affordability of the Plan, the MoD must also find £5.8 billion of savings from existing projects in the next 10 years. Plans for achieving these are still under development. Of this, £1.5 billion will be provided from savings elsewhere in the Defence budget, for example through military and civilian pay restraint, or savings from the running of the defence estate, the latter of which the NAO reported in November 2016 would be extremely challenging. These savings targets are in addition to £7.1 billion of brought forward savings already assumed in the Plan, £2.5 billion of which have yet to be generated. The level of cost uncertainty in the Plan has also increased considerably, with 15% of additional commitments yet to go through detailed costing at project level. The MoD's current costing practice can lead to significant understatement in the cost of projects in their early stages of development, the proportion of which has increased as a result of the Review. The MoD's independent Cost Assurance and Analysis Service estimates that currently the Plan is underestimating financial risk by £4.8 billion. This figure is within the contingency provision of £5.3 billion but it does not 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. The Plan is also vulnerable to changes in foreign exchange rates. Approximately £18.6 billion of the Plan will be paid in US dollars and £2.6 billion in Euros over the 10 year period. Planning assumptions are currently based upon rates set before the result of the EU referendum, and the recent exchange rate fluctuations threaten to impact significantly upon the affordability of the Plan.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
We are very concerned that the Ministry of Defence’s (the Department’s) Equipment Plan is at greater risk of becoming unaffordable than at any time since its inception in 2012. Maintaining affordability is now heavily reliant on a highly ambitious, but still under-developed, programme of efficiency savings from within the Plan and the wider Defence budget. The Plan continues to be vulnerable to cost growth because of uncertainties around the costs of new projects, continued problems with cost control on some long-standing projects, and the significant fall in the value of the pound against the US dollar. The Department has used more than £10 billion previously set aside to meet new requirements to help fund its existing core programme, leaving it little flexibility to deal with changing military priorities. Over the past five years the Department has transformed its financial management of large projects. We are worried that the increase in commitments without a commensurate increase in funding puts this stability and the ability of the Department to deliver what our forces need to operate effectively at real risk.
What the government said
No government response is linked to this report.
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 17 January 2017 to its close on 4 January 2018.
- Oral evidence 1 Mar 2017
- Report 25 Apr 2017
What it recommended
The committee's recommendations are not listed here yet. Read them in 56th Report - The Defence Equipment Plan ↗ on parliament.uk.
Evidence
Oral evidence sessions 1
- 1 Mar 2017No witnesses recordedparliament.uk ↗