Recommendations & Conclusions
22 items
2
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
Because of the repeated delays to the publication of the Integrated Review of Security, Defence, Development and Foreign Policy, the Department was not able to provide details of how it proposes to use the £16.5 billion additional defence funding, or what capabilities it will cut to develop a balanced investment …
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Because of the repeated delays to the publication of the Integrated Review of Security, Defence, Development and Foreign Policy, the Department was not able to provide details of how it proposes to use the £16.5 billion additional defence funding, or what capabilities it will cut to develop a balanced investment programme. In November 2020, the government announced additional defence funding of £16.5 billion over the next four years. The Department’s planning assumption that its budget will grow in real terms by 0.5% per year for the subsequent six years and, as a consequence, it estimated that the Spending Review settlement would result in an extra £30 billion over the next 10 years. This settlement provides—for the first time in many years—a crucial opportunity to tackle the longstanding unaffordability of the equipment programme. As the 2020–2030 Plan is not affordable, the Department needs to make tough choices to reduce the existing funding shortfalls, including disinvestment in capabilities that it decides it no longer needs. The Department also plans to develop new capabilities and establish a new Space Command, but was not clear what level of funding would be available for these initiatives. As ministers had not yet made final decisions, the Department could not provide us with details of how the £16.5 billion would be used, including how much would be allocated to the Equipment Plan or other areas of Defence expenditure. It referred to the forthcoming publication of the Integrated Review, although it could only confirm that this would appear in the ‘spring’. 6 Defence Equipment Plan 2020–2030 Recommendation: Within three months of the Integrated Review being published, the Department should provide full transparency on its allocation of the additional funding, including: full details of disinvestment decisions; how the funding has been used to address existing shortfalls; and the investment in new capabilities.
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Government response AI summary
The government agrees with the recommendation and committed to writing to the Committee before summer recess with a summary of investment and savings decisions, and will publish the annual Equipment Plan in Autumn 2021 after review by the NAO.
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HM Treasury
3
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department’s failure to break the cycle of short-term financial management is preventing it from developing essential military capabilities in ways that achieve value for money and is restricting its ability to respond to new opportunities or threats. The Department’s continued focus on meeting the Treasury’s requirement for it to …
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The Department’s failure to break the cycle of short-term financial management is preventing it from developing essential military capabilities in ways that achieve value for money and is restricting its ability to respond to new opportunities or threats. The Department’s continued focus on meeting the Treasury’s requirement for it to balance its budget every financial year comes at a huge cost for equipment projects. The Commands have undertaken yet another re-prioritisation exercise to balance the budget for 2020–21, resulting in equipment projects being descoped or delayed. This results in higher costs in future years, with the Department now estimating a funding shortfall of £8.3 billion in the next five years. Furthermore, the Department allocated all its contingency funding at the start of 2020–21 to reduce the funding shortfall, restricting its ability to respond to any unexpected cost pressures during the year. It acknowledged this was not good practice. All funding in the 2020–2030 Plan is also allocated to existing projects, which means that the Department cannot develop new capabilities without further commensurate disinvestment or additional funding. We are deeply concerned at the Department’s procurement practices, having seen examples of over-specifying capabilities, a ‘salami slicing’ approach to projects and a failure to achieve value for money; for example, when the original number of vehicles or ships are not procured on affordability grounds, driving up unit costs. There is a growing risk that the financial pressures and the Department’s procurement approach are restricting its ability to exploit new opportunities, such as technological advances, and to develop capabilities to respond to new threats. Recommendation: After the Department has translated the decisions in the Integrated Review into a balanced investment programme, it should write to the Committee setting out the key principles of how it will make future investment decisions and manage
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Government response AI summary
The government agrees and commits to writing to the Committee alongside the Equipment Plan 2021 (Autumn 2021) to outline key principles for future investment decisions and how the plan will remain affordable.
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HM Treasury
4
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
The Defence equipment programme is routinely jeopardised by factors that drive inflation in defence projects. Defence projects are often long-term, complex and involve new technologies, which makes them vulnerable to cost inflation. This Committee has highlighted that inflation in equipment projects can result from factors specific to the defence sector; …
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The Defence equipment programme is routinely jeopardised by factors that drive inflation in defence projects. Defence projects are often long-term, complex and involve new technologies, which makes them vulnerable to cost inflation. This Committee has highlighted that inflation in equipment projects can result from factors specific to the defence sector; factors which the Department admitted are not fully understood. We therefore urge the Department to develop a better understanding of these factors, which would include: the availability of new and more expensive technology during the development and build phases; the ambition to maintain interoperability with the USA and other allies; the acquisition of leading-edge capability adding to unit costs instead of accepting more utilitarian specifications which would allow the acquisition of more units; relations with contractors who are in competition with each other to develop new technology; and the culture in Commands to have the best possible equipment at the expense of increased numbers of platforms. Recommendation: The Department should undertake a comprehensive study to better understand the drivers of defence costs inflation. This should not merely Defence Equipment Plan 2020–2030 7 be a statistical exercise but should look at attitudes and behaviours within the defence acquisition system, and how commercial realities and competition with other nations drive up costs. It should report the results to the Committee.
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Government response AI summary
The government accepted the recommendation, agreeing to undertake a comprehensive study into defence cost inflation drivers and report the results to the Committee alongside the annual Equipment Plan in Autumn 2021. It also highlighted ongoing work on investment decision-making and acquisition culture to address attitudes …
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HM Treasury
5
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department has not established a reliable and sophisticated approach to estimating the cost of its future equipment programme, including setting realistic efficiency savings. The Department acknowledges the risk of costs escalating on its equipment projects, which are often large, complex projects involving the development of new technologies. The Department’s …
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The Department has not established a reliable and sophisticated approach to estimating the cost of its future equipment programme, including setting realistic efficiency savings. The Department acknowledges the risk of costs escalating on its equipment projects, which are often large, complex projects involving the development of new technologies. The Department’s approach to cost forecasting is likely to understate the risks, with some projects—such as nuclear and IT networks programmes—likely to be at higher risk of cost increases. The Department monitors these risks, including fluctuations in future foreign exchange costs, but has not explored whether its approach to assessing risk remains appropriate for all projects. It also continues to make over-optimistic and inconsistent judgements on future efficiency savings. The Department expects the TLBs to find £12.3 billion of efficiency savings from projects in the Plan and had high confidence in its ability to achieve £8.2 billion of these savings (66% of its target). However, despite our previous recommendations, the Department has again included £2.7 billion of efficiency savings for which it has not yet implemented delivery plans and £1.1 billion of savings with no delivery plans. It also needs to find another £0.4 billion of savings to achieve its savings target. Furthermore, past performance shows the Department has been over optimistic in its ability to achieve planned savings. However, the failure to deliver these savings and find new efficiencies, would mean that the Plan is even less affordable. Recommendation: The Department should strengthen its approach to assessing risk in long-term projects, liaising with other government departments to establish and draw on best practice. In the next Equipment Plan report, it should explain the improvements made and set out how it has tested confidence in its ability to deliver planned efficiency savings, including those for 2021–22.
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Government response AI summary
The government agrees with the recommendation and will explain improvements in assessing risk and detail efficiency savings in the next Equipment Plan report. It has established a programme board, created centralised guidance and tools for risk costings, and plans to embed this guidance fully starting …
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HM Treasury
6
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department does not have all the necessary arrangements or qualified staff in place to provide assurance that its Equipment Plan is reliable and has been subject to rigorous quality assurance. The Department has made some improvements to its production and presentation of the Plan in recent years. But shortcomings …
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The Department does not have all the necessary arrangements or qualified staff in place to provide assurance that its Equipment Plan is reliable and has been subject to rigorous quality assurance. The Department has made some improvements to its production and presentation of the Plan in recent years. But shortcomings remain, particularly around the reliability and consistency of its adjustments to cost forecasts. The Department has also struggled to strengthen its financial capabilities, with no increase in the 41% of finance staff who have a professional finance qualification. The Department acknowledged the shortcomings of its delegated model. Head Office was not able to provide adequate quality assurance on the production of the Plan, with poor visibility of data used by the Top Level Budgets (TLBs), and struggled to challenge the inconsistency in their judgements. There have also been errors in the last three published Equipment Plan reports, raising further concerns over quality assurance. Recommendation: The Department should re-assess the role of its Head Office team in providing assurance on the affordability of the Equipment Plan and strengthen financial capabilities across the Department, ensuring that TLBs have adequate capacity and capability to make reliable and consistent assessments of future costs. 8 Defence Equipment Plan 2020–2030 1 Assessing the affordability of the equipment programme
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Government response AI summary
The government accepted the recommendation, outlining plans for a Finance Functional Leadership Programme by March 2023, including professional training, qualification recommendations for recruitment, standardised service delivery, and developing centralised guidance and resources for analysts by Summer 2021 to strengthen financial capabilities and quality assurance.
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HM Treasury
7
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
In our report on the Equipment Plan 2019–2029, we expressed our concern that the Department had still not established an affordable long-term investment programme in military equipment and had missed opportunities to take the necessary difficult decisions to develop an affordable plan. We urged the government to set a balanced …
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In our report on the Equipment Plan 2019–2029, we expressed our concern that the Department had still not established an affordable long-term investment programme in military equipment and had missed opportunities to take the necessary difficult decisions to develop an affordable plan. We urged the government to set a balanced defence budget that reflects new priorities and ambitions in developing capabilities to meet the evolving threats of modern warfare.11 Yet we continue to see the damaging consequences of failing to address the unaffordability of the Plan.12 The Top Level Budgets (TLBs) were again required to make savings on equipment projects—as they cut over £1 billion from their budgets in 2020–21—and were again restricted from entering into new contracts.13 We remain extremely frustrated that the Department has persisted with these practices while still not addressing the fundamental issue of the long-term affordability of its equipment programme.14
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Government response AI summary
The government accepted the recommendation to set a balanced defence budget, citing the £24 billion increase in defence spending and the publication of the Integrated Review and Defence Command Paper. It committed to demonstrate how these changes, alongside decisions to retire older capabilities and improve …
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HM Treasury
9
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Permanent Secretary also explained that the Department has had to live with an annual budget cycle and plan its equipment programme without the certainty of funding over a 10-year period. He explained that this was very difficult to manage. The 2020 Spending Review has provided the Department with the …
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The Permanent Secretary also explained that the Department has had to live with an annual budget cycle and plan its equipment programme without the certainty of funding over a 10-year period. He explained that this was very difficult to manage. The 2020 Spending Review has provided the Department with the certainty of funding for the 7 Qq 24, 29, 30, 36, 43, 44, 56, 65, 76 8 C&AG’s Report, para 13 9 Qq 31, 32, 72,73 10 C&AG’s Report, para 13 11 Committee of Public Accounts, Defence Capability and Equipment Plan, 10th Report of Session 2019–2021, 15 July 2020 paras 1, 7 12 Qq 24, 30, 31, 39, 13 C&AG’s Report, para 2.3 14 Qq 10 - 13, 15 Q 35 16 Q 36 10 Defence Equipment Plan 2020–2030 next four years, providing it with a basis for planning and the opportunity to address the structural problems with the Equipment Plan.17 The Permanent Secretary told us that in 2010 the defence budget had been made affordable, but at the expense of capability. Then in 2015, capability shortfalls were addressed but without sufficient funding. The budget was, therefore, constantly unbalanced in one way or another. He told us that he hoped now to develop a coherent and sensible package of capabilities which are backed up by resources, allowing the Department to plan properly in the longer-term.18 Producing a reliable assessment of funding shortfalls
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Government response AI summary
The government agrees with the implied recommendation and will write to the Committee alongside the Equipment Plan 2021, outlining key principles for future investment decisions and steps to ensure the equipment plan remains affordable and delivers value for money, building on recent publications and new …
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HM Treasury
10
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department acknowledged the risk of costs escalating on its biggest programmes— nuclear submarines and IT and communications systems—which are large, complex programmes involving the development of new technologies.19 It told us it assesses the risk of cost increases on projects and has embedded £13.5 billion in costings to enable …
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The Department acknowledged the risk of costs escalating on its biggest programmes— nuclear submarines and IT and communications systems—which are large, complex programmes involving the development of new technologies.19 It told us it assesses the risk of cost increases on projects and has embedded £13.5 billion in costings to enable senior responsible owners to manage risks that arise from delivering their projects. But the Department admitted that its independent cost assessors had estimated that there was £3.9 billion of risk over and above what is included in project budgets and the Department is also tracking £20 billion of cost increases that it judges, on balance, probably will not occur although at least some of these may materialise.20 The National Audit Office’s report also concluded that the Department’s approach to analysing cost risk and uncertainty means it is likely to have understated the level of risk in the Plan’s central forecast.21 While the Department has taken a more prudent approach on some high-risk projects, including the Dreadnought submarine programme, it has not explored whether its approach to assessing risk remains appropriate for new, complex projects.22
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Government response AI summary
While the committee item was a conclusion identifying shortcomings in the Department's approach to assessing risk for complex projects, the government accepted it as a recommendation. It committed to explaining improvements in the next Equipment Plan report (Autumn 2021), establishing a programme board to strengthen …
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HM Treasury
11
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department acknowledged that its equipment projects are subject to uncertainties that affect their delivery and cost. It is responsible for managing the risk of cost increases within its annual budget. For example, as approximately 15% of the Plan’s forecast expenditure is in euros or dollars, the Department models the …
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The Department acknowledged that its equipment projects are subject to uncertainties that affect their delivery and cost. It is responsible for managing the risk of cost increases within its annual budget. For example, as approximately 15% of the Plan’s forecast expenditure is in euros or dollars, the Department models the impact of foreign exchange movements on future equipment expenditure and reflects a possible 10% reduction in the value of sterling in its worst case scenario of the Plan’s funding shortfall.23 The Department told us that it is paying very close attention to the impact of the global economic position on foreign exchange rates and is discussing with HM Treasury the effect of the fluctuations on sterling over the last year.24Furthermore, it monitors the impact on individual programmes as exchange rate fluctuations can create budgetary pressure; for example, it estimated that the costs of the Lightning II programme could increase by £0.8 billion if 2020 exchange rates persisted.25
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Government response AI summary
While the committee item was a conclusion describing uncertainties like foreign exchange impacts on equipment costs, the government accepted it as a recommendation. It committed to explaining improvements in risk assessment in the next Equipment Plan report (Autumn 2021) and has established a programme board …
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HM Treasury
12
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department’s adjustments to its cost estimates are still over-optimistic, including its assessment of the level of potential efficiency savings.26 We have previously raised our concerns that the Department was including efficiency savings that it was not confident of 17 Qq 10,11 18 Q 12 19 Q 26 20 Q …
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The Department’s adjustments to its cost estimates are still over-optimistic, including its assessment of the level of potential efficiency savings.26 We have previously raised our concerns that the Department was including efficiency savings that it was not confident of 17 Qq 10,11 18 Q 12 19 Q 26 20 Q 41; C&AG’s report, para 1.14 21 C&AG’s report, para 14 22 C&AG’s report, para 14, 1.16 23 C&AG’s report, Figure 7 24 Qq 26, 42 25 Q 27; C&AG’s Report, Carrier Strike – Preparing for deployment, Session 2019–21, HC 374, 26 June 2020 para 1.17 26 C&AG’s report, para 14 Defence Equipment Plan 2020–2030 11 achieving.27 This year, we again sought assurances that its forecast savings were achievable. The Department told us that it had modelled the maturity level of its forecast savings and had high confidence in its ability to achieve £8.2 billion of efficiencies included in the Equipment Plan, 66% of its £12.3 billion savings target for projects in the 2020–2030 Plan.28 However, despite our previous recommendations, the Department has again included £2.7 billion of efficiency savings for which it has not yet implemented delivery plans and £1.1 billion of savings with no delivery plans. It also needs to find another £0.4 billion of savings to achieve its savings target. If the Department fails to deliver these less mature efficiencies and find new efficiencies, then the Plan would be even less affordable.29
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Government response AI summary
The government agrees with the implied recommendation, stating the next Equipment Plan report will explain improvements in assessing risk and detail planned efficiency savings. It has established a programme board to strengthen risk assessment, created centralised guidance, and plans to embed this guidance from FY …
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HM Treasury
14
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
We have previously recommended that the Department should improve its financial skills and asked what progress had been made.34 The Department had not increased the number of professionally qualified finance staff, and said it was unhappy that the proportion of finance staff with a professional qualification remained at 41%, the …
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We have previously recommended that the Department should improve its financial skills and asked what progress had been made.34 The Department had not increased the number of professionally qualified finance staff, and said it was unhappy that the proportion of finance staff with a professional qualification remained at 41%, the same as last year.35 The Army, Navy and Royal Air Force also had staff shortages in their finance sections, with one third of Equipment Plan-related posts vacant. The Department said it is seeking to train and recruit staff with finance qualifications but acknowledged that these plans were not moving fast enough. Despite not having enough staff with a professional finance qualification, the Department told us that it still had confidence in its cost forecasts.36
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Government response AI summary
While the committee item was a conclusion noting insufficient progress in increasing professionally qualified finance staff, the government treated it as a recommendation. It accepted and detailed plans under its Finance Functional Leadership Programme to provide professional training, integrate qualifications into recruitment, and streamline service …
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HM Treasury
15
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department admitted that its Head Office was not providing sufficient challenge on the financial judgements made by the TLBs when compiling the Equipment Plan.37 Because of the way the Department is organised under the delegated model, Head Office cannot easily access the TLBs’ financial information to identify the reasons …
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The Department admitted that its Head Office was not providing sufficient challenge on the financial judgements made by the TLBs when compiling the Equipment Plan.37 Because of the way the Department is organised under the delegated model, Head Office cannot easily access the TLBs’ financial information to identify the reasons for changes 27 Committee of Public Accounts, Defence Equipment Plan 2018–28, 77th Report of Session 2017–2019, 1 February 2019; Committee of Public Accounts, Defence Capability and Equipment Plan, 10th Report of Session 2019–2021, 15 July 2020 28 Q 58; C&AG’s report, para 1.24 29 Q 66; C&AG’s report, para 14, 1.24 30 Qq 58, 59 31 Q 60 32 Qq 66, 67 33 Q 60 34 Q 81; Committee of Public Accounts, Defence Equipment Plan 2018–28, 77th Report of Session 2017–2019, 1 February 2019 35 Q 82 36 Qq 81 - 83 37 Q 84 12 Defence Equipment Plan 2020–2030 to the Plan’s costs.38 The National Audit Office also found that Head Office did not have the data, resources or remit to undertake the level of quality assurance we would expect.39 The Department told us that it was actively seeking to address the ability of its Head Office to provide an appropriate level of leadership and challenge to the TLBs.40 It is seeking to ensure that Head Office has the resource and capability it needs to understand what is going on in the Commands and make balanced investment decisions that take account of the full range of defence activities and priorities.41
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Government response AI summary
The government agrees with the implied recommendation, setting a target implementation date of March 2023, and outlines plans to strengthen financial capabilities and Head Office's challenge function through professional training, skills certificates, a standardised service delivery model, and centralised guidance for analysts.
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HM Treasury
16
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department claimed it has fulfilled previous Committee recommendations, albeit that it accepted that some improvements were on-going.42 The National Audit Office has found that the Department has made improvements to its analysis and reporting, for example improving the presentation and transparency of its Equipment Plan report.43 However, the Department …
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The Department claimed it has fulfilled previous Committee recommendations, albeit that it accepted that some improvements were on-going.42 The National Audit Office has found that the Department has made improvements to its analysis and reporting, for example improving the presentation and transparency of its Equipment Plan report.43 However, the Department could not demonstrate that its quality assurance work had ensured that the Plan was based on consistent and fully documented data and assumptions. In addition, the Department found errors in its 2017–2027, 2018–2028 and 2019–2029 reports after publication.44 38 C&AG’s report, para 2.13 39 C&AG’s report, para 18 40 Qq 84, 92 41 Q 90 42 Q 9 43 C&AG’s report, para 2.16 44 C&AG’s report, para 18 Defence Equipment Plan 2020–2030 13 2 Managing the funding shortfalls Re-balancing the equipment programme
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Government response AI summary
The government agrees with the implied recommendation, setting a target implementation date of March 2023, and details plans to strengthen financial capabilities through professional training, certificates, standardised service delivery, and developing centralised guidance and resources for analysts.
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HM Treasury
18
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
We have repeatedly urged the Department to take the difficult investment decisions needed to develop a balanced investment programme, highlighting missed opportunities to address fundamental weaknesses in its management of the Equipment Plan.48 The Department acknowledged that the lack of certainty over long-term funding had prevented it from taking strategic …
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We have repeatedly urged the Department to take the difficult investment decisions needed to develop a balanced investment programme, highlighting missed opportunities to address fundamental weaknesses in its management of the Equipment Plan.48 The Department acknowledged that the lack of certainty over long-term funding had prevented it from taking strategic decisions to address the structural imbalance in the Plan. The Spending Review settlement, announced in November 2020, now gives the Department more certainty of funding over a longer planning horizon and, for the first time in many years, provides it with the opportunity to take strategic decisions around future capabilities. The Department told us that it considered this was a turning point for Defence.49 Drawing on the lessons from the strategic reviews in 2010 and 2015, it intends to develop a coherent and balanced 10-year programme of equipment expenditure.50
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Government response AI summary
The government agrees with the recommendation and will write to the Committee alongside the Equipment Plan 2021, outlining key principles for future investment and steps to ensure affordability and value for money. It highlights ongoing efforts and recent publications to achieve a balanced approach.
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HM Treasury
19
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department could not provide us with a detailed explanation of how it planned to use the additional £16.5 billion of funding as ministers have yet to finalise decisions.51 Given that the 2020–2030 Equipment Plan is unaffordable, it accepted that it would need to use some of the new funding …
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The Department could not provide us with a detailed explanation of how it planned to use the additional £16.5 billion of funding as ministers have yet to finalise decisions.51 Given that the 2020–2030 Equipment Plan is unaffordable, it accepted that it would need to use some of the new funding to address the shortfalls on the existing equipment programme.52 The Department told us that, even after this, it will need to cut capabilities to establish an affordable programme and that Ministers faced some tough choices in deciding which capabilities to retire or reduce.53 Furthermore, the Department has been clear that it faces funding pressures elsewhere, for example across its defence estate, and will need to assess how much of the additional resources will be spent on spending infrastructure, people and operations to address shortfalls in these areas. It told us it will set out its plan to manage the next four years and the equipment programme over the next ten years.54 45 Q 57 46 Q 28, 40 47 C&AG’s report, para 20 48 Committee of Public Accounts, Defence Capability and Equipment Plan, 10th Report of Session 2019–2021, 15 July 2020 49 Qq 10, 11 50 Qq 12, 13 51 Qq 14, 39, 54 52 Qq 24, 28, 36, 44 – 49, 56, 57, 102 53 Qq 11, 43 54 Qq 50, 51 14 Defence Equipment Plan 2020–2030
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Government response AI summary
The government agrees and commits to writing to the Committee before summer recess with a summary of investment and savings decisions, working with the NAO for review, and publishing the annual Equipment Plan in Autumn 2021.
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HM Treasury
20
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department confirmed that the Integrated Review—which had not been published at the time we took evidence—would contain substantially different capability choices from the current Equipment Plan.55 The government intends that the additional funding will be invested in capability enhancements and new technologies, and be used to help the Department …
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The Department confirmed that the Integrated Review—which had not been published at the time we took evidence—would contain substantially different capability choices from the current Equipment Plan.55 The government intends that the additional funding will be invested in capability enhancements and new technologies, and be used to help the Department to address the financial problems it has faced over the last five years.56 As Ministers had not yet made final decisions, the Department could not set out what proportion of the additional funding would be used to develop new capabilities.57 The Department told us that details of the specific new programmes and capability cuts will be set out when the Integrated Review is published, and it expected this to be in spring 2021.58 We emphasised our intention to continue to scrutinise the outcome of the Integrated Review and the Department’s management of equipment expenditure.59
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Government response AI summary
The government agrees and commits to writing to the Committee before summer recess with a summary of investment and savings decisions following the Integrated Review, working with the NAO for review, and publishing the annual Equipment Plan in Autumn 2021.
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HM Treasury
22
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
We are concerned that the Department has no flexibility in its 2020–2030 Equipment Plan budget, which limits its ability to respond quickly to new or emerging threats.63 The National Audit Office report showed that the Department has only made provision for projects that it has already begun and has not …
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We are concerned that the Department has no flexibility in its 2020–2030 Equipment Plan budget, which limits its ability to respond quickly to new or emerging threats.63 The National Audit Office report showed that the Department has only made provision for projects that it has already begun and has not allocated any funding to develop new high- priority capabilities or replace existing capabilities.64 The Department allocated all of its 2020–21 contingency in response to the financial pressures that it faces but accepted that its approach was not best practice. It told us that it needed to build some margin back into the programme to avoid repetition of the short-term money saving measures that do not achieve value for money.65
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Government response AI summary
The government states it has published the Defence Command Paper with new investment and is taking a balanced approach with appropriate risk and contingency, demonstrating mechanisms for a coherent program and modernization. It is also strengthening its approach to managing the defence portfolio for agility …
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HM Treasury
23
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The Department also needs ‘headroom’ in its budget to keep up with the pace of change on new technologies.66 It is therefore assessing how much contingency is appropriate for both the nuclear programme and more conventional equipment projects in the Plan.67 The Department told us it also plans to invest …
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The Department also needs ‘headroom’ in its budget to keep up with the pace of change on new technologies.66 It is therefore assessing how much contingency is appropriate for both the nuclear programme and more conventional equipment projects in the Plan.67 The Department told us it also plans to invest in new capabilities for which 55 Q 14 56 Q 24 57 Qq 14, 24, 40, 79 58 Q 25, 53, 99 59 Q 102 60 Q 29 61 Qq 39, 55, 79 62 Q 30 63 Q 95 64 C&AG’s report, para 1.11 65 Qq 38, 42 66 Qq 78, 95 67 Q 41 Defence Equipment Plan 2020–2030 15 future funding requirements are unclear. For example, the Department is establishing a new Space Command and seeking to build its capacity in this domain but has not yet set out its investment plan.68 Responding to affordability pressures
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Government response AI summary
The committee noted the need for budget headroom for new technologies and clearer investment plans. The government responded by referencing the Defence Command Paper and additional £16.5 billion investment since the report, stating it has since taken a balanced approach with appropriate risk and contingency, …
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HM Treasury
24
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
We remain extremely concerned that the Department continues to manage a long- term spending programme on a year-by-year, cash-limited budget.69 Faced with funding shortfalls, the Department took a range of measures to balance its 2020–21 budget, including introducing commitment levels on commands’ budgets, restricting the introduction of new projects and …
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We remain extremely concerned that the Department continues to manage a long- term spending programme on a year-by-year, cash-limited budget.69 Faced with funding shortfalls, the Department took a range of measures to balance its 2020–21 budget, including introducing commitment levels on commands’ budgets, restricting the introduction of new projects and closely monitoring in-year expenditure.70 Furthermore, the Department once again allocated all of its contingency budget at the start of the year to reduce the funding shortfall in 2020–21, limiting its flexibility to respond to any unexpected cost pressures. It agreed with HM Treasury that this was the best way to manage its difficult financial position.71
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Government response AI summary
The committee expressed concern about managing a long-term spending programme on a year-by-year, cash-limited budget. The government responded by citing the Defence Command Paper and the additional £16.5 billion investment from the 2020 Spending Review, stating these enable a balanced approach with appropriate risk and …
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HM Treasury
25
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
The National Audit Office has also reported that the Department’s continued focus on living within its in-year budget is affecting its ability to develop the military capabilities that are needed.72 The commands undertook yet another re-prioritisation exercise to balance the annual budget for 2020–21, either descoping equipment projects or delaying …
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The National Audit Office has also reported that the Department’s continued focus on living within its in-year budget is affecting its ability to develop the military capabilities that are needed.72 The commands undertook yet another re-prioritisation exercise to balance the annual budget for 2020–21, either descoping equipment projects or delaying expenditure. This focus on living within its annual budget means the Commands must manage long-term projects within short-term expenditure approvals, which also leads to higher overall costs. The Department now estimates a funding shortfall of £8.3 billion in the next five years.73
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Government response AI summary
The government states it has published the Defence Command Paper and is investing an additional £16.5 billion into new capabilities, taking a balanced approach with appropriate risk and contingency, and disinvesting in others, which demonstrates mechanisms to deliver a coherent program.
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HM Treasury
26
Conclusion
Fiftieth Report - Defence Equipment Pla…
Accepted
Faced with an unaffordable programme, we questioned the Department’s ability to achieve value for money from its equipment expenditure. We have seen many examples of the Department not buying the quantity of kit or the number of capabilities that it originally intended to buy; such as Typhoons or destroyers.74 The …
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Faced with an unaffordable programme, we questioned the Department’s ability to achieve value for money from its equipment expenditure. We have seen many examples of the Department not buying the quantity of kit or the number of capabilities that it originally intended to buy; such as Typhoons or destroyers.74 The Department acknowledged that, historically, it has bought capabilities with sophisticated rather than utilitarian specifications, although it pointed to the Type 31 acquisition as an example of purchasing a more flexible capability.75 It also acknowledged that in newer domains, such as cyber and space, its procurement procedures are too slow and have not allowed it to respond to the rapid pace of change on new technologies.76
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Government response AI summary
The government states it has published the Defence Command Paper outlining new policy aims and capability decisions, underpinned by additional funding. It explains it is taking a balanced approach to investment and modernisation, including divesting from some capabilities like the Warrior Capability Sustainability Programme.
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HM Treasury
27
Recommendation
Fiftieth Report - Defence Equipment Pla…
Accepted
While pointing out that this was also a problem encountered by other countries, the Department acknowledged that it did not have a good understanding of the unique factors that drive inflation on defence projects, and that there was work to be done to better understand whether there are better ways …
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While pointing out that this was also a problem encountered by other countries, the Department acknowledged that it did not have a good understanding of the unique factors that drive inflation on defence projects, and that there was work to be done to better understand whether there are better ways of managing or predicting it.77 Defence projects are often long-term, complex and involve new cutting-edge technologies. For example, it is likely to be buying Lightning II jets for another 20 years and will need to constantly 68 Qq 4, 74 69 Q 10 70 C&AG’s report, para 19 71 Qq 10, 13 72 C&AG’s report, para 16 73 C&AG’s report, para 1.35 74 Q 35 75 Q 38 76 Q 95 77 Qq 35, 37 16 Defence Equipment Plan 2020–2030 update the software in response to technological advances.78 The Department accepted it needed to understand and anticipate the factors that affect the cost of projects in order to retain flexibility to manage the delivery of capabilities on the scale of defence projects.79 78 Qq 34, 35 79 Q 35 Defence Equipment Plan 2020–2030 17
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Government response AI summary
The government agrees with the recommendation to better understand and manage defence cost inflation, committing to write to the Committee with the annual Equipment Plan in Autumn 2021 and highlighting ongoing work by economics and statistics teams and acquisition transformation efforts.
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HM Treasury