Recommendation 4

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