Select committee: Public Accounts Committee
Recommendation 5
Forty-Eighth Report - MoD Equipment Plan 2022–2032
Published 19 Apr 2023
Addressed to HM Treasury
Public Accounts Committee MoD Equipment Plan 2022-2032 All items in this report Report on parliament.uk ↗ Inquiry on parliament.uk ↗
Recommendation (the committee's words)
The Department has ignored the worsening economic environment in its latest Equipment Plan and faces significant financial pressures on its equipment programme. The Department has not included external cost pressures, including inflation and foreign exchange movements, in its central assessment of the Plan’s affordability. This is despite identifying when it produced the Plan that inflation could increase project costs by up to £2.1 billion over ten years. It did not include this inflationary pressure in its affordability analysis despite it being more than 80% of the Plan’s forecast surplus of £2.6 billion. Inflation has since risen higher than the March 2022 forecast, and the Department accepts it will struggle to manage affordability as a result. Further, the pound to dollar exchange rate has remained below the Plan’s worst-case scenario for several months, increasing the cost of several major Plan programmes. In the worsening economic environment, there is an increased possibility that some of the £25 billion of risks that the Department deemed unlikely—and has not included in cost forecasts—may occur, further increasing pressure on the Plan. Cost of living increases caused by rising inflation also mean that the Department might struggle to attract and retain staff with the skills it requires to deliver equipment programmes. We do not think that the Department has sufficiently taken these factors into account when considering the affordability of the plans. Recommendation 5: After the Integrated Review refresh, the Department must: • urgently reassess the affordability of its equipment procurement and support programmes; • move quickly to achieve the assumed savings; and • assess the level of headroom it needs to respond promptly to changing external events. We will seek an update from the Department at an evidence session in 2023.
From: Public Accounts Committee, Forty-Eighth Report - MoD Equipment Plan 2022–2032 (HC 731), 19 April 2023
Government response
The government responded to the whole report on 21 July 2023 (deadline 19 June 2023).
Summary written by Accountability Index from the government's response. It is not the government's own words.The government disagrees with the Committee's recommendation to publish a timelier Equipment Plan report, and agrees with its recommendations on the Integrated Review refresh, delivery speed, uncertainty, affordability and supply chains.
- On publishing a timelier Equipment Plan report, the government disagrees: the department "does not plan to publish a full equipment plan" while it adapts the plan to the Integrated Review Refresh and manages inflation, but "will write to the Committee with an update".
- It agrees that capability requirements arising from the Integrated Review refresh should be set out to HM Treasury, with a target implementation date of Summer 2023 (Defence Command Paper Update) and Winter 2023 (update to the Committee).
- On delivery speed, it agrees and recognises "the need to balance risk with the speed of capability delivery", noting there "may be scope to take more risk" but "not in every case"; it will write to the Committee by December 2023.
- It agrees to reassess affordability by September 2023, and to provide by December 2023 an assessment of the key sources of uncertainty and risk in the forward plan.