Source · Select Committees · Public Accounts Committee
Recommendation 19
19
Acknowledged
Economic factors such as inflation and exchange rates will cause significant risks to the plan’s...
Conclusion
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
Government Response 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 2023 Spring Budget, but the department still faces financial pressures.
Government Response
Acknowledged
HM Government
Acknowledged
5.1 The government agrees with the Committee’s recommendation. Target implementation date: September 2023 5.2 The department continuously updates its forecast of the cost of the equipment plan and reviews its affordability through the annual financial planning process, which involves bottom-up costing by delivery agents, such as Defence Equipment & Support, through programme cost reviews. 5.3 The government announced an additional £5 billion for defence in the remaining two years of the 2020 Spending Review settlement at the 2023 Spring Budget, but the department still faces financial pressures and is working to adjust its plans to balance the department’s objectives and outputs with the funding available to it.