Recommendation 11

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