Source · Select Committees · Public Accounts Committee
Recommendation 8
8
Rejected
MoD lacks long-term budget certainty beyond March 2025, hindering equipment planning.
Recommendation
The MoD asserted that it was not a gamble to assume that its budget will increase to 2.5% of GDP.21 At present, however, the MoD has budget certainty only to the end of March 2025, which hinders its ability to plan with any degree of precision over 10 years.22 The MoD said that it made sense for defence to have a multi-year settlement.23 From a military perspective, a five-year settlement would help the MoD provide long-term deterrence by allowing it to build the confidence the defence industry needs to invest in its capacity.24 The MoD also told us that if government’s ambition for defence spending was reduced to less than 2.5%, it would need to revise the level of capability it could buy to match the smaller budget.25 12 Q 12; Correspondence from MoD to PAC, 4 December 2023 13 Q 12; C&AG’s Report, para 1.8 14 Qq 12, 13 15 Q 62 16 Qq 13, 68, 69 17 Q 16 18 Qq 19, 20, 136–138 19 Q 99 20 Q 13; C&AG’s Report, para 2.25 21 Q 66 22 Qq 18, 19, 93 23 Qq 70, 71 24 Q 73 25 Q 67 10 MoD Equipment Plan 2023–2033 Inconsistencies in the Plan
Government Response Summary
The government explicitly disagreed with the committee's implied recommendation for more budget certainty, stating the Prime Minister's commitment to 2.5% GDP defence spending by 2030 and detailing existing commercial policy changes. It also stated it would not set out a list of capability cuts.
Government Response
Rejected
HM Government
Rejected
1.1 The government disagrees with the Committee’s recommendation. 1.2 The Prime Minister has committed to defence spending reaching 2.5% of GDP in 2030. 1.3 The Ministry of Defence (the department) has already implemented changes to commercial policy to manage inflation and continues to make greater use of index-linked fixed price contracts to prevent firms from either applying high premia on firm price bids or not bidding entirely. Engagement with the department’s main suppliers to discuss how inflation will be treated in future contracts, including a view of what is reasonable for payroll costs, is ongoing. 1.4 The government sets out the capability required by the Armed Forces via Strategic Reviews such as the Integrated Review and Defence Command Papers. The department does not intend to set out a list of capabilities that would be cut if certain budget assumptions are not met as this would create a risk to operational security and undermine industry confidence. 1.5 The department is continuing to work through the Defence Command Paper 2023 which signals a shift to focus more on Artificial Intelligence, autonomous and digital capabilities to modernise the Armed Forces, and reinforces the importance of assuring the department’s supply chains.