Source · Select Committees · Public Accounts Committee
Fiftieth Report - Defence Equipment Plan 2020–2030
Public Accounts Committee
HC 693
Published 16 March 2021
Conclusions (27)
2
Conclusion
Because of the repeated delays to the publication of the Integrated Review of Security, Defence, Development and Foreign Policy, the Department was not able to provide details of how it proposes to use the £16.5 billion additional defence funding, or what capabilities it will cut to develop a balanced investment …
3
Conclusion
The Department’s failure to break the cycle of short-term financial management is preventing it from developing essential military capabilities in ways that achieve value for money and is restricting its ability to respond to new opportunities or threats. The Department’s continued focus on meeting the Treasury’s requirement for it to …
4
Conclusion
The Defence equipment programme is routinely jeopardised by factors that drive inflation in defence projects. Defence projects are often long-term, complex and involve new technologies, which makes them vulnerable to cost inflation. This Committee has highlighted that inflation in equipment projects can result from factors specific to the defence sector; …
5
Conclusion
The Department has not established a reliable and sophisticated approach to estimating the cost of its future equipment programme, including setting realistic efficiency savings. The Department acknowledges the risk of costs escalating on its equipment projects, which are often large, complex projects involving the development of new technologies. The Department’s …
6
Conclusion
The Department does not have all the necessary arrangements or qualified staff in place to provide assurance that its Equipment Plan is reliable and has been subject to rigorous quality assurance. The Department has made some improvements to its production and presentation of the Plan in recent years. But shortcomings …
1
Conclusion
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Defence on the Equipment Plan 2020–2030.1
7
Conclusion
In our report on the Equipment Plan 2019–2029, we expressed our concern that the Department had still not established an affordable long-term investment programme in military equipment and had missed opportunities to take the necessary difficult decisions to develop an affordable plan. We urged the government to set a balanced …
8
Conclusion
When asked if the financial problems with the Defence budget were ever likely to change, the Permanent Secretary pointed first to the Department not having a very good understanding of the drivers of inflation with defence projects. Second, and in his view probably most importantly, he highlighted the inherent difficulties …
9
Conclusion
The Permanent Secretary also explained that the Department has had to live with an annual budget cycle and plan its equipment programme without the certainty of funding over a 10-year period. He explained that this was very difficult to manage. The 2020 Spending Review has provided the Department with the …
10
Conclusion
The Department acknowledged the risk of costs escalating on its biggest programmes— nuclear submarines and IT and communications systems—which are large, complex programmes involving the development of new technologies.19 It told us it assesses the risk of cost increases on projects and has embedded £13.5 billion in costings to enable …
11
Conclusion
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 …
12
Conclusion
The Department’s adjustments to its cost estimates are still over-optimistic, including its assessment of the level of potential efficiency savings.26 We have previously raised our concerns that the Department was including efficiency savings that it was not confident of 17 Qq 10,11 18 Q 12 19 Q 26 20 Q …
13
Conclusion
The Department acknowledged that its plans for achieving efficiency savings—which are based on thousands of initiatives on equipment projects—did not always deliver the expected returns. It told us that it has introduced more rigorous scrutiny of savings proposals to help develop a better understanding of its ability to deliver future …
14
Conclusion
We have previously recommended that the Department should improve its financial skills and asked what progress had been made.34 The Department had not increased the number of professionally qualified finance staff, and said it was unhappy that the proportion of finance staff with a professional qualification remained at 41%, the …
15
Conclusion
The Department admitted that its Head Office was not providing sufficient challenge on the financial judgements made by the TLBs when compiling the Equipment Plan.37 Because of the way the Department is organised under the delegated model, Head Office cannot easily access the TLBs’ financial information to identify the reasons …
16
Conclusion
The Department claimed it has fulfilled previous Committee recommendations, albeit that it accepted that some improvements were on-going.42 The National Audit Office has found that the Department has made improvements to its analysis and reporting, for example improving the presentation and transparency of its Equipment Plan report.43 However, the Department …
17
Conclusion
In November 2020, the government announced that it would provide an additional £16.5 billion of funding over the next four years, which represents a 10% increase in the defence budget over this period.45 The Department said that HM Treasury has given it a planning assumption that its budget will grow …
18
Conclusion
We have repeatedly urged the Department to take the difficult investment decisions needed to develop a balanced investment programme, highlighting missed opportunities to address fundamental weaknesses in its management of the Equipment Plan.48 The Department acknowledged that the lack of certainty over long-term funding had prevented it from taking strategic …
19
Conclusion
The Department could not provide us with a detailed explanation of how it planned to use the additional £16.5 billion of funding as ministers have yet to finalise decisions.51 Given that the 2020–2030 Equipment Plan is unaffordable, it accepted that it would need to use some of the new funding …
20
Conclusion
The Department confirmed that the Integrated Review—which had not been published at the time we took evidence—would contain substantially different capability choices from the current Equipment Plan.55 The government intends that the additional funding will be invested in capability enhancements and new technologies, and be used to help the Department …
21
Conclusion
The Department assured us that it has been closely involved in the Integrated Review and it had a clear view on the priorities and roles that Defence would need to play in the future. It highlighted the increasing threat from space and cyberspace, and the need to deter and defend …
22
Conclusion
We are concerned that the Department has no flexibility in its 2020–2030 Equipment Plan budget, which limits its ability to respond quickly to new or emerging threats.63 The National Audit Office report showed that the Department has only made provision for projects that it has already begun and has not …
23
Conclusion
The Department also needs ‘headroom’ in its budget to keep up with the pace of change on new technologies.66 It is therefore assessing how much contingency is appropriate for both the nuclear programme and more conventional equipment projects in the Plan.67 The Department told us it also plans to invest …
24
Conclusion
We remain extremely concerned that the Department continues to manage a long- term spending programme on a year-by-year, cash-limited budget.69 Faced with funding shortfalls, the Department took a range of measures to balance its 2020–21 budget, including introducing commitment levels on commands’ budgets, restricting the introduction of new projects and …
25
Conclusion
The National Audit Office has also reported that the Department’s continued focus on living within its in-year budget is affecting its ability to develop the military capabilities that are needed.72 The commands undertook yet another re-prioritisation exercise to balance the annual budget for 2020–21, either descoping equipment projects or delaying …
26
Conclusion
Faced with an unaffordable programme, we questioned the Department’s ability to achieve value for money from its equipment expenditure. We have seen many examples of the Department not buying the quantity of kit or the number of capabilities that it originally intended to buy; such as Typhoons or destroyers.74 The …
27
Conclusion
While pointing out that this was also a problem encountered by other countries, the Department acknowledged that it did not have a good understanding of the unique factors that drive inflation on defence projects, and that there was work to be done to better understand whether there are better ways …