Challenges to UK equipment plan
The UK Ministry of Defence's equipment plan is at risk of becoming unaffordable according to the Public Accounts Committee.
The report released by the PAC on 25 April highlighted vulnerabilities within the ministry's plan and that the 'ability of the department to deliver what our forces need to operate effectively' has been put 'at real risk'.
The MoD's failure to protect £10 billion that had been set aside as headroom was a particular concern of the PAC, reducing the ministry's flexibility to meet new requirements as and when they arise from changing military priorities.
The report further emphasised the uncertainty created by the MoD's new commitments, amounting to contracts worth £24 billion, much of which remain unfunded and a number of projects uncosted.
While £6 billion of additional external funding has been identified to cover commitments including the P-8 Poseidon maritime patrol aircraft, mechanised infantry vehicle, extensions to the Typhoon and bringing the F-35 forward, it is unclear how the shortfall will be met.
Committee member Anne-Marie Trevelyan commented that there is a 'wave of new and exciting toys for our command to bring out into the field' but also that there exists 'no financial backing to give it any stability'.
Giving evidence to the committee, Amyas Morse, comptroller and auditor general of the National Audit Office, described the £7.1 billion efficiency target as 'ambitious' in response to the committee's scepticism that the department was capable of meeting it.
The affordability of the plan was further challenged due to its reliance on efficiency savings, £2.5 billion of which have been brought forward from last year's plan due to a failure to realise them.
Stephen Lovegrove, permanent secretary of the MoD, confirmed that savings of £3.3 billion are to be met by a 30% reduction in civilian employees within the DE&S programmes.
Other savings are expected to be achieved through improvements in value for money in the complex weapons investment programme and single-source contract regulations, designed to control contracts secured through uncompetitive processes.
The committee drew attention to concerns that cost control problems and over-optimistic cost forecasts continue to undermine the affordability of the plan.
Highlighting the example of the nuclear enterprise programme, which according to CAAS had its costs for 2015-2016 understated by £4.8 billion, committee member Philip Boswell questioned the department's ability to continue to manage the programme's rising costs.
In response, a number of structural changes have been implemented in an attempt to bring the costs of the Dreadnought and Astute programmes under control.
Other cost concerns remain regarding the department's largest non-nuclear procurement, the Type 26 Global Combat Ship, and the creation of a new class of general purpose frigate.
The committee expressed concern that it remains unclear both how much the new requirement will cost and from where the money will be sourced.
Finally Trevelyan raised the issue of additional currency risks, describing the fluctuations in the value of the pound as 'a dramatic leap and potential impact' to the costs of early-stage projects such as the F-35 and P-8.
Louise Tulett, director general finance for the MoD, stated that the impact of Brexit-caused currency fluctuations 'will begin to bite in 2019-20' and that inter-ministry discussions to mitigate such challenges were taking place.
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