MPs warn of MoD financial weaknesses

The Ministry of Defence (MoD) risks being up to £20bn short of the amount it requires to fund vital equipment because of unrealistic financial planning and a lack of controls, the public accounts committee (PAC) has warned

A PAC review of the MoD equipment plan has concluded the risks of unaffordability were greater now than at any time since its inception in 2012, saying the department lacks cost control.

Forecasts suggests costs will come in at least £4.9bn, and potentially as much as £20.8bn more than the £179.7nm budget, and MPs say they are ‘highly sceptical’ that the MoD will be able to return to a balanced position.

PAC says the MoD’s inability to determine the size of the equipment plan affordability gap for the next 10 years reduces its ability to make informed decisions about the UK’s defence.

The report states: ‘We are concerned by the department’s vagueness and reluctance to acknowledge its full exposure, and by the department seeming to question the accuracy of its own numbers when giving evidence.

‘The department says it is confident that at end of the Modernising Defence Programme, with cost information anticipated in autumn 2018, it will have a “strategically affordable” plan, but is unable to articulate clearly how this will be achieved.’

PAC is critical of the MoD’s ‘significant cost optimism bias’ which it says arises from  weaknesses in cost management, which has resulted in £9.6bn of forecast costs being excluded from the plan.

The report states: ‘The department lacks an understanding of what comprises that £9.6bn, and could provide no meaningful explanation for excluding the costs of buying Type 31e frigates. The department also needs to be clear about what contingency it is relying on.’

A total requirement for £16bn of savings has been set since the equipment plan reporting regime began in 2012, of which the MoD claims to have achieved £7.9bn so far. However, PAC says it is sceptical that it can achieve the remaining £8.1bn by 2027. The majority of the remaining savings ideas are at an early stage of development, with implementation plans still to be developed.

Meg Hillier, PAC chair, said : ‘It is concerning that the department could find itself more than £20bn short of the funding required to buy the equipment it says it needs.

‘The MoD’s inability to better quantify that affordability gap has consequences not just for its confirmed spending plans, but also its ability to prepare for serious challenges in national defence.

The department must be more rigorous and realistic in its approach to costing its equipment plan. It also needs to be more open with Parliament and the public about its finances, commitments and their costs to taxpayers.’

PAC review MoD Defence Equipment Plan 2017–2027

 

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