NAO warns MoD of £13bn overspend

The National Audit Office (NAO) has rated the Ministry of Defence’s (MoD’s) equipment plan for the next decade as ‘unaffordable’ and warns the department risks a £13bn overspend

The plan accounts for 42% of the MoD’s total spending, covering large and complex procurement projects, maintaining equipment, and introducing modern information and communications technology.

The NAO also criticises the plans as they risk reducing the effectiveness of the Armed Forces because of its short-term approach to budgeting.

The MoD currently forecasts £183.6bn of equipment and support costs over the next ten years, against a £180.7bn budget, resulting in a £2.9bn deficit. These costs could vary, and in a worst case scenario, should all the risks identified by the MoD materialise, this gap could grow to £13bn.

This is the third successive year that the NAO has concluded the plan is unaffordable.

Although the MoD’s reported funding shortfall is less than last year, the audit watchdog says it is not possible to directly compare the affordability gap over time as the department has presented it on a different basis to before.

In particular, it has made more optimistic judgments than last year, which have removed £7.8bn costs from the plan.

In spite of this, the NAO says it is clear that the MoD faces more significant shortfalls over the next five years – it estimates the shortfall is £6bn up to 2023-24 – and it now has less flexibility to respond to short-term financial pressures.

The MoD is managing these financial pressures by establishing tighter control of in-year expenditure and has undertaken a detailed analysis of investment options. However, the NAO cautions that its continued short-term focus on living within its annual budget is increasingly leading to reduced capabilities.

For example, unless action is taken, MoD will lose existing capabilities, such as the medical facilities provided by the ship RFA Argus, during the period covered by the plan.

Decisions to defer project expenditure are also reducing value for money. For example, affordability-driven decisions to delay the introduction of Protector (remotely piloted aircraft) will increase costs by £187m, plus a further £50m to retain existing equipment for longer.

Gareth Davies, head of the NAO, said: ‘The MoD has not made the necessary strategic decisions to address the 10-year affordability gap and there is evidence that its continued short-term focus on living within annual budgets is increasingly affecting the Armed Forces’ ability to maintain and enhance the UK’s military capability.

‘The MoD needs to determine its strategic priorities so that it can develop an affordable long-term programme of investment.’

The Equipment Plan 2019 to 2029

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