This report assesses the robustness of the Ministry of Defence's
financial data and assumptions for its Equipment Plan 2018-2028.
Background to the report
The Ministry of Defence’s (the Department’s) Equipment Plan 2018
to 2028 (the Plan) sets out its equipment and support budget for
the period 2018 to 2028. The Plan includes equipment already in
use, such as the Typhoon combat aircraft, as well as equipment in
development, such as four new nuclear-armed submarines. For the
next 10 years, the Department will allocate more than 40% of its
total budget to its equipment and support programmes.
Consequently, it needs to manage the Plan effectively in order to
maintain the stability of the wider defence budget and to ensure
that the Armed Forces have the equipment they need to meet their
objectives.
The Department introduced the Plan in 2012 following a period of
poor financial management, during which a significant gap
developed between forecast funding and costs across the defence
programme. This led to a cycle of over-committed plans,
short-term cuts, and the re-profiling of expenditure, which
resulted in poor value for money and reduced funding for
front-line military activities. At the request of the then
Secretary of State, we provide Parliament with a commentary on
the Plan when it is published each year, and assess the
robustness of its underlying assumptions.
Content and scope of the report
In this report, we summarise our assessment of the robustness of
the Department’s financial data and assumptions for its Equipment
Plan 2018 to 2028. In particular, we review how the Department:
- sets its Equipment Plan 2018 to 2028 budget (Part One);
- forecasts the cost of the Plan and associated risks (Part
Two); and
- assesses and addresses the risks to affordability (Part
Three).
We do not consider the value for money of the various projects
mentioned in this report or comment on the extent to which the
Department can make the programme affordable. We intend to
examine and report on affordability further once the Modernising
Defence Programme review has concluded.
Report conclusions
The Department’s Equipment Plan remains unaffordable, with
forecast costs exceeding budgets by £7.0 billion over the next 10
years. This variance could increase or decrease depending on
different circumstances, with the Department estimating a
worst-case scenario of costs increasing by £14.8 billion should
all the identified risks materialise. However, some of its
analysis remains optimistic and costs could increase further. The
Department is improving its understanding of affordability risks,
but we are not yet fully confident in the robustness of some of
its underlying assumptions, particularly around efficiencies.
The Department recognises that continued unaffordability of the
Plan is not sustainable and has presented the nature and scale of
the challenges it faces more clearly in its latest Plan. However,
as we have previously recommended, it still needs to undertake
the necessary analysis and make the decisions needed for the Plan
to be affordable. In January 2018, it established MDP to take the
action needed to close the affordability gap, but this work has
not yet concluded. Given that 84% of the identified affordability
challenge falls in the next four years, the Department must make
decisions now. During the current period of uncertainty, the
Department has resorted to short-term decision-making, increasing
the longer-term risks to value for money and the likelihood of
returning to past poor practices.
