15-year delay to submarine disposal risks costing taxpayer £30 million says PAC

The Public Accounts Committee has today published a report on Submarine Defueling and Dismantling.

• MoD’s failure to dispose of retired nuclear submarines is unacceptable and unnecessary
• Further delays to submarine disposal possible as first dismantling will be three years late
• By the mid-2020s, Department is likely to find itself without any further storage space

Report summary

The UK retired its 20 legacy submarines in 1980 and the Ministry of Defence’s (the Department) progress in disposing of these submarines has been a serious disappointment. The project has moved at a glacial pace and the 15-year delay has led to extortionate storage and maintenance costs which are now costing the taxpayer £30 million per year. The Department is also looking increasingly likely to find itself without any further storage space by the mid-2020s. The Department is rapidly approaching crisis point and simply cannot afford any further delays, particularly as much of the money currently being spent on the project is not going directly towards either defueling or dismantling. While it has taken the Department 16 years to devise a workable dismantling strategy, it is encouraging to see that progress is now being made and there is finally some momentum behind the project. However, while there is now an agreed policy, we remain sceptical that the ambitious timetable will be met, particularly given how many times this project has been delayed or deprioritised over the years. It is clear that the commitment to dismantle its first submarine – Swiftsure – by 2023 will not be met and will likely be completed three years after the target date. The scale of the task faced by the Department appears even more challenging given the defence affordability ‘black hole’ which totals at least £7 billion. The Department has some way to go to establish submarine disposal as a routine part of its business.

Chair's comments

Commenting on the Report, Meg Hillier MP, Chair of the Public Accounts Committee, said:

“Yet again, the Government has failed to see the bigger picture. In an attempt to save money in the short term by delaying the defueling and dismantling of retired nuclear submarines, the MoD is now spending £30 million a year of taxpayers’ money on storage and maintenance.

“The MoD has spent £500 million since 1980 on such storage and maintenance. This is simply unacceptable.

“Whilst some progress has been made recently with submarine disposals, the MoD cannot afford to fall any further behind. 

“The Public Accounts Committee has set out a series of milestones for the MoD to ensure that it keeps on track to establish submarine disposal as a routine part of its business.”

Conclusions and recommendations

The continual failure to progress submarine disposal has created an unacceptable and unnecessary problem for the Department. In not yet disposing of a single submarine, the Department now risks running out of both storage and maintenance space. The projects needed to allow disposal to happen have been beset by delays, with an 11-year delay to defueling and a 15-year delay to dismantling. The Department will not be able to meet its commitment to fully dismantle its first submarine in 2023. Delays have resulted from the Department having to clarify policy through public consultations, but also through poor contractor performance and affordability constraints. In its 2018 annual nuclear update to Parliament, the Department outlined the status of its disposal projects, although these are not mentioned in the Agency’s annual report despite disposal being one of its six ‘purposes’.  

Recommendation: To ensure the task receives the attention it deserves, the Department and its partners must maintain the recently established momentum by regularly monitoring progress with these projects at senior level, and continuing to provide information on developments via the Department’s annual update to Parliament on the future nuclear deterrent. 

The Department has yet to resolve significant uncertainties affecting the projects that are needed in order to avoid future space constraints and meet its commitments. The Department has now committed to dismantling its first submarine, Swiftsure, by 2026, when it will roll out a tried and tested dismantling approach across other submarines. After having agreed a dismantling policy, published in 2016, it is confident of meeting this date but still needs to secure regulatory approval, allocate funds and procure the intermediate-level waste transport arrangements, which it sees as high risk. To avoid space constraints for both storing and maintaining submarines, the Department must re-start submarine defueling, suspended since 2004, in 2024. It needs to agree a timetable and cost for completing this work with the contractor, Babcock International Group plc (Babcock), alongside securing nuclear-regulatory approval to restart defueling.  

Recommendation: To avoid running out of space and to meet its commitments, the Department must achieve the milestones it has set itself over the next ten years, including by having commercial arrangements agreed for defueling by the end of 2019. It should report to us on progress with both the defueling and dismantling projects by 31 March 2020.

The Department has repeatedly made decisions on short-term affordability grounds which have increased costs in the longer-term and led to poor value for money. These decisions included deferring Devonport infrastructure work to save £19 million in the short-term, which then delayed the defueling project by two years. The Department is not yet able to confirm how much it will now cost to complete the project. Given delays, the Department continues to pay storage and maintenance costs of £30 million a year.  To achieve value for money, the Department and Babcock recognise the value of a constant ‘drumbeat’ of work to avoid peaks and troughs.

Recommendation: Where it has made decisions on affordability grounds that affect disposal-related projects, the Department should set out clearly in its annual nuclear deterrent report to Parliament how these impact on progress towards establishing a routine programme of disposals, as well as how it will manage the risks to value for money.

We remain unconvinced that funds will be available for disposal-related projects, or that the Department has done everything it can to secure potential funds. Wider affordability decisions have increased costs and delayed disposal-related projects. Looking ahead, there remain well recognised affordability challenges. With a £7 billion ‘black hole’ in the defence budget over the next ten years, the Department will need to prioritise, which creates further uncertainty for disposal-related projects. The Department cannot yet provide certainty that funding will be available for either defueling, where costs remain unclear, or for dismantling, where some technical processes need to be finalised. It cannot access the dedicated long-term nuclear decommissioning funding set aside for civil nuclear in the Energy Act 2004, and it remains unclear why the Department has not considered pursuing this source of funds.

Recommendation: To sustain momentum behind this work, the Department must provide certainty over longer-term funding as soon as possible. It should do this by: 

• urgently clarifying department-wide priorities and making decisions to delay, defer or descope areas of the programme so as to plan funding on a longer-term basis;
• being clearer on the priority of disposal-related projects and how this may change over time; and
• work with the Department for Business, Energy & Industrial Strategy and HM Treasury on the scope of the Energy Act 2004. The Department cannot access the decommissioning funds ringfenced as part of this Act and it should work with these other departments to push for change.

The engineering challenge of dismantling and disposing of nuclear submarines provides an opportunity to develop much needed skills in support of the government’s wider industrial and skills strategies. There remain skills shortages across the nuclear enterprise with, for example, the 2016 unplanned refuel of HMS Vanguard diverting skilled personnel. Both the Department and Babcock recognise this work can be complicated but challenging for engineers, with graduates keen to work on these demanding projects. They recognise the lack of skills to progress projects is a significant challenge and see establishing nuclear skills as a national endeavour across the civil and nuclear sector.  

Recommendation: Given the importance to the UK of developing a broad pool of skilled engineering talent, the Department and Babcock should set out by December 2019 its strategy for exploiting opportunities across disposal projects, such as working with universities, with the aim of increasing the size of the skilled workforce. 

The Department’s ability to achieve value for money depends on managing complex commercial risks and relationships. The Department has a significant and unique relationship with Babcock, which is the nuclear-licensed site owner as well as the only supplier able to conduct defueling and dismantling. It recognises the need to collaborate with Babcock, while maintaining contractors at arm’s length. The Department has adopted various mechanisms designed to provide the transparency it needs to manage the contract closely, and the protection it needs should things go wrong. To progress submarine disposal, the Department needs to complete challenging commercial negotiations, facilitated by the Cabinet Office, to balance cost and time perspectives. It also needs to re-start the procurement of its intermediate-level nuclear waste transport approach where it misjudged the market’s risk appetite, leading to a two-year delay. 

Recommendation: The Department should report us by 31 March 2020 to confirm that it has in place the appropriate commercial arrangements it needs and that good value for money will be delivered for the taxpayer.