The Ministry of Defence cannot afford to deliver the government’s planned modernisation of UK security on its current budget, the National Audit Office (NAO) warned today, in a new report.
The NAO, which oversees government departmental spending, highlighted a £17bn gap – about 6 per cent – between the MOD’s cost estimates for equipment procurement over the next ten years and its budget. While the government pledged a 19 per cent increase on last year, the NAO estimates that projected costs have risen by 27 per cent. This amounts to a “marked deterioration” in the MOD’s financial position since last year, when the budget was due to exceed predicted costs by £2.6bn.
“The Ministry of Defence’s Equipment Plan for the next decade is unaffordable and it is facing the largest budget deficit since the Plan was first published in 2012”, said Gareth Davies, head of the NAO.
The shortfall casts doubts on the MOD’s ability to meet government ambitions for a revitalised UK defence industrial base. The Integrated Review Refresh and the Defence Command Paper, both published earlier this year, pledged significant investment in existing and emerging technologies, including renewing the nuclear deterrent and investing in dual-use artificial intelligence, following Russia’s illegal invasion of Ukraine in 2022.
On top of the identified shortfall of £17bn, the NAO report warns, “the MOD does not know what the forecast costs would be if the Plan included all capabilities outlined” in its publications from earlier this year.
John Healey, Labour’s shadow defence secretary, said that the government had “lost control of the defence budget, failed to fix the ‘broken’ defence procurement system, sent inflation soaring and wasted billions of public money”.
For over a decade, concerns have been raised over the UK’s procurement process. In 2009, the Gray Report found that the average project overran by 80 per cent, or five years, with cost overruns amounting to £35bn. In July, a Commons report into the MOD’s equipment procurement called it “broken”, quoting a previous study by the Public Accounts Committee that argued the MOD was “repeatedly wasting taxpayers’ money.”
The purpose of today’s review was not to consider the efficiency of actual MOD spending, but to assess the quality of the MOD’s own projections. Rising costs in the UK’s nuclear and naval programs are of particular concern.
The report also cited inflation. Analysis by the House of Commons shows that while the defence budget is expected to rise by £5.58bn cash terms between 2022 and 2025, this will represent a £1.1bn increase after adjusting for expected inflation.
The government has committed to increasing defence spending to the equivalent of 2.5% of GDP “as soon as economic circumstances allow.” It currently has the third largest defence budget in the world, behind that of China and the United States.
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