Defence remains 'over-optimistic' with equipment plans, financial report suggests

A new report says the costs, budgets and savings underpinning the Defence Equipment Plan for 2031 could be skewed by optimism as the UK enters a decade of military transformation.

The National Audit Office (NAO) says over-optimistic budgeting and costing have been a theme in previous findings on the annual Ministry of Defence (MOD) document, but added that lofty saving targets and unpredicted costs could swing the forecasts the wrong direction.

The Integrated Review in 2021 outlined ambitions for a new-look military following 2020's announcement of a £16.5bn defence funding boost over four years, the Defence Command Paper subsequently publishing greater detail on military equipment moving forward and where savings could be made in existing kit programmes and workforce.

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Shipbuilding, land vehicle production, cyber and space investment are among the new expenses added since the 2020-2030 strategy released last year, which also included £1bn plus plans for a replacement nuclear warhead, a Future Combat Air System and new research and development.

Cancelling the Warrior fighting vehicle and making 'workforce savings' is hoped to offset some of the spend, but the NAO suggests the equipment plan incentivises "short-term affordability, which builds up financial pressures over the longer term".

The Army, Navy, RAF, Strategic Command, the Defence Nuclear Organisation and the Strategic Programmes Directorate "spend more slowly on projects to keep within their budgets and re-classify budget shortfalls as 'planned cost reductions' or efficiencies to be achieved in future years, even if they do not have plans to achieve them," the NAO report concluded.

Costs unaccounted for in the Equipment Plan would increase the total cost by £4.2 bn "early business cases for the Future Combat Air System, New Medium Helicopter and Future Commando Force programmes show that these programmes are currently underfunded".

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Gareth Davies, head of the NAO, said: "The Ministry of Defence has taken some difficult decisions, reducing spending in some areas to allow it to spend more on its highest priorities.

"However, in this year's Equipment Plan, risks remain of over-optimistic assumptions about costs, budgets and the likely achievement of savings targets.

"The new multi-year spending settlement gives the department a rare opportunity to reset and develop an affordable equipment plan. "

He added: "The Department has further improvements to make if it is to both deliver the required equipment and make best use of the money it has been given."

Releasing the Defence Equipment Plan, Defence Secretary Ben Wallace addressed a defence funding shortfall of more than £7bn over 10 years prior to the multi-year spending plan allocation of £16.5bn.

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"The plan is not without challenges. Issues cannot be reversed overnight, and the plans set out here show there is further work to do.

"Our financial plans still require the delivery of efficiencies and savings targets, but the Department is now better placed to manage financial risks," he said.

"We have entered a new 'competitive age' of resurgent authoritarian states and diversifying threats. History shows us, time and time again, that failing to change risks irrelevance and defeat."

The NAO reports began in 2012, but the office estimates only half of its recommendations on equipment plans since 2016 have been made, and that MOD head office must work with its Top Level Budgets (including the Army, Navy and RAF) to fundamentally change the way the plans are built and reported on.