Public Accounts Committee gives UK MoD’s Equipment Plan a Mauling 

The UK Ministry of Defence (MoD) Equipment Plan for 2022-2032 “has failed to adapt to a more volatile world”, frequently suffers from major programmes being delivered “many years late and significantly over budget”, and is overly optimistic in claiming to be affordable, according to a report by the UK House of Commons Committee of Public Accounts published on 19 April 2023.

Noting that the UK must once more consider the possibility of fighting a land war in Europe, and that the MoD had emphasised that UK membership of NATO was central to its defence strategy, the Committee noted that the MoD “acknowledged there is significant risk that the UK could not fulfil its commitment to provide NATO with an operational Army division to fight such a war. Indeed, at the moment the UK must rely on its NATO allies to fill gaps in defence capabilities, such as the lack of long-range airborne early warning radar.”

The Committee also pointed out that the 2022 to 2032 Equipment Plan, based on financial data as at 31 March 2022 and published in November 2022, was already out of date and did not reflect lessons learned from Ukraine, such as the need for hard-edged, conventional warfighting deterrence and larger munitions stockpiles. Other strategic developments have also not been taken account of, the Committee asserted, such as the UK’s combat air partnership with Japan and Italy under the Global Combat Air Programme (GCAP), announced in December 2022, and the September 2021 AUKUS strategic partnership with the United States and Australia.

While acknowledging that the British Army’s much-delayed Ajax AFV programme had finally completed its user validation trials after mitigating issues with noise and vibration, the Committee stated, “Even when Ajax is finally introduced, it will not operate to its full potential without the Morpheus communications system. … However, Morpheus has also been delayed, having originally been due by the end of 2021. As a consequence, Ajax will be fitted initially with Morpheus’s predecessor, Bowman, which does not have the same integration capabilities. The Department [MoD] was unable to tell us when Morpheus would enter service, but the military planning assumption is that this will be towards the end of the decade.”

Regarding the MoD’s budget assumptions, the Committee asserted that the Equipment Plan’s affordability still relies on over-optimistic assumptions about the cost of programmes and the efficiencies and cost reductions that can be achieved.

“Although the Department assesses that the Equipment Plan is affordable over ten years, this obscures significant financial pressure. There is a deficit of GBP2.6 billion over the first seven years of the Plan and the ten-year plans of four of the six Top Level Budgets are in deficit. Most notably the Army’s forecast costs are £2 billion more than its budget,” the Committee warned.

“Overall affordability is based on potentially over-optimistic assessments of project costs, with the Department’s Cost Assurance and Analysis Service estimating that costs could be at least GBP5 billion higher than forecast,” it added.

“The Plan’s affordability also relies on the Department achieving a GBP5.2 billion surplus in the final three years of the Plan, and on the Department achieving all cost reductions and efficiency savings included in the Plan. This includes GBP2.1 billion in the next three years which Top Level Budgets do not yet have plans to achieve. We doubt that the Department can achieve all these savings, but its contingency to cover any shortfall during this period is just GBP0.5 billion.”

Further to these concerns, the Committee noted that the Equipment Plan’s affordability also relies on some projects being delayed, with the MoD having reduced project cost forecasts by GBP13.2 billion to reflect this, and that the UK’s worsening economic environment had simply been ignored.

“The Department has not included external cost pressures, including inflation and foreign exchange movements, in its central assessment of the Plan’s affordability,” sated the Committee. “This is despite identifying when it produced the Plan that inflation could increase project costs by up to GBP2.1 billion over ten years. It did not include this inflationary pressure in its affordability analysis despite it being more than 80% of the Plan’s forecast surplus of GBP2.6 billion. Inflation has since risen higher than the March 2022 forecast, and the Department accepts it will struggle to manage affordability as a result.

“Further, the pound to dollar exchange rate has remained below the Plan’s worst-case scenario for several months, increasing the cost of several major Plan programmes,” the Committee pointed out. “In the worsening economic environment, there is an increased possibility that some of the GBP25 billion of risks that the Department deemed unlikely – and has not included in cost forecasts – may occur, further increasing pressure on the Plan. Cost of living increases caused by rising inflation also mean that the Department might struggle to attract and retain staff with the skills it requires to deliver equipment programmes. We do not think that the Department has sufficiently taken these factors into account when considering the affordability of the plans.”

In response to the Committee’s report, an MoD spokesperson stated, “The Public Account Committee’s assessment that our Equipment Plan does not align with the lessons learnt from the Ukraine conflict is unsubstantiated. The lessons we have seen from Ukraine have largely confirmed our 2019 warfighting analysis, which underpinned our subsequent investment decisions – meaning we have not needed to substantially reform our equipment pipeline.

“Nor do we recognise the broken procurement system painted by this report. The Department routinely assesses time, cost and risk factors on all projects, and delivers the vast majority on time and in budget, and we have made numerous changes to improve procurement practices where projects have fallen short. Some of these projects are decades long, and many of our reforms will take time to deliver results.”

On 13 March 2023 the UK government announced that it had committed to an additional GBP 5 Bn in defence funding over the next two years “to meet the challenges of an increasingly volatile and complex world”. Inflation, however, will inevitably take its toll in this uplift. According to UK Treasury accounting UK defence spending was GBP 71.4 Bn in 2021/22, so, with UK inflation currently running at 10.1% (March 2023), the UK defence budget would need to be GBP 78.6 Bn for the year just to keep pace with it – and a GBP5 Bn rise over two years does not reach that figure. UK Defence Secretary Ben Wallace had argued for a GBP 10 Bn spending boost. Thus, unless inflation can be tamed, the announced additional GBP 5 Bn will see no increase in defence spending in real terms.

 Peter Felstead