Having this morning been rather absorbed listening to a recording of evidence given yesterday by senior industry representatives from BAE Systems, Airbus, Boeing and Lockheed Martine to the House of Commons Defence Select Committee inquiry into aviation procurement and which I sadly could not attend in person, a subject matter which I hope to come back to later this week, what follows are just a few very quick and delayed comments in relation to the publication yesterday of the annual National Audit Office report into the MOD ‘Equipment Plan 2022-2032’ and which this year has rather less consequence than usual because the Integrated Review process on which it is based is now the subject of a review process which will report early next year.
Annual National Audit Office reviews of what is termed ‘The Equipment Plan’ and which this year covers the period of planned MOD spending between 2022 to 2032 are rather like a BBC weather forecasts – meaning that in order to protect themselves they cover every eventuality – e.g. there MIGHT be a touch of frost or we can’t rule out the possibility of a shower or local thunder storm.
Over the past few years this annual bureaucratic process has most often resulted in the NAO concluding that the ten-year plan as envisaged by the MOD is unaffordable without significant additional funding being required and funded. However, accepting that the basis of the plan is now already out of date, while the NAO has concluded once again that the MOD faces significant and growing cost pressures which will have an immediate impact on its spending plans and that it needs to address financial challenges promptly to avoid falling back into old habits of short term cost management, which it suggests does not support longer term value for money and that can undermine the pace at which UK Armed Forces can be modernised, it has essentially ticked the plan off.
Based as it is on the MOD’s ten year budget of forward cost expectations and which in turn emanates from intentions announced within the Integrated Review process published early in 2021, the problem this year is that while the NAO has essentially given a rare tick of approval to the MOD plan we also know that the already announced review of the 2021 Integrated Review process is more than likely to induce radical changes to the overall plan.
The NAO is clearly well aware that the now underway review of the IR review process is likely to throw a lot more balls and capability requirements into the air and makes plain its view that “without additional funding it is clear that difficult decisions will be required in order to reduce the scope of the plan and that funding profiles may need to be reshaped in order to align the delivery of key military equipment with objectives” – in other words, unless the Government agrees to raise the MOD budget any changes in capability requirement recommended by the new review process and which to all intents and purposes is being undertaken by those who wrote the original plan will of inevitability mean cuts to currently planned capability requirements.
The 2022-2032 MOD equipment procurement and support budget plan which covers 1,800 different equipment projects envisages a requirement for £242.3bn of funding over the ten-year period. The NAO estimates that if all identified risks materialise the MOD budget deficit for the period would be £7.3bn and that if all the opportunities materialise the budget surplus would be £7bn and it notes that the ten-year Defence Equipment plan is based on the assumptions that some £30.4bn of savings will be found, that an additional £3.4bn of low-confidence efficiency savings will need to be found on projects still in development and that a further £1.6bn of additional cost reductions on equipment projects on which the MOD does not at the moment have any credible plans to achieve will also need to be found.
For the record, the breakdown of MOD expenditure on defence for the period 2020/21 was as follows:
Total Defence Spending £42.4bn (up by £2.5bn on the previous period) making it the 6th largest area of government expenditure of which the most important elements were).
Service and Personnel Costs £13.5bn
Estimated Equipment Spend in 2020/21 – £18.8bn
Net Expenditure on Research and Development £1.1bn
Cost of Operations and Peacekeeping – £487 million
Depreciation and Impairment of Assets £9.5bn
CHW (London – 30th November 2022)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785