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Of NAO Views and Defence Budget Shortfalls By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.







Once again the National Audit Office (NAO) have concluded that the 2018 – 2028 ‘Equipment Plan’ which forms the basis of planned MOD procurement of new equipment over the next ten years is “unaffordable” just as it is, according to NAO chief Amyas Morse, “not sustainable” as the department faces up to what the NAO suggests is a £7 billion shortfall in its budget over the next decade.

In the latest equipment plan published yesterday the NAO tells us that the Ministry of Defence is forecasting costs of £193.3 billion over a ten year period against a budget of £186.4 billion, a £7 billion budget shortfall that equates to an average funding gap of 3.7%.

If I was to be flippant for a moment I might be tempted to say ‘when was this ever different’ and, without being accused of being complacent, I might even go as far as to say ‘when might this not be the case’? However, when it comes to defence procurement I am neither of those and my answer to those that wish to highlight what they might see as a weakness in MOD defence procurement would be to remind that when it comes to balancing the books of defence, this is the art of the impossible. The very nature and complexity of defence means that few if any other department of government is required to be as flexible and adaptable as the MOD and that, few if any others outside of Defence and the NHS, face so many changing and challenging requirements.

As it always does, the annual NAO report makes for interesting reading. But what I do not believe to be true is the accusation that the MOD is in “real danger” of wasting taxpayer money on equipment over the next ten years. Far from it I would say and I reason that because of what has been learned and achieved over the past eight years within the defence procurement operation (DE&S) to the point that I would be content to say that the MOD today, whilst far from being perfect, has probably never been better disposed to ensuring that every penny spent on defence will be spent wisely and that it really has learnt from past mistakes. The bottom line is that achieving greater efficiency and affordability of defence have been watch words within the MOD process for much of the past decade.

Where I disagree in part with the NAO report and that I take some issue with is the recommendation that the MOD should stop deferring projects where these may leads to higher costs in later years. Of course the thesis of this has to be correct and history tells us with great certainty than when programmes are delayed, capability altered or that numbers likely to be ordered are reduced, that the overall individual cost is bound to rise. That is the nature of the beast but sometimes it is right to push back or delay.

The [deferred projects] to which the NAO refers have apparently included MOD delaying by two years programme such as the introduction of the planned ‘Reaper’ remotely piloted air system replacement capability known as ‘Protector’ and which is manufactured by General Atomics and that the NAO says has resulted in an estimated £160 million cost increase, together with delaying some Royal Air Force Typhoon training by one year and which, according to the NAO, increased costs by £6 million.

To my point below. Whilst I agree the underlying sentiment in regard to pushing back contract awards, in the case of ‘Protector’ I would argue that if there has been a delay in ordering the capability (and I am far from sure that there has been) that there would have been good reasoning behind it. Here’s why:

I am fully aware that the test programme for the UK MQ-9B Protector programme is now in full swing and more recently I understand that a second aircraft has recently been added to the fleet together with a first ground control station. My point is that having included ‘Protector’ the NAO also needs to be mindful that in complex Remotely Piloted Air System (RPAS) programmes such as ‘Protector’ that in order to meet the rigorous military and civil airworthiness certification demands required by the MAA means that significant testing is required.

The bottom line is that the Senior Responsible Owner must always be not only content with all safety aspects and operation of the capability but also affordability and that in order to achieve all of this, this needs to be evidence based in order to withstand any amount of intense scrutiny that might occur in the future. I would add to this by saying that as the UK is currently very well served in respect of RPAS capability by the Royal Air Force ‘Reaper’ fleet which ‘Protector’ will eventually replace, we should not be concerned by delay. Time is important but getting it right at the start even more so and in my view, it is absolutely right that the ‘Protector’ RPAS programme must be fully de-risked before orders are provided.

It is the NAO’s job to audit spending plans put forward by all sections of government and it has a long history of doing this well. In the case of the 2018 – 2028 Equipment Plan the NAO warns that costs could vary and that this could lead to a £14.8 billion funding gap “in a worst case scenario should all the identified risks” that it has outlines as possibilities occur. Unfortunately, over the next year, headlines will latch onto the potential £14.8 billion figure as opposed to the £7 billion shortfall that forms the basis of its warning to the MOD.

There is of course always more that can and will be done to make defence more efficient, affordable and to improve productivity but at the same time, strong defence requires that the MOD ensures that it is able to meet every available threat including some that as we sit here today none of us might recognise.

That the UK is spending vast sums on replacing current UK Vanguard class trident nuclear submarine deterrent capability with Dreadnaught class submarines (SSBN) programme, that we have chosen to reinvigorate ‘Carrier Strike’ capability after many years of absence with the addition of two new aircraft carriers built by the Carrier Alliance,  that the Type 26 Global Combat Ship, a truly world-class anti-submarine warfare ship that is UK designed by BAE Systems and being built by them on the Clyde for the Royal Navy and that I might add, will also be the capability of choice for Australia and Canada, that the highly sophisticated fleet of nuclear powered Astute class submarines (SSN’s) continues in build at BAE Systems Barrow-in-Furness yard, that the MOD will soon be procuring Type 31 General Purpose Frigate add up to us having a formidable array of maritime capability.

Amongst many programmes the Army will soon get a fleet of 38 new Apache attack helicopters along with the new Ajax armoured vehicles plus planned specialist armoured vehicle capability, upgrading of Warrior armoured personnel carrier by Lockheed Martin, planned upgrade of Challenger 2 Main Battle Tank capability and also, the new High Velocity and Lightweight Multi-role missile system to be built by Thales Belfast.

The same is true in the air domain with the UK planning to acquire more F-35 Joint Strike Fighter Lightning ll aircraft for the Royal Air Force and Royal Navy soon, that within two years we will reinvigorate maritime aircraft patrol capability with the acquisition of nine P-8 Poseidon aircraft from Boeing, that we also have plans to replace worn out Sentry E3-D capability, A400M Atlas aircraft from Airbus, replacement of ‘Reaper’ RPAS capability with that of ‘Protector’ and, I sincerely hope, also to extend Sentinel R1 capability well beyond the current 2021 out of service date, combine to provides confidence to a nation, one that as we go through the Brexit process is uncertain of its identity, that at the very least the UK Government really does understand the need to prioritise defence.

So why do I mention such a vast and incomplete array of in-build programmes that the MOD is currently engaged on? Simply to highlight the vastness and complexity of defence procurement. It is right that the NAO keeps the ten year MOD Equipment Plan in check but it is equally right to recognise that whilst it is far more efficient today than it was, defence procurement will never be easy!

CHW (London – 6th November 2018)

Howard Wheeldon FRAeS

Wheeldon Strategic Advisory Ltd      

M: +44 7710 779785

Skype: chwheeldon



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