MoD ISSUES STATEMENT FOLLOWING FINANCIAL TIMES STORY

17 Nov 08. Responding to the FT story about Defence Procurement delays, an MoD spokesperson said:

“Spending has not stopped. We are rightly prioritising spending for operations and that continues – we announced £700M for new vehicles recently. The examination of our equipment programme is about reprioritising spending towards support for operations and driving down costs. While this continues no decisions have been taken but we hope to conclude the exercise shortly. In the meantime we need to keep a tight control on any new commitments.”

16 Nov 08. Sylvia Pfeifer, Defence Industries Correspondent. The general in charge of the country’s £16bn-a-year defence equipment and support budget has ordered an unprecedented crackdown on spending in a sign of the cash crisis at the Ministry of Defence.

In an internal memo sent to MoD officials earlier this month, a copy of which has been obtained by the Financial Times, General Sir Kevin O’Donoghue, chief of defence materiel, says that with immediate effect “the default position is that no business cases are to be put to the approving authorities for approval”.

“Projects that have already received approval are not to incur financial commitment,” he adds. The stark message is the latest reminder of the severe budget strains at the department. It has an estimated deficit of £2bn in 2008-09. John Hutton, the defence secretary, indicated earlier this month it was unlikely the department would receive any additional funds in the government’s coming pre-Budget report.

In the spring, Des Browne, Mr Hutton’s predecessor, launched an “equipment examination” in a bid to reprioritise the MoD’s spending commitments.

The department said it wanted to move away from purchasing equipment for the long term – equipment that could be out of date by the time it comes into service – and concentrate on supporting its troops in the near to medium term.

The examination was intended to be finalised before the summer but it has yet to be concluded. Mr Hutton has, however, indicated the conclusions are expected to be published before Christmas.

In the memo, Sir Kevin says the MoD should have a “clearer view of the
implications of the examination soon”. “While the examination continues, and for
the foreseeable future, it is important that we strengthen and broaden the
existing?.?.?.?regime to ensure adequate control is maintained on expenditure.”

Sir Kevin goes on to list a number of exceptions to his edict. These include: proposals that support current operations of Britain’s armed forces over the next three years; proposals that support the future deterrent programme; ones that are necessary to satisfy contractual or international obligations; and ones where the MoD has already signed a production contract.

While the list of exceptions means two new £4bn aircraft carriers for the Royal
Navy are safe, they do not, for example, cover the aircraft that are destined to fly off the ships. Britain has so far not signed a contract to buy the F-35 Lightning II or Joint Strike Fighter aircraft from Lockheed Martin of the US. A £16bn programme to buy a new generation of armoured vehicles for the army which has stalled in recent months also remains under threat.

Even if no programmes are cut or curtailed, they will face delays as decisions are pushed to the right, something Sir Kevin admits in the memo. “These measures will inevitably have an impact on the delivery timescales for some of our outputs,” he says. “I recognise this, but as it happens we must ensure that we continue to provide the best possible support to current operations.”

The MoD said on Sunday: “Spending has not stopped. We are rightly prioritising spending for operations and that continues – we announced £700m for new vehicles recently. The examination of our equipment programme is about reprioritising spending towards support for operations and