Defence equipment plan has funding 'black hole' up to £17.4bn, MPs warn

The Ministry of Defence's (MOD) 10-year military equipment and capabilities plan has a funding "black hole" potentially as big as £17.4bn, MPs have warned.

The report by the Public Accounts Committee (PAC) comes ahead of the publication of the Integrated Review later - billed as the most significant overhaul of the UK's strategic posture since the Cold War.

The committee said the MOD also faces additional cost pressures - estimated at more than £20bn - to develop future defence capabilities which are not yet included in the plan.

In its Defence Equipment Plan 2020–2030 report published on Tuesday, the PAC said the financial situation was "highly destabilising for defence and must not continue".

It says "the MOD remains stuck in a cycle of focusing on short-term financial pressures".

The equipment plan has been published by the MOD each year since 2013 and sets out its intended investment in equipment and support projects for the next 10 years.

According to the committee, the annual budget is being balanced by "deferring or descoping the development of capabilities".

This results in poor long-term value for money and contingency funds in 2020-21 are being used to help offset funding shortfalls, the report warned.

It said the MOD has based the plan's affordability on the assumption that significant levels of efficiency savings will be made in the future.

However, the PAC said this is unlikely as the MOD has "continued to include unrealistic savings in the plan", highlighting the £3.7bn of savings in the 2020-30 plan which it has not implemented plans to deliver.

In November, the Government announced an additional £16.5bn of defence funding over the next four years, intended for modernising UK defence and investment in new technologies like cyber and space capabilities.

The PAC warned that with the existing equipment budget not balanced, the MOD "must make tough choices to end the vicious circle of short-term financial management and delays in developing military capabilities".

Committee chair Meg Hillier said the additional money was in danger of being "swallowed whole" by the gaps in the budget. 

The Labour MP said: "The outgoing Permanent Secretary of [the] MOD (Sir Stephen Lovegrove) was clear in evidence to our inquiry that the new £16.5bn defence funding settlement is not being added to a balanced budget and is simply, in his words, 'not all going to go on new and revolutionary kit'.

"On the face of it, it's potentially swallowed whole by the up to £17.4bn funding black hole at the centre of our defence capabilities, and Sir Stephen was equally clear about the capability reductions that will have to happen for the UK to look forward to any enhancements.

"What is crucial is that this new money is not instead just eaten up, once again, by the constant, debilitating time and budget overruns that have been eroding our national defence and security for years."

The MPs recommended that within three months of the Integrated Review being published, the MOD "should provide full transparency on its allocation of the additional funding", including "disinvestment decisions" and how the fresh funding will be used to "address existing shortfalls".

They also noted that the equipment plan was "unaffordable for the fourth year in a row" and that safeguards were still needed to protect long-term spending on defence investment from inflation.

The SNP’s defence spokesman Stewart McDonald MP said: "Once again it's clear that the MOD has failed to learn the lessons from the past and act properly to develop a strategy fit for the 21st century.

"The delayed Integrated Review has undoubtedly damaged our ability to develop a proper defence strategy.

"However, unless the MOD takes these findings seriously and acts now, the reality is that the UK's role and influence will continue to diminish close to home and further afield."

An MOD spokeswoman said: "Defence has secured a substantial settlement over four years in order to restore financial sustainability and the Defence Secretary has committed to matching ambition with resource for future equipment plans.

"The equipment plan 2020 provided a financial summary of our plans before the recent funding announcement and decisions that will be announced in the upcoming Integrated Review."

For more discussion on the Integrated Review, click through to this week’s episode of the Sitrep Podcast.