The Ministry of Defence (MOD) must make "tough decisions" about its future equipment plans in the face of a funding black hole of up to £17.4bn, the public spending watchdog said.
For the fourth successive year the equipment plan – covering projects from jet fighters to frigates – has been labelled unaffordable by the National Audit Office (NAO).
Even the injection of £16.5bn extra in defence spending announced by Boris Johnson in November may not fill the hole, as some of that four-year package will be spent on developing new capabilities not included in the plan.
The equipment plan covers the period 2020–2030 and has an estimated cost of £197.4bn, covering equipment already in use such as the F-35B Lightning jets and projects still in development including the Type 26 global combat ship.
While the MOD estimates the shortfall in funding as being £7.3bn, it could be as high as £17.4bn in a worst-case scenario.
NAO chief Gareth Davies said: "To date, the MOD’s fundamental problem has been that the cost of delivering its ambition far exceeds its available budget."
The MOD produced the 10-year plan before the extra funding announced by the Prime Minister.
Mr Davies said: "The Government’s announcement of additional investment gives the MOD an opportunity to develop a more balanced equipment programme.
"It now needs to make tough decisions on its priorities, if it is to avoid a continuation of the increasing cost pressures we have seen in recent years."
Meg Hillier, chairwoman of the Commons Public Accounts Committee, said the extra funding announced in November gives the MOD "some much-needed breathing space, but it may not be enough to develop the capabilities the Armed Forces need to do their job".
The MOD "still has to make hard-headed decisions about what it can afford" and "the Equipment Plan needs to be more than just a wish list, reliant on nebulous ‘efficiency savings’ to make the sums add up".
Shadow defence secretary John Healey accused ministers of “badly mismanaging” the budget and said the Integrated Review of defence and foreign policy, which has been delayed past next month, must set out what is required of the Armed Forces.
"The £17bn black hole weakens the foundations for upgrading Britain’s defences and leaves the Armed Forces scrabbling to find short-term savings,” Mr Healey said.
"There are big decisions that can no longer be ducked in the Integrated Review, including on tanks, aircraft for our carriers and the size of the Armed Forces."
An MOD spokesman said: "This update to the Equipment Plan highlights the challenges of managing £190bn of defence programmes over the course of a decade.
"It provides a financial summary of our plans before the recent spending review announcement and the equipment decisions that will be made in the upcoming Integrated Review.
"Defence 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."
Cover image: British Army.