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Spending watchdog finds MoD running £17bn equipment ‘blackhole’

The Ministry of Defence’s 10 year equipment plan is currently unaffordable, the National Audit Office has found (Andrew Matthews/PA)
The Ministry of Defence’s 10 year equipment plan is currently unaffordable, the National Audit Office has found (Andrew Matthews/PA)

The public spending watchdog has found that the Ministry of Defence (MoD) equipment plan is “unaffordable”, with a budget “blackhole” of almost £17 billion.

Labour said the National Audit Office’s (NAO) report was “totally damning” and accused ministers of losing control of military budgets.

In its report published on Monday, The Equipment Plan 2023 to 2033, the watchdog said the department’s plans to build and purchase new weapons and defence capabilities over the next decade are unaffordable.

The NAO said the equipment plan budget deficit of £16.9 billion is the largest since it was first published in 2012.

At the end of March this year, the estimated costs were £305.5 billion compared to a budget of £288.6 billion. Last year’s 10-year estimate was £2.6 billion less than the available budget.

But in 12 months, the plan has become unaffordable due to costs rising by 27%, outstripping a budget increase of more than £46 billion, the NAO reported.

Higher inflation costs of about £11 billion have driven up the bill for some equipment projects, with the MoD not receiving funding to help deal with inflationary pressures.

There have also been large cost increases in the nuclear and naval programmes, totalling £54.6 billion, the watchdog said.

None of the six expenditure areas of what are known as the “top level budgets” — covering the likes of the Royal Navy and Royal Air Force — have an affordable equipment plan, the NAO found.

It said some costs for new projects are included in the plan but are not fully funded.

The report said new entries into the ship-building pipeline – including Type 32 frigates, Type 83 destroyers and multi-role ocean surveillance vessels – are unaffordable by £5.9 billion against currently allocated budgets.

Gareth Davies, the head of the NAO, said there had been a “marked deterioration” compared with the previous plan.

Meg Hillier
Dame Meg Hillier said there was a ‘huge gap’ between the military equipment ministers think they need and the money to buy it (UK Parliament/Jessica Taylor/PA)

The watchdog said the MoD was not planning to cancel programme in the short-term because doing so would “would limit the choices available to decision-makers at the next spending review”.

Mr Davies said such a move, while “understandable”, “risks poor value for money if programmes continue which are later cancelled, scaled down or deferred because they are unaffordable”.

He said: “The MoD should consider how future plans can achieve their core purpose: providing a reliable assessment of the affordability of its equipment programme and demonstrating to Parliament how it will manage its funding to deliver equipment projects.”

Dame Meg Hillier, Labour chairwoman of the Commons Public Accounts Committee, said she was “concerned about the risk to the UK” that the equipment plan deficit represents.

She said there was a “huge gap between the military equipment Government thinks it needs and the budget available to provide it”.

The MP pointed out that the deficit of almost £17 billion was despite the plan “not even including all likely cost pressures”.

Labour’s shadow defence secretary John Healey said: “This is a totally damning report.

“The NAO does not pull its punches on Conservative mismanagement of defence, which has seen 13 years of failure blow a £17 billion blackhole in Britain’s defence plans.

John Healey
Shadow defence secretary John Healey said the NAO findings were ‘totally damning’ (Dominic Lipinski/PA)

“The Conservatives are failing British troops and British taxpayers.

“Major defence decisions are now delayed until after the next election, and ministers have no plan to control defence budgets.

“With war in Europe and a Middle East conflict, this risks leaving our armed forces without the equipment and troops they need to fight and fulfil our Nato obligations.”

The MoD said the report was based on a “dated snapshot” from seven months ago.

A spokesman said: “Whilst this report recognises the significant impact global headwinds and high inflation has had on UK defence, it does not and could not accurately reflect the current or future state of the armed forces equipment plan.

“The report is not based on a full equipment plan and is a dated snapshot from April 2023.

“Our armed forces are operating in a world of increasing conflict, and this Government is working to deliver what our service men and women need to keep Britain safe.

“As a result, we have significantly increased our spending on defence equipment to £288.6 billion over the next decade, including landmark new funding settlements to address decades long underinvestment in critical areas.

“The Defence Secretary is currently leading work to ensure the armed forces have the next generation equipment they need to defend Britain and maintain a strategic advantage.

“As part of that work, we remain absolutely committed to increasing defence spending to 2.5% of GDP as soon as economic and fiscal conditions allow.”