The Ministry of Defence could be facing a hole in its budget even bigger than the one anticipated after the general election, according to a Commons public accounts committee report published on Friday.
MPs expressed scepticism over the MoD’s projected £163bn in spending on equipment over the next 10 years. They questioned whether the MoD can make promised savings of £4.1bn, and also its assumption of a 1% rise in defence spending in real terms in coming years. They also expressed concern that the £163bn estimate might grow substantially.
“While forecasting future costs is more difficult, the department accepts that the costs of its 10-year equipment plan could be understated by at least £5.2bn,” the report says.
The criticism of the MoD’s budget planning comes at a time when the department is already facing the prospect of severe cuts after the May election. Chancellor George Osborne and Labour counterpart Ed Balls, in interviews over the last few days, have both refused to commit to keeping defence spending at 2% of GDP.
The MPs on the committee, as well as pinpointing the huge potential problems facing defence spending, took a jab at the MoD’s procurement arm, Defence Equipment and Support (DE&S). The report says that DE&S, which is responsible for buying and selling military equipment, has been trying to cut down on the number of contractors it employs.
The MPs, in deadpan language free from even a hint of irony, say: “DE&S is planning to spend £250m over the next three-and-a-half years on contractors to advise on how it can reduce its over-reliance on contractors.”
They add: “DE&S has contracted with Bechtel and CH2M Hill at a cost of £215m to strengthen project and programme management. It has also contracted with PWC at a cost of £43m to determine what human resource structures would be most appropriate.”
DE&S employs about 16,000 permanent staff and 3,400 contractors.
Whichever party forms the next government, it will face hard choices in defence spending that could see army numbers fall even lower than the current 82,500 – already down from 102,000 in the previous round of cutbacks.
The chair of the public accounts committee, Margaret Hodge, said: “We welcome the progress the Ministry of Defence has made in getting to grips with its budget and military equipment costs, but real risks remain to the affordability of its 10-year equipment plan.
“The department admits that the costs of its £163bn plan could be understated by at least £5.2bn, a figure that could grow as it develops a better understanding of the support costs involved.”
The department’s £4.6bn contingency fund would not be sufficient to cover this.
Hodge added: “We are not confident that the department can deliver all the efficiency savings required from its equipment budgets. £800m of the £4.1bn required has yet to be identified.”
The defence secretary, Michael Fallon, said: “The £163bn we plan to spend over the next 10 years on cutting-edge equipment is a landmark investment and I welcome the committee’s acknowledgement that this government has got to grips with both MoD budget and military equipment costs.
“The committee’s concerns on costs are overstated, our major project costs were reduced by £400m last year and we are confident of delivering the further savings.”
