Select Committee on Defence Sixth Report


This report analyses MoD's Annual Report and Accounts 2004-05 which combines MoD's Annual Performance Report and the Consolidated Departmental Resource Accounts.

Overall MoD's performance against its seven Public Service Agreement (PSA) targets has been mixed: three were "met", two were "partly met", one was "on course" to be met, and one was "not yet assessed".

The PSA target for recruitment and retention was partly met because manning levels in the Royal Navy and Royal Marines were some five per cent short of the overall requirement. There were also breaches of guidelines for deployed separated service for all three Services. The Army, in particular, had suffered because of the high operational tempo. Critical shortages exist in various specialist trades in all three Services. However, MoD considers that the impact of overstretch on operations such as the deployment to Afghanistan is manageable. We intend to monitor this closely.

The PSA target for defence equipment procurement was also assessed as partly met. MoD did not meet the targets relating to project time slippage. Cost decreases of £699 million were reported on the top 20 major defence equipment projects, but much of this was a result of cuts in the numbers of equipment ordered or in the capability of equipment.

Performance against the PSA target relating to value for money was assessed as on course. MoD reported savings of £400 million relating to the operating costs of the Defence Logistics Organisation, but it was unable to validate all of this. This suggests a need for an independent verification of such reported savings in the future.

Losses reported in MoD's Financial Accounts totalled some £400 million, a lower figure than the previous year but still a substantial sum. Reported losses on the Landing Ship Dock (Auxiliary) programme, which involves the procurement of four transport ships, were some £100 million and further losses might arise. Lessons need to be learned for future equipment acquisition.

Another loss totalling £147 million related to a building project at the Atomic Weapons Establishment at Aldermaston. The building was unable to meet the requirement and no other use could be found for it. MoD acknowledge that the project was "handled badly". It is another example of substantial waste which has to avoided in the future.

The Annual Report and Accounts was published at the end of October 2005, some seven months after the year end. It is important that MoD keeps to its plan to publish the Annual Report for 2005-06 before the Parliamentary Summer recess.

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Prepared 20 April 2006