|
We have reported before that the defence equipment programme is unaffordable, with commitments exceeding forecast budgets over a ten year period by £36 billion. We have also highlighted before the hugely damaging consequences of the Ministry of Defence's (the Department's) short term decisions to keep in year expenditure within voted limits and the need to understand the full cost implications of these decisions. Such decisions increased the cost of the Department's major projects by £3.3 billion in 2009-10 alone. The scale of problems created by this financial imbalance masks the improved performance of the majority of projects against cost and budget.
In October 2010, the Government published its Strategic Defence and Security Review (SDSR). The SDSR offered the Department an opportunity to bring its plans into balance with the expenditure limits set in the Comprehensive Spending Review. The Department has already cancelled projects such as the Nimrod MRA4 and Sentinel aircraft, accepting greater operational risks in some areas and writing off nearly £5 billion of taxpayer's money. We will look further at the decision to cancel the Nimrod, which is to be scrapped with £3.6 billion wasted. Looking beyond these headline decisions, implementing the SDSR will require further decisions and the renegotiation or cancellation of a significant number of existing contracts to make the programme affordable.
The Department has a poor track record in taking such decisions on the well informed basis necessary to optimise value for money. Responsibility and accountability for projects are often eroded by frequent changes of Senior Responsible Owner.
The Department failed to understand fully the financial consequences of the decision taken in December 2008 to delay the Queen Elizabeth Class aircraft carriers. In 2010, the Department reported a further cost increase of £650 million, bringing the total overrun on the aircraft carriers to £1.6 billion, a new benchmark in poor corporate decision making. We welcome the Comptroller & Auditor General's (C&AG's) announcement that the National Audit Office will undertake a review of the Carrier project. We plan to take evidence on his report later this year to understand fully the circumstances in which key decisions were made and their consequences for value for money.
In 2004 the Department removed funding for Tranche 3 of its planned procurement of Typhoon aircraft from its budget in the full knowledge of the robust contractual obligations it was under. The decision was based on the highly optimistic assumption that other partner nations would also not wish to purchase the final tranche of aircraft, so the requirement would be waived. This was another poor decision which led to additional costs for the taxpayer. In 2009-10 the Department had to commit an extra £2.7 billion on the Typhoon project, including the purchase of 16 additional aircraft, to honour its commitments. The resultant cost increase has contributed to the £36 billion gap in the defence budget. We look forward to taking further evidence on the Typhoon project in the spring.
On the basis of a Report by the Comptroller and Auditor General[1] we took evidence from the Ministry of Defence on their progress in meeting cost, time and performance targets for its 15 top-spending military equipment projects.
| 
