1 Part 1: The decision-making process
1. The 2010 Strategic Defence and Security Review
(SDSR), in contrast to previous Strategic Defence Reviews, was
cross-departmental, rather than focusing on the Ministry of Defence
(the Department). The key objectives of the SDSR were to "set
a clear target for the national security capabilities the UK will
need by 2020, and chart a course for getting there."[7]
The SDSR changed the way in which the Department will use and
deliver Carrier Strike capability. Both carriers will be built,
but only one will be fitted with catapults and arrestor gear so
that the newly selected carrier variant planes can be launched
from it.[8]
2. The Accounting Officer confirmed that a policy
decision was taken in the SDSR to have aircraft carriers.[9]
However, decisions on how to deliver this capability were operational
judgements with major cost and value for money implications. In
undertaking its original examination the National Audit Office
only saw information produced by the Department on the cost of
the options being considered. The Cabinet Office withheld papers
from the National Audit Office showing how this information was
used when the decision was made limiting our ability to understand
how the Accounting Officer had been able to reach a judgement
on the value for money of the SDSR decision.
3. In response to our concerns about these restrictions
the Prime Minister wrote to the Chair of this Committee on 5 September
2011 explaining that, in the interests of transparency, he and
the Cabinet Secretary had decided to allow the National Audit
Office access to the relevant material on an exceptional basis.
Having reviewed the papers, the National Audit Office concluded
that the policy decision had been taken on an informed basis which
could have given the Accounting Officer confidence that the overall
strategic direction was sound and could offer value for money.
4. The briefing papers prepared by the National Security
Secretariat set out a range of options for the future of Carrier
Strike. The papers examined the implications for affordability,
military capability and inter-operability with allies of each
option and were supported by detailed analyses of the industrial
implications and the choice between retaining Harrier or Tornado
aircraft. The minutes of the key National Security Council meetings
record that the relevant issues were discussed and the implications
of each assessed.[10]
The decision was taken on proper policy grounds, not on the basis
that the UK was locked into contracts which would have cost more
to break than to maintain.
5. The SDSR was conducted in parallel with the Spending
Review and the available level of funding was only determined
at the end of the process. As a result, there was considerable
uncertainty with regard to future budgets when strategic decisions
were being made. The Department initially anticipated larger cuts
to its budget, and put forward four options for the Carrier Strike
programme which did not include the carrier variant even though
it considered that this aircraft offered the best value for money.[11]
The Department confirmed that this option was not presented initially
because converting the carrier to fly the aircraft was not considered
to be affordable at the time.[12]
6. The Department supported the SDSR by providing
cost and analyses for a range of options to support strategic
decisions. It originally produced four options and then responded
to requests from the National Security Secretariat to prepare
other options. The initial four options were subject to a good
quality decision-making process and had a sound evidence base.[13]
The option selected in the SDSR was subject to less scrutiny and
rigour than the other options considered.[14]
7. The Department has set out in the past that it
has had a £36 billion to £38 billion deficit in the
overall defence budget.[15]
Having signed the carrier contract, the Department realised it
could not afford it and to make short term savings it delayed
the project increasing estimated costs by £1.6 billion.[16]
The Accounting Officer confirmed that the Department is now committed
to living within its budget and that the Department will only
commit to spend on projects when it has the budget to do so.[17]
8. The Department believes that the SDSR decision
will result in overall savings in the next ten years of £3.4
billion (Figure 1). These savings will come from changes to current
and future carrier and associated aircraft projects. They are
a mixture of real cash savings and deferral of costs.[18]
The expected cash savings to be realised are £0.6 billion
achieved by introducing a capability gap by the withdrawal of
the existing carriers and Harriers. The remainder of the £3.4
billion savings to be made relate to the deferral of the JSF to
the next decade.[19]
There remains however considerable uncertainty about the actual
costs of the decisions made to switch to the carrier variant aircraft.
Figure 1:
Savings on Carrier Strike in 10 year period to 2021
| | £ billion
|
| | | |
| Cash saved on withdrawal of current carriers and Harriers
| | (1.6)
|
| | | |
| Conversion costs for catapult and arrestor gear
| | 1.0 |
| | |
|
| Net cash saved in ten years
| | (0.6)
|
| | | |
| Deferral of JSF to after 2021
| | (2.8)
|
| | | |
| Overall Savings |
| (3.4) |
7 C&AG's Report, para 2.3 Back
8
C&AG's Report, para 2.1 Back
9
Q 13 Back
10
Ev 22 Back
11
Q 13 Back
12
Qq 34, 35 Back
13
Q 80-82 Back
14
Q 82, C&AG's Report, para 2.12 Back
15
Q 37 Back
16
Q 1, Committee of Public Accounts, The Major Projects Report
2010, Twenty-third Report of Session 2010-11, HC 687 Back
17
Qq 162, 164 Back
18
Qq 26-Q28 Back
19
Q 27 Back
| 
