The Defence Equipment Plan 2017–2027 Contents

2The challenges ahead

Reliance on future savings

13.We asked The Department has regularly increased the amount of savings required to fund the Equipment Plan. This year, the Department has added £1.6 billion of further savings to the Plan, meaning that a total requirement for £16 billion of savings has been set since the Equipment Plan reporting regime began in 2012.36 The Department reports that it has achieved savings of approximately £7.9 billion, with approximately £8.1 billion still to be achieved by 2027. The full amount of savings included in the Plan is not clear and the Department does not have evidence that shows how it has achieved all the savings it claims to have made to date.37 The Department set out that it needs to improve significantly its monitoring and analysis in the area of efficiencies and how it captures savings. It told us that it has recently appointed a new Chief Operating Officer, who has as one of his primary objectives to “grip and enforce programme discipline in benefits realisation across the Department” and who is making sure there is consistent guidance across the Department. The Department also acknowledged that it needs to do better on information monitoring and to this end has appointed a Chief Information Officer.38

14.The Department informed us that it has recently commissioned Oliver Wyman to assess independently the baseline of its efficiency plan. It described how it needed good, forensic, detailed analysis to ensure that it is able to see fully over the next 10 years whether or not it thinks its savings are credible and achievable. This work is in response to the Department having a number of overlapping efficiency programmes, which has created capacity for confusion. We asked the Department when it is likely to have as it described a “clean house”, and it set out that it hopes to have completed this work, which forms strand two of the Modernising Defence Programme, before early summer.39

15.The Department has started to develop a more rigorous approach to identifying and managing the £8.1 billion of outstanding savings assumed in the Plan. The new process is managed on behalf of the wider Department by Defence Equipment and Support, and consists of project teams identifying savings ideas and developing these through a four-stage process. The majority of the savings that have been identified are at an early stage with implementation plans to be developed.40 The Department stated that they have confidence in their efficiency plans and that there will be an improvement going forward in terms of tracking performance.41

Responding to changes in equipment requirements

16.In previous years, the Department maintained headroom in its Plan to fund extra projects beyond the core programme according to emerging military priorities. This has now been allocated and funding for any further emerging requirements will have to be found from within Commands’ existing budgets, reducing the Department’s flexibility to respond to future equipment needs.42 The Department has set aside a central contingency provision of £6 billion within the Plan (representing 3%).43 We asked how the Department was managing its contingency as it was insufficient to cover the difference between likely costs and available funding. The Department set out that beyond the Equipment Plan there is a general contingency, but that contingencies are not directly funded and the Department has to generate savings in order to hold a contingency at head office. We asked the Department if it has a sufficient safety net for planning over the medium and long term. The Department responded that “There is for the short term”, and that a conversation was needed about the level of risk prepared to be accepted over the longer term.44

17.We asked the Department about multiple risks in the defence landscape. The Department spoke about the changes in terms of geopolitics and technology over the last two years since the Strategic Defence and Security Review 2015, which led to the Defence Modernisation Programme being extended and expanded from the National Security and Capability Review (NSCR).45 We questioned the Department about the growing threats to the UK particularly in the form of cyber attacks. It responded that work in this area is a very active part of the work that was done under the NSCR, and the Department expects to make capability choices that will typically favour cyber activity. The Department might also need to take a different view about its chemical, biological, radiological and nuclear capabilities.46 The Department spoke of the changing nature of warfare and conflict including artificial intelligence and robotics.47 It set out that it needs to “continually look at our capabilities, and make sure that they, nested within an alliance construct, are sufficient to defend the citizens of this country.”48 The Department stressed that it would typically operate as part of an alliance, most notably as part of NATO.49

18.The Department told us that the rapid changes in the defence landscape mean it potentially envisages some quite big changes to the Equipment Plan.50 The Department intends to publish the emerging conclusions from the Modernising Defence Programme in early summer.51 It set out that the Modernising Defence Programme could bring in other capabilities and funding, and that it might also decide that there are certain capabilities that the Department has at the moment that are placed on a lower priority and deferred.52 In terms of next year’s Equipment Plan, the Department felt that it might increase the number of projects in the plan that are at an early stage.53 In the context that there is already a stretch on the current plan and the Modernising Defence Programme could increase the number of projects, we asked if the Department had sought more money from the Treasury for the current Plan and were told that the Department is currently in discussions with the Treasury about the 2018–19 budget.54

19.We asked the Department what its biggest worries were. It told us that a particular area of concern in risk terms was resilience against a changing threat profile that accelerates beyond its capacity to adapt to it. The Department also described how it has an increasingly small number of increasingly sophisticated platforms.55 It set out that in the coming era it is going to have a smaller amount of very complicated kit, which are often one of a kind. This raises questions as to how it sustains them given the reduced transferability of parts between different platforms.56 Another area of concern for the Department was the trade-off it sees between short-term decision-making to live within its means versus the long term suitability of programmes.57

20.We asked how the Defence Modernisation Programme links to the prosperity of the UK. The Department stated that the third strand of the Modernising Defence Programme is about the nature of the Department’s supplier relationships and how they can drive best value for money for the taxpayer while at the same time supporting British industries. The Department informed us that at times the best piece of kit may come from a non-British supplier. It told us that it is now putting into its requirement setting overt and explicit consideration of what the prosperity components of any requirement would be.58

36 C&AG’s Report, para 3.4

37 C&AG’s Report, para 13

38 Q 55

39 Qq 65–67

40 C&AG’s Report, para 13, 3.10, 3.12

41 Qq 66, 69

42 C&AG’s Report, para 3.3

43 C&AG’s Report, para 4.5

44 Qq 70, 72

45 Qq 3, 4, 7

46 Qq 2, 7, 35

47 Q 89