This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.
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This year’s Equipment Plan (the Plan) reveals that there is a £16.9 billion deficit between the Ministry of Defence’s (the MoD’s) capability requirements and its budget, despite the MoD having increased the Plan’s budget by £46.3 billion. This is the largest funding deficit in any of the 12 Plans the MoD has published since 2012. It is also a marked deterioration in the reported financial position since last year’s Plan, which the MoD judged to be affordable but this Committee concluded was not and that is characterised by optimism bias. The real deficit, however, is even larger, because some parts of the Armed Forces have not included costs for all the capabilities government expects the MoD to provide, but only those they can afford. The Army, for example, could need around £12 billion more to fund all the capabilities the government seeks.
The MoD has not had the discipline to balance its budget by making the difficult choices about which equipment programmes it can and cannot afford. Instead, it has opted to assume—or perhaps, given the uncertainty, hope—that fiscal and economic circumstances will improve during the next ten years so that government will fulfil its aspiration to annually spend 2.5% of GDP on defence. This, combined with the marked deterioration in the Plan’s affordability, means that the MoD has not credibly demonstrated to Parliament how it will manage its funding to deliver the military capabilities that government wants.
In this Committee’s report on last year’s Plan, we commented that we saw the same problems recurring year-on-year, with many defence procurement programmes being delayed and over-budget. We are disappointed, if not surprised, that these failings are evident yet again. The need for the MoD to assert firm control on defence procurement remains as acute as ever.
The MoD has asked the Committee for our views on how the MoD could best update Parliament on equipment affordability in the future. Our recommendations set out several ways to do this, including improving the effectiveness and transparency of future Plans, so that Parliament can better hold the MoD to account. There are areas of the Plan which cannot be scrutinised in the public domain for security reasons. We are concerned that there is a gap in Parliament’s ability to hold the MoD to account for spending and delivery in those areas which do not fall within the mandates or practical working arrangements of other committees such as the Defence Select Committee, the Joint Committee on the National Security Strategy or the statutory Intelligence and Security Committee of Parliament. The Committee will seek to work with the Government and within Parliament to identify a practical solution to enable effective scrutiny across sensitive areas of defence spending and delivery.
Finally, we note the Department’s statement in the House on 28 February 2024 regarding Acquisition Reform and the proposed new Integrated Procurement Model (IPM). We have not yet had an opportunity to examine and take a view on this, but would encourage our successor Committee do to so in any consideration of next year’s expected MoD Equipment Plan (which may well be affected by some of the proposed reforms).