Papers this morning are reporting that the NAO (National Audit Office) has identified a huge shortfall in the Defence budget for the 10-year Defence Equipment Plan (DEP), for the period 2018 – 2028. Some figures being touted talk of a £7bn gap – others up to £14bn. Regardless of the actual amount, all reports mention that the NAO reckons that planned equipment purchases are simply unaffordable.
But does this “news” come as a surprise – as is being suggested in some reports? The answer has to be “No, it is not”. The NAO, as well as many journals and papers, have been reporting on the looming deficit in defence expenditure for a very long time. To quote the Head of the NAO:
“The Department’s Equipment Plan is not affordable. At present, the affordability gap ranges from a minimum of £4.9bn to £20.8bn if financial risks materialise and ambitious savings are not achieved.” Sir Amyas Morse, head of the National Audit Office, 31 January 2018 on the 21017-27 DEP.
In fact, you have to go back to the start of the Ten Year Plan in 2012 to get any sense that the MOD’s spending plans tallied in any way with the money they had in the piggy-bank. Back then, the Defence Secretary, Mr. Hammond (now the Chancellor, of course), was very bullish about finances. He stated:
“It is essential that our Forces are fully equipped to respond to the range of threats we face in this uncertain world. This £160 billion Equipment Plan will ensure the UK’s Armed Forces remain among the most capable and best equipped in the world, providing the military with the confidence that the equipment they need is fully funded. For the first time in a generation, the Armed Forces will have a sustainable Equipment Plan.”
The NAO of the time was also relatively happy about the situation:
“The NAO is also satisfied that the MOD has taken difficult decisions to address what was estimated to be a £74 billion gap between its forecast funding and costs, and that it has taken significant positive steps designed to deal with the accumulated affordability gap and lay the foundations for future budgetary stability.”
And so, in a mood of great confidence, the headline to a 2012 Government-published article on this topic read as follows:
“The Defence Equipment Plan: a decade of prudence and clarity”
A few years later, following the 2104/15 review, and according to another MOD announcement, the NAO found that:
“the Equipment Plan is more stable than last year and is set to remain affordable for the rest of this Parliament under current conditions.”
By 2016, however, things had started to go sufficiently wrong for dire warnings about lack of funds to do the rounds once more. One analysis of the NAO report on the 2016 – 26 Defence Equipment Plan explained that:
“in order to meet the funding requirements proposed by the Review, the MoD must use the entirety of the £10.7 billion headroom previously set aside to meet emerging requirements in future years. To further ensure the affordability of the Plan, the MoD must also find £5.8 billion of savings from existing projects in the next 10 years.”
Part of the problem was that the rate of “defence equipment inflation” had risen from under 1.5% in 2012/13 to over 7% by 2016. In addition, the Strategic Defence and Security Review of 2015 had added some £25bn to the MOD’s bill. The main ticket items here were the F-35 aircraft, the Poseidon maritime patrol aircraft, and the new Mechanised Infantry Vehicle being pushed by Gen Nick Carter (the current CDS).
However, the most worrying aspect of this increase was the amount of sheer bad planning that was exposed by the NAO. Lack of allowance for currency fluctuations, for example: given that the UK MOD was on the hook for $28bn of overseas equipment purchases, this was not to be sneezed at. Or the apparent £4.8bn underestimation by MOD project teams of the financial risks of bringing new equipment on stream. Two major projects were identified as examples of where the MOD had simply failed to plan effectively in terms of long-term acquisition costs: the Type 26 heavy frigate (or Global Combat Ship) and the nuclear-sub programme.
By way of a summary, the head of the NAO commented:
“The affordability of the Equipment Plan is at greater risk than at any time since its inception. It is worrying to see that the costs of the new commitments arising from the Review considerably exceed the net increase in funding for the Plan. The difference is to be found partly by demanding efficiency targets. There is little room for unplanned cost growth and the MoD must actively guard against the risk of a return to previous practice where affordability could only be maintained by delaying or reducing the scope of projects.”
It would be misleading to suggest that things had gone wrong “overnight”; they had not. However, as the NAO started to get to grips with the complexities of the MOD’s spending and financial control systems, it was able to shine lights in places that had previously remained dark and relatively unexplored. To be fair promises made in 2012 were, in some cases, being fulfilled: the spending reviews between 2010/13 looking at large projects had concluded that some £4bn could be saved over 10 years, and by and large the MOD was on its way to achieving that aim (£3.4bn saved).
That said, take a look at the MOD’s Defence Equipment Plan for 2017. You will see that Section B is called “Improvements in MOD Processes and Functions”. This starts off in a confident manner, talking about the implementation of strategies and processes designed to save money and time. Indeed, some examples of actual savings are given. But as you read on down you start to get the impression that more and more agencies, reporting structures, control processes and acronyms are involved making it almost impossible to follow what is being said (and bear in mind this is intended to be a report to the British public on how their tax-pounds are being spent!).
It leaves one wondering whether there is, in fact, any single person in the MOD who truly understands, and who has a grip on what is going on. For without that sort of clear leadership, people will come and go, keeping things ticking over till their time is done and they are promoted from buying boots and socks in the MOD to sorting employment regulations in the DWP.
(It was the same with the Grey Report of a few years ago. When challenged by the author to confirm that anyone actually understood the totality of that report, a group of senior civil servants and serving officers attached to the MOD were not able to do so.)
Almost as an afterthought, the 2017 DEP report adds: “The Modernising Defence Programme will also aim to improve performance on commercial and industrial issues.” That is an interesting comment as one of the main reasons the MOD asked to set up the MDP was that they refused to adopt a “Fiscally Neutral” approach to future spending being applied to the overall UK defence strategy being overseen by the Cabinet. That is to say, they wanted to be free to plan to spend more if they thought it necessary.
And so, back to today’s headlines. It may be seen from earlier TMT articles (What is “Modernising Defence Programme” & why do we have it? published on 2nd July this year), that they do not really tell us anything we did not already know. Indeed, if you look at the NAO’s worst-case warnings in the 2017 report, you will note that they talk about a possible £20.8bn gap in the budget over the next ten years. That is perhaps why they politely say the MOD’s current admission that the gap might rise to £15bn “could still be optimistic”.
So what can we do to stop this continual overspend?
The answer is not going to be simple. But it will involve a combination of hard decisions on near-term spending (given that the NAO says this is when much of the currently-identified overspend will take place) and straightforward cuts to future plans to stay within budget over the longer term. Given that money does not grow on trees, there is simply no other choice (unless someone, somewhere in the MOD is hoping to make a financial hostage of the Government by signing contracts that the UK cannot then get out of).
For example, why are we spending billions on a new infantry vehicle when a conversion of the Mastiffs to an 8-wheel layout might achieve much of what the 40+ tonne Boxer will do – and yet for a fraction of the price and weight. Why are we persisting in allocating so much of the Navy’s resources to the operation of just two ships? How can we continue to justify the acquisition of the horrendously expensive F-35 aircraft when even the US is suffering serious indigestion over its price?
In fact, in a world where the majority of European countries spend very much less on defence than the 2% agreed at the 2014 Wales conference, why are we not doing the same in the UK? Is it not preferable to do less – but do it properly, instead of talking about wonderfully sophisticated weapons and equipment that we can never really afford to maintain or operate?
It is a hard call – and especially at a time when the UK is leaving Europe and looking at re-establishing old connections and alliances in the larger world. For there are many cultures out there that place much value upon military strength and a willingness to use it. For the UK to step back and try to do a “Germany” would be to ignore the lessons being learned by even the most centrist politicians of that country; you have to be strong to be influential.
However, taking another leaf out of Germany’s book, perhaps there is a way we can afford the defence we seem to think we need. If we, as a country, face up to the fact that, post-Europe, we will sink or swim based upon our productivity and efficiency, and if we then just got on with the business of working hard and creating revenue, then we might well have the funds to deliver the necessary equipment to our Forces so that we can continue to call ourselves a “World-power”.
If we do not roll up our sleeves and get stuck in, then we have to face facts and stop allowing our military leaders to bankrupt our armed forces. It has to come to an end very soon. As the head of the NAO, Sir Amyas Morse said:
“The equipment plan 2018-28 shows that the MoD has a clearer understanding of the affordability issues that it faces, but it equally shows how urgently it needs to get on and tackle them.”
The Commons Public Accounts Committee Chairman, Meg Hillier was equally forthright:
“The ministry still does not have enough money to buy all the equipment it says it needs and is in real danger of wasting taxpayers’ money through short-term decision making.”
So who, Dear Readers. is going to step up to the mark and tell the Four-Stars that the piggy bank is now empty? The likes of Mr. Williamson?
Thoughts and comments in an email to TMT please!
Images Crown copyright: UK MOD. Quotes from various UK Government public domain publications.