UK defence: No credible Government plan to deliver desired military capabilities, say MPs

MoD unwilling to make difficult decisions needed to balance budgets amid largest ever defence deficit  

The Ministry of Defence (MoD) has not credibly demonstrated how it will manage its funding to deliver the military capabilities the Government wants. In a report published today, the Public Accounts Committee (PAC) calls on the Government to get firmer control of defence procurement, amid the largest deficit ever between the MoD’s budget and its military capability requirements. 

Despite a budget increase of £46.3 billion over the next ten years compared to last year’s Equipment Plan, this year’s Plan’s £16.9bn deficit marks an unmistakable deterioration in its financial position. The PAC warns that the real deficit would actually be £12bn bigger than the £16.9bn estimate if all parts of the Armed Forces took the same approach to including the full costs of all the capabilities that the government expects them to deliver.  

Part of the reason for this deterioration is inflation and adverse foreign exchange movements but the PAC’s report finds the greatest cause of cost increases is the MoD’s decision to fully fund the nuclear enterprise, with costs at the Defence Nuclear Organisation – responsible for the UK’s nuclear deterrent – having increased by £38.2 billion since last year’s Plan.  

The report finds the MoD has put off making major decisions about cancelling programmes it cannot afford. Instead, it has optimistically assumed that the plan would be affordable if the government fulfilled its long-term aspiration to spend 2.5% of GDP on defence each year, despite there being no guarantee on whether this will happen.  

The PAC’s inquiry found that MoD is increasingly reliant on the UK’s allies to protect our national interests. NATO membership deters hostility, but the report warns such deterrence can only be effective if our Armed Forces are credible. This is undermined by issues including more people leaving the Armed Forces than being recruited, the mothballing of Royal Navy ships due to crew shortages, and the unavailability this year of the only ship able to fully replenish aircraft carriers. Given that many of our allies face similar capability challenges, the report calls on the MoD to develop mitigations for how it would deal with the risk of allied support being curtailed or withdrawn. 

Dame Meg Hillier MP, Chair of the Committee, said:  

“In an increasingly volatile world, the Ministry of Defence’s lack of a credible plan to deliver fully funded military capability as desired by Government leaves us in an alarming place. But this problem is not new. Year-on-year our committee has seen budget overruns and delays in defence procurement.  A lack of discipline in the MoD’s budgeting and approach has led to an inconsistent plan that just isn’t a reliable overview of the equipment programme’s affordability. 

“We’re disappointed that not only are the same problems we’re used to seeing on display here, but they also appear to be getting worse. Despite a budget increase, this year’s Plan shows a clear deterioration in affordability. The MoD must get to a better grip, or it won’t be able to deliver the military capabilities our country needs.” 

PAC report conclusions and recommendations 

1. The MoD’s approach to dealing with the largest Equipment Plan deficit ever is an optimistic assumption that government will fulfil its ambition to spend 2.5% of GDP on defence each year. Despite the MoD having increased the budget for this year’s Plan by £46.3 billion, forecast costs over the next ten years exceed this budget by £16.9 billion. Part of the reason for this deterioration is inflation, which the MoD estimates added £10.9 billion to its costs, and adverse foreign exchange movements which added £2.2 billion. The greatest cause of cost increases, however, is the MoD’s decision to fully fund the nuclear enterprise, with costs at the Defence Nuclear Organisation having increased by £38.2 billion (a rise of 62% compared to the previous Plan). The MoD, however, is unwilling to address this deficit by making major decisions about cancelling programmes. It asserts that such decisions should wait until after the next Spending Review, which is expected in 2024 but might conceivably be delayed by the forthcoming general election, the timing of which is also uncertain. The MoD also argued that if the government fulfilled its aspiration of spending 2.5% of GDP each year on defence, the Plan might be affordable. However, the government will only increase defence spending from the current 2.1% to 2.5% of GDP if fiscal and economic circumstances allow, and there is no certainty when or whether this will occur. 

Recommendation 1: The MoD should demonstrate in its future Plans that it has a disciplined approach to budgeting which keeps costs in line with the funding available, challenges project teams on costs and takes account of risks such as inflation. It should also include a prioritised list of capabilities that government expects it to deliver, and clearly set out what it would need to cut if future funding does not meet the 2.5% aspiration. 

2. The Plan is inconsistent because some parts of the Armed Forces include the costs of all capabilities that the government expects them to deliver, while others only include those they can afford. The MoD’s aim is that the Plan provides a reliable assessment of the affordability of its equipment programme and demonstrates to Parliament how it will manage its funding to deliver equipment projects. The MoD headquarters provides the Front-Line Commands and other budget holders with guidance on preparing their cost forecasts. However, it allows the budget holders to take different approaches to whether they include in their forecast costs all the capabilities they need to meet government’s expectations, or just those capabilities that they can afford. This flexibility has created an inconsistency of approach, which means that users of the Plan cannot compare Commands and other budget holders on a like-for-like basis. For example, the Royal Navy has included in the Plan predicted costs for all the capabilities the MoD expects it to deliver, and it has reported a deficit of £15.3 billion. In contrast, the Army has reported a deficit of £1.2 billion in the Plan, because it only includes those projects it can afford. However, its deficit would increase by around £12 billion if it had included all the capabilities the government has requested. The MoD conceded that a Plan compiled on a consistent basis would clearly be easier to interpret. 

Recommendation 2: In future Plans, the MoD should ensure that all budget holders adopt the same approach to including forecast costs. This will help the Plan to achieve its aim of providing a reliable assessment of the affordability of its equipment programme, and improve transparency so allowing the Plan’s users, including Parliament, to compare contributors’ positions on a like-for-like basis. 

3. The MoD’s prioritisation of the Defence Nuclear Enterprise carries a risk that this will further squeeze budgets for conventional capabilities. Maintaining the nuclear deterrent remains the MoD’s highest defence priority. This year’s Plan is the first time that the MoD has set out its nuclear budget separately from other defence spending, and it has sought to limit the long-term costs of its nuclear programmes by prioritising their quicker delivery over immediate cost constraints. The MoD said that its nuclear programmes are in a much healthier position than for many years and that the £7.9 billion deficit in the nuclear budget is manageable. To deliver these savings requires significant work and is a huge challenge. We are concerned that this will be difficult to deliver. The MoD has agreed a minimum budget with HM Treasury for its nuclear activities, and it said that it might ask HM Treasury for more money for nuclear programmes in future planning rounds. If additional money is not forthcoming, the MoD has the flexibility to redirect money from its budgets for conventional equipment to nuclear programmes. However, the current budget for conventional equipment is £9 billion less than forecast costs, and HM Treasury recognises that it will be difficult for the MoD to fund fully its nuclear requirements through the reprioritisation of conventional capabilities. 

Recommendation 3: The MoD should build upon the transparency it introduced in this year’s Plan regarding nuclear costs and budgets by reporting trends in nuclear funding and how these might affect budgets for conventional capabilities in future Plans. 

4. Uncertainty about the MoD’s future demand for equipment hinders its work with industry to develop a resilient, responsive, and cost-effective supply chain. Key lessons from the war in Ukraine include the need for the Armed Forces to invest in weapon stockpiles and ensure resilience and agility in sustaining military capabilities. The MoD has earmarked £5 billion during the decade to 2032-33 to do this, half of which is additional funding provided by the HM Treasury across 2023-24 and 2024-25. The MoD recognises that building capacity, including the industrial skills base, will take time, and that in order to invest industry must have the confidence that the level of demand will continue. The MoD has launched some initiatives to provide assurance regarding future demand, including an order with BAE Systems for 155mm artillery shells. It is also engaging with industry to discuss technical developments which are occurring at fast pace because of the war in Ukraine. However, the failure to provide budgets that match ambition, such as the £5.9 billion funding shortfall in the shipbuilding pipeline, risks undermining suppliers’ confidence to invest in their capacity.  

Recommendation 4: In order to build industry’s confidence to invest in supply chain capacity, the MoD should develop and communicate clear and funded schedules of work for the procurement and support of its military equipment. 

5. The MoD’s strategy for replacing ageing capabilities is undermined by the slow delivery of new systems, resulting in military capability gaps. Despite the MoD working with prime contractors to better understand its supply chain, increased international demand for key components and skilled workers has contributed to the slow delivery of defence equipment, including digital communications, armoured vehicles, and Royal Navy ships. For example, technical issues developing the state-of-the-art Type 26 frigate have contributed to delays, and the delivery of new warships for the Royal Navy is considerably slower than in other countries such as Japan. It has also been difficult for the defence industry to attract suitable candidates because the skilled people it requires, such as engineers, are in high demand globally. As a result, only two of the 46 MoD equipment programmes that are included in the Government Major Projects Portfolio (GMPP) are rated as being highly likely to be delivered to time, budget, and quality. Successful delivery appears to be unachievable for five GMPP programmes, including replacement communications technology, nuclear submarine reactors, and missiles. The MoD said that an emphasis on pace will be a key aspect of the new procurement strategy which was subsequently announced in the House on 28 February 2024 as the new “Integrated Procurement Model” (IPM). In the meantime, the intensive use of existing equipment is creating a maintenance backlog that will take more time and money to address, leaving the UK’s Armed Forces having to make do with fewer pieces of ageing equipment. 

Recommendation 5: The MoD should include in next year’s Plan an assessment of what impact its new procurement strategy has had on improving the delivery of new capabilities and set out how this will provide continued improvement going forward. 

The MoD is becoming increasingly reliant on the UK’s allies to protect the UK’s national interests, which carries the risk that such support might not always be available. Recent international developments, including the war in Ukraine, have reinforced the importance of strategic international partnerships for the UK. The UK has been working with its allies, including Ukraine, to develop interoperable equipment, pool essential munitions and encourage industry to build its capacity to supply the necessary equipment. However, for deterrence to be effective the UK’s Armed Forces must be credible. Such credibility is undermined by widely reported recruitment and retention issues, with more people leaving the Armed Forces than are being recruited, the mothballing of Royal Navy ships because of crew shortages, and the unavailability this year of the only Royal Navy ship able to fully replenish the UK’s aircraft carriers because of a refit. Given the changing global security picture, it is vital for the MoD to work with industry, including through the Defence Suppliers Forum, and also the higher education sector to ensure sufficient supply of highly skilled workers and also apprentices to the defence sector. With the support of its allies, the UK’s Armed Forces continue to fulfil a crucial role internationally. However, many allies are facing similar challenges to the UK, which might affect their ability and willingness to continue providing extensive support. 

Recommendation 6: The MoD should assess the extent to which its capability requirements are reliant on support from the UK’s allies and develop mitigations for how it would manage the risk of allied support being curtailed or withdrawn