On 5 November, the MOD published its 10 year Defence Equipment Plan covering 2018 – 2028. The annual publication reassesses the spending associated with the equipment budget and examines how costs have risen or fallen against the major Defence programmes run by the department.
Summary of the Equipment Plan
From the beginning of the 2018-19 financial year, the MOD’s funding allocation for the equipment plan rose to £186.4bn, up from £179.6bn. The department has estimated that the potential cost range of the equipment plan is between £188.9bn and £201.2bn, giving a central estimate of £193.3bn. This higher number has been determined as forecast costs on key programmes such as QEC, F35 & Astute have all risen.
To reduce spending, the MOD is aiming to achieve cost savings of around £13.4bn on equipment over the next 10 years, starting from the 2018/19 financial year. Some cost savings have already been achieved in key programmes such as Type-26, Poseidon and Apache Capability Sustainment. The MOD is also expecting the DE&S Transformation & improved Strategic Supplier Management to reduce costs, along with a new more efficient logistics support system. Across the six TLBs, the MOD estimates £9.5bn in efficiencies will be delivered against a target of £13.4bn.
In the Front Line Commands, the Army, RAF & Royal Navy are planning to spend between £1.2 - £1.8bn more than was originally estimated. Conversely, JFC has reduced its estimate costs by £1.2bn.
The plan also notes that the government remains committed to spending 2% of GDP on Defence, with 20% of spending on equipment specifically. The plan has also re-iterated the MOD’s commitment to bake-in exportability in future equipment procurements, through the implementation of the Dunne Prosperity Review, Combat Air Strategy & National Ship Building Strategy.
Looking specifically at savings targets, the MOD has split these into two categories, to enable greater flexibility and reduce the risk of inaccurate calculations. The first category includes the DE&S transformation, which has a savings target of £3.9bn over the next 10 years. DE&S expects to deliver savings of £4.2bn. Over the next 3 years, the MOD also expects its assessment of affordability to improve through better cost control and oversight of performance. This in turn will drive down the forecast costs in future plans by around 5-10%. The MOD has also allocated £4.3bn of contingency funding to manage unknown financial risks.
NAO Report on MOD Equipment Plan 2018-2028
The National Audit Office (NAO) has also released its report on the MOD’s Equipment Plan, which assesses the robustness of the Ministry of Defence's (MOD) financial data and assumptions for its Equipment Plan 2018-2028. A summary of the report is as follows:
The report has concluded that the equipment plan remains unaffordable, with forecast costs exceeding budgets by between £7-14 billion over the next 10 years. However, it acknowledges that the MOD has recognised the nature and scale of the significant challenges it faces, and continues to improve its understanding of affordability. Despite this, the NAO is not yet fully confident in the robustness of the MOD’s underlying assumptions around the efficiencies it thinks it can make.
Even with the additional £1bn of funding announced in the Budget, there is still a significant financial shortfall in MOD’s equipment plan forecasts, meaning that the department will need to recognise around £6 billion+ in efficiency savings over the next decade.
The NAO has also suggested that the decisions made through the Modernising Defence Programme (MDP) are a real opportunity to reduce equipment costs and realise the efficiency savings in key areas.
Fred Sugden, Head of Defence Programme, techUK said:
‘The predicted rise in forecast costs will present a significant challenge for the MOD over the next ten years as it tries to balance its books. However, it is encouraging to see that the MOD is committed to ensuring that our Armed Forces have the equipment they need to cope with developing and emerging threats in a more complex and contested world. techUK appreciates the need for MOD to find efficiencies and strongly believes that the adoption of new technologies across Defence will deliver efficiencies across the TLBs, in both back office support functions and on frontline operations. To realise the benefits of new technologies, the MOD needs to work with partners in industry to deliver genuine digital transformation’.