Financial News

  • 14 February 2014, 8:27

Defence Spending Improves, But 'Risks Remain'

After many years of poor budgeting, the Ministry of Defence spending is improving, according to the National Audit Office.

Between 2012 and 2013, the costs of 10 of the 11 biggest equipment projects have fallen by a combined 46m.

The one exception is the spending on the two new aircraft carriers, which has gone up by 754m, although the National Audit Office acknowledged that this has been budgeted for by the MoD.

Part of this overspend was a result of indecision over which variant of the new F-35 fighter jet to order. That cost the department 120m.

The MoD eventually decided on the B Variant, which can land vertically - the original order when the previous Labour government committed to the programme.

The report also noted that nine of the 11 projects are delayed. It could not comment on the other two, one of which is the F-35, because the Government has not yet placed orders.

However, the MoD is expected to announce an initial order for 14 F-35 jets in the next few weeks. Overall, that programme, primarily led by the US firm Lockheed Martin, is seven years behind schedule.

Commenting on the report, Defence Secretary Philip Hammond said: "The NAO's report is clear evidence that better financial discipline across the MoD is having a positive effect on the way we procure equipment for our Armed Forces.

"Unlike the past, we do not have to make short-term cuts that delay programmes to simply live within our means.

"Balancing the budget and providing a clearer and more accurate forecast of our future requirements and resources has put the MoD in a stronger position to respond to unforeseen changes and negotiate a better deal with industry."

But Margaret Hodge, Chair of the Public Accounts Committee, took a cautionary stance: "It is good that MoD's efforts over the last year have improved their ability to maintain an affordable Equipment Plan although significant risks remain.

"The MoD have not yet subjected the equipment support costs, which make up over 50% of their equipment budget, to the same level of scrutiny as the procurement costs.

"They also do not understand the impact that the 1.2 billion underspend in 2012-13 will have on delivery."

The MoD has also published its annual equipment plan, outlining how it will spend its equipment budget over the next 10 years.

Over the next decade the department will spend 64.5bn on new equipment - this includes money to buy and develop drones.

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