I wish to inform Parliament that the Permanent Secretary for the Ministry of Defence has written to the Chair of the Public Accounts Committee with our 2020 update on the affordability of the Defence Equipment Plan, covering the period 2020/21-2029/30. His letter and the supplementary tables have been placed in the Library of the House and published online. This more concise update takes the place of the usual Equipment Plan financial summary report and maintains continuity of financial reporting ahead of implementing the outcomes of the Spending Review and Integrated Review. I welcome the continued engagement of the National Audit Office (NAO) who have today published their independent assessment of our plans.
Last month, the Prime Minister announced a once in a generation modernisation of the Armed Forces including £16.5 billion additional spending on Defence over the next four years. I am determined that we seize this opportunity to modernise the Armed Forces to meet today’s threat whilst taking hard decisions to put defence on a sustainable footing. To do so will require a transparent approach to taking these decisions, inviting robust scrutiny of our plans and recognising where we could be doing more to deliver better value for our spending.
In this context, today’s update on the affordability of our plans as they were in April 2020,are a reminder of the challenge ahead and the need for decisive action now to ensure that we match our ambition and resources.
Over the year to April 2020, our central estimate of the shortfall in funding for equipment spending increased from £3 billion to £7 billion over 10-years, with potential for this to be greater if risks materialise and we take no action to intervene. This increase was largely the result of three sources of increased costs:
Deferral of spending on some projects to save money in the short-term while allowing decisions about their future to be taken in the context of the Integrated Review;
There were more limited opportunities to reduce the cost of established projects than in previous years and projects were more confident in delivering milestones and achieving their spending forecasts; and
Risks materialising including less favourable foreign exchange rate forecasts and additional non-discretionary spending in high-priority areas including the nuclear enterprise that we were not able to fully offset through savings.
The settlement we have received in the recent Spending Review means we are now in a position to tackle the root causes of these issues. We are already using the findings of the NAO’s assessment of the Equipment Plan alongside our work on these issues to improve our approach to implementing the outcomes of the Spending Review and ensure that our plans are affordable and deliverable.
I am pleased to see that the NAO has recognised the progress we are making in some areas, including management of efficiencies. Our ambitious transformation programme will build on this progress.
I expect our 2021 edition of the Equipment Plan financial summary to present the implications of the Spending Review and Integrated review for equipment spending and on progress in improving the management of our plans.