Ministry of Defence spending is unaffordable, with many major projects arriving over budget, below specification and years late, according to a report from the National Audit Office.
The NAO’s Major Projects report 2009, which examined 30 MoD projects in the financial year 2008/2009, found that a shortfall of between £6 billion and £36 billion remains, despite a reduction in the defence deficit of around £15 billion
Commenting on the report Shadow Defence Secretary Dr Liam Fox said: “This constant failure to contain cost and keep to timetable means that taxpayers’ money is being wasted and our armed forces are being denied vital equipment which has meant a reduction in capability. It is shambolic.
“We have now had a succession of reports describing disastrous project management and shocking incompetence with taxpayers’ money, as well as a preoccupation with the short term which threatens our long term security. We need a new government willing to conduct radical reform of the whole procurement process to ensure that taxpayers and the armed forces get value for money.”
The shortfall is in part due to the MoD’s decision to reduce the size of some of its orders and let others ’slip’, slowing production down and allowing delivery at later dates. These measures create short term savings, but will lead to longer-term cost increases.
The report says: “In 2008-09, costs on the 15 major defence projects examined by the NAO increased by £1.2 billion, with two thirds of this increase (£733 million) directly due to the decision to slow projects.
“Attempting to save money in this way does not address the fundamental affordability problems, increases through-life costs and represents poor value for money on the specific projects affected.”
The report singled out the slowing of the Queen Elizabeth class aircraft carrier project, which was forecast to save £450m in the next four years. The delays will add £1.124bn in costs over subsequent years, resulting in a net increase of £674m.
The NAO also slammed the decision to cut the number of Lynx Wildcat helicopters ordered from 80 to 62. This 23 per cent reduction in numbers will result in Wildcat flying hours dropping by a third.
“The Ministry of Defence has a multi-billion pound budgetary black hole which it is trying to fix with a ’save now, pay later’ approach,” said Amyas Morse, head of the National Audit Office.
“This gives a misleadingly negative picture of how well some major projects in MoD are managed, represents poor value for money and heightens the risk that the equipment our Armed Forces require will not be available when it is needed or in the quantities promised.”
The NAO found that the current cost of 15 major military projects has risen by £3.6 billion, compared with the expected costs when the investment decisions were taken. The total slippage, averaged over the 14 major projects with in service dates, is over two years per project.
The report warns that: “Unless the MoD addresses the underlying budgetary and governance issues it will not consistently deliver value for money nor, vitally, will the operational benefits of expensive new capabilities be available to the armed forces in a timely manner or in the numbers originally planned.”
Although MoD procurement did not come out well in the report, the NAO said there were some “signs of improvement in project cost control, with innovative decisions being taken to ensure progress”.
The Institute for Fiscal Studies warned last week that the MoD could be facing deep cuts after 2011 in the wake of Chancellor Alistair Darling’s Pre-Budget Report decision to squeeze spending while protecting funding for schools, hospitals and policing.
At least one RAF base is reported to be set for closure, with cuts also predicted to the MoD Police and back office functions in a move to save hundreds of millions of pounds.
