The NAO Report on MOD Spending - Bad News and Tough Decisions Ahead


The Ministry of Defence has failed to have its equipment plan judged as being affordable for the 3rd year in a row. Just 10 years after the 2010 SDSR made swingeing cuts to the budget to try and put things back on track, the MOD now faces a deficit of between £3-£13bn in its future plans.

This is the damning verdict of the National Audit Office(NAO), whose report into the state of the MOD future equipment plan (EP) makes deeply uncomfortable reading today. The NAO is known for its hard hitting and objective reports, and much of the small print in this is not nice to see. Bluntly put, the NAO is not impressed with how the MOD is running things.

How concerned should we be, and what does this mean for the forthcoming Integrated Security Review, and what does it tell us about the state of Defence today?

Image by Ministry of Defence; © Crown copyright


At its heart the audit concludes that the MOD expects to spend £180bn on defence procurement and support over the next 10 years on the 1600 largest projects. This is a very substantial amount of cash, and helps reinforce the message that the UK remains a serious player in defence budget terms.

The challenge is that there is a serious shortfall of between £3-13bn between what the Department thinks it will cost, and how much the MOD expects to have available to spend based on current budget forecasts.

To make matters worse, the NAO estimate that there is a £6.5bn potential shortfall in the next 5 years. This means that between now and 2024, the MOD has £6,5bn less than it needs to properly fund the projects it has underway.

Its important to note that the way these projects work means that there isn’t a lump sum that can easily be found to not buy something. For instance a ship costing £1bn won’t have the £1bn paid up front, instead payments come at different times and different amounts – so the next 5 years may see £100m in the first year, £500m in the 2nd year, £120m in the third and the balance in the last two.

This makes it really hard to make the books balance because when you multiply this by 1600 projects, you quickly realise the MOD has lots of different projects that need different amounts at different times, and deferring one into the following year may accidentally then cause chaos for half a dozen more which suddenly become unaffordable.

To add to this problem, the MOD has run out of contingency funding to cover cost growth. In previous years there was always a bit of flex in the budget, with cash held centrally to absorb unexpected cost growth in some areas – for instance dollar fluctuations or amendments to a project calling for additional funding. This reserve has now gone, meaning there is no reserve left for any unexpected cost growth.

The apparent good news relative to last year is that the plan is now only £2.9bn in the red, versus the £7bn identified last year. This doesn’t mean that the MOD has magically found a way to save £4bn though, rather the report rather caustically notes:

‘the apparent reduction is based on the Departments revised approach to assessing the affordability of the Plan rather than the result of actions intended to address the 10 year funding shortfall’

The report suggests that the MOD instead thinks some projects will proceed more slowly than previously anticipated – which in turn suggests for Defence that replacement projects are going to enter service late, potentially over budget, and potentially long after their predecessor has left service. In other words, ‘mind the looming equipment gap’.

Also of concern to the NAO is the fact that the MOD has revised some of its costs, but it still thinks that the later years of the 10-year programme are underestimated and has doubts about the MODs forecasting. It also found that much of the MOD work is based on an assumption that £4,7bn of efficiency savings will be found but:

“it reduced forecast costs by £4.7 billion to include potential efficiency savings, but it is less confident of delivering these initiatives. These potential savings are more than double the amount included in last year’s cost forecast”

In other words, the MOD has doubled how much it thinks it can save in order to save money, but has no idea how it can find the money to do this, or whether it can actually deliver these savings.




More widely the report notes that there are a lot of projects out there that haven’t been added to the current Equipment Plan yet. Although for over 2 decades the MOD has stated the goal is to buy 138 Joint Strike Fighters, to date it has only budgeted for 48. This means there is a shortfall in funding of 90 JSF (approx £100m per aircraft) that has yet to be factored into an already massively overcommitted programme. The risk for the MOD is that without sufficient funds in place as it is, further purchases of any F35 may be unaffordable without significant cuts elsewhere in the plan.

The bad news continues with the assessment that the MOD will continue to have a year in year out funding problem, and be unable to plan coherently for the long term. This means it cannot plan with any certainty or commit, making it extremely difficult for industry to plan for orders – which in turn will make items more expensive
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Added to this is the ongoing pressure of in year challenges. While the payrise for military personnel was welcomed, it has meant the MOD needs to find £460m from somewhere to pay for it – with no indication about where the money can come from.

In terms of the longer term planning, the report is utterly scathing:
The Department still does not have an affordable long-term investment programme 28 months after it began reviewing what capabilities were needed and affordable. There have been two missed opportunities to make decisions on an affordable programme.

In other words nearly 2 ½ years after the MOD began to try to work out what was affordable, it has been unable to make any decisions. This decision paralysis though will be felt for some time as projects continue to rumble on, meaning yet more money could be sucked into them, continually changing the picture of what is, and is not, affordable.

The affordability seems to being addressed by significant cuts to the future project – with the Equipment Budget for the next 5 years being some 4-12% lower than in previous years, but is still deemed as unaffordable.

Perhaps the single most damning finding in the entire report is the section which starts with the line:
The Department’s continued short-term focus of living within annual budgets is leading to reduced capabilities and higher overall costs.
It goes on to note, for instance that this year the RAF has already made a 50% cut to the Sentry AEW fleet from 6 – 3 airframes, while the force as a whole will go out of service at least 9 months ahead of the delivery of the first of the replacement Wedgetail airframes.

In practical terms this means a multi-year gap looming as the RAF first gaps, then has to build up its new AEW capability, at the same time as there are continuing delays to the introduction into service of Crownest. While NATO and allies may be able to provide some support, the effective deletion to all intents and purposes of an effective deployable AEW capability for several years could, in the worst case, have hugely damaging consequences for UK operations.

It also sends a message that the UK is, once again, relying on allies to cover its own parsimony. There is little point in lecturing allies about more defence spending if, after 10 years of relying on them to cover your MPA gap, you bring them into service only to then have an AEW gap. If the UK is not careful then decisions like this bring the real risk of it being seen as a less than credible high end partner.

Image by Ministry of Defence; © Crown copyright



There is a focus in the report on problems with funding gaps more widely – for instance it notes that the Harpoon replacement so urgently sought by the Royal Navy isn’t actually funded. Its not clear where the money is coming from to pay for this.

There is no money available for new mine warfare capability – while the requirement to replace this has been on the tables for years, there is no funding for it in the next 10 years, despite it being an urgently needed requirement.

“The Navy is also due to lose its mine-hunting capability in the early 2030s. Although the Navy believed that this capability needed to be addressed in the 2019–2029 Plan, it does not include funding to extend or replace this equipment.”

This means that difficult decisions need to be made very soon about how to find funding to replace a capability for one of the most strategically critical parts of the RN which will nearly 40-50 years old by the time their replacement hulls and capabilities arrive.

Similarly the RAF is criticised for in year savings decisions that have ended up costing more money than they saved. The Protector programme, a replacement UAS system is singled out for delays accounting for an increase in cost of £187m to the overall project, while run on costs of legacy systems have added a further £50m in costs. In other words, in year savings measures may make the problem go away for a few months, but they always come back to hurt at the start of the next financial year. This is perhaps brutally summed up by the quote:

“the Department is facing the growing risk that affordability pressures are leaving them with equipment that is in managed decline.”

Equipment planning is also not seen as being coherent or necessarily well thought through. The much lauded innovation fund, intended by a previous SofS to be essential to fund exciting new equipment was launched only through forcing multiple budget cuts to major budget holders for the next three years – including making a £160m cut in this financial year, which the report drily noted caused problems as it was created after budgets for the year had been approved.

While eye catching equipment purchases may grab headlines, its clear that real financial pain was inflicted as a result of this decision. None of the so-called innovation money appears to be new, rather its only coming about as a result of making difficult cuts in the middle of the financial year to already over committed budgets.

Even more damningly, the report notes that the Secretary of State identified priorities that had not previously been seen, and that there was no long term funding to purchase them:

The Secretary of State selected 18 projects, including some capabilities not previously identified as high priorities. The Department will need to provide additional funding to develop useable capabilities from these projects, although it does not yet know the scale of the additional investment required.

This appears to be a very polite way of saying that the Secretary of State responsible for this decision consciously chose to invest public money in projects that had not previously been seen as a priority, and for which the MOD has no plan or money to purchase or research further, and for which it cannot afford to introduce based on current budget plans. In other words, the so-called innovation fund has, in the eyes of the NAO, been a questionable success.

The Department launched the Transformation Fund in December 2018 and gave the TLBs one month to prepare bids. In January 2019, a departmental expert panel assessed the bids and advised that 26 of the 49 project ideas were suitable for the Secretary of State’s consideration.17 When evaluating the bids, the panel also considered what the projects could achieve in the first year. HM Treasury approved funding within the Department’s existing budget and for 2019-20 only. The Secretary of State approved 15 of these project ideas and three others which the panel believed needed further work before they could be considered. The approved projects are expected to cost £405 million over three years. Nine projects received less funding than the Department’s panel recommended. In most cases, the TLBs had not previously identified these projects as investment priorities

It also notes that the much vaunted littoral strike ship may have got £5m in funding, but requires at least £600m to actually deliver anything – money which does not exist at the moment.
The report comments on the failure of the MOD to develop proper strategic assessment of its funding needs, noting that:

“the Department has become locked into a cycle of managing its annual budgets to address urgent affordability pressures at the expense of longer-term strategic planning, and is introducing new commitments without fully understanding the impact on the affordability of the Plan.”

In other words, short term focus on new shiney stuff is preventing the MOD from actually focusing on working out what it actually wants to buy or understanding if the new shiney things are actually affordable in the first place.

Image by Ministry of Defence; © Crown copyright



The NAO hint that there are problems being stored up by the refusal of parts of the MOD to accept that projects will cost more than predicted. It cites the example of a JFC (now Strategic Command) project that JFC estimates will cost nearly £300m more over the next 10 years, yet which the Investment Approval Committee refused to accept would increase in cost and forced JFC to reduce its plans accordingly. It notes that:

In October 2019, the Department reported that the programme is ‘on track to deliver the expected outcomes and benefits within its approved budget

In other words, there is a project out there that planners think will cost £300m more than planned, but which is still considered to be in budget. How many more projects out there are like this?
There are wider problems facing the MOD which place pressures that are perhaps not adequately well enough understood. For instance the MOD has to find a significant amount of cost reductions via efficiencies:

The Department defines efficiencies as cost reductions which are not associated with a reduction in outputs or capabilities. It is required to identify £34.7 billion worth of efficiencies over the 10 years to 2028-29 across its total defence spending. Its budgets were reduced accordingly, meaning that the Department will need to make other cost reductions if it cannot achieve these efficiencies”

The EP alone has to find nearly £13bn worth of savings in the next 10 years to contribute to this, and the MOD runs the real risk of being unable to find savings and having to make even deeper cuts if it is not careful. The potential long term risk of a decade of in year defence cuts is very high.
There is real concern by the NAO about how these efficiencies will be found and the fact that there is no single logic in the MOD about how to confirm or agree them. Similarly, some of the assumptions seem staggering. For instance:

“The Department’s affordability assessment is also based on the assumption that Air Command and Joint Forces Command will find efficiencies equivalent to all known potential efficiencies, and then find a further £1.3 billion of efficiencies.10 Neither these TLBs nor Head Office could provide sufficient evidence to justify this confidence in their ability to reduce costs”

In other words HQ Air and JFC have to make huge savings and then find another £1.3bn on top just to ensure the existing budget targets are met – but there is no confidence any of this money can be found.

This scepticisim seems perhaps warranted given the NAO experience of asking to scrutinise some of the efficiency measures being considered. It noted that in some cases 3 of the 13 projects that were due to contribute to savings were only signed off on after they had asked to review them – suggesting that there was insufficient scrutiny of their viability.

“three of the 13 efficiencies we tested were only signed off by senior officials after we selected them for review. DE&S’s internal guidance for managing efficiencies was not followed in these cases. It told us, however, that it is satisfied there would have been sufficient scrutiny of these efficiencies at its high-level governance meetings. The packs prepared to support these meetings contain the amounts to be deducted from project costs for these efficiencies, although they do not include explanations of the efficiency or supporting evidence.”

More widely the report goes onto discuss the lack of qualified finance staff in the MOD. At the moment of the 57 senior finance positions, no fewer than 27 are unfilled – a nearly 50% gap of qualified financial senior leadership staff on major projects. Similarly, only 41% of MOD financial staff have professional financial qualifications.

This suggests that a lack of investment in civil service staff, coupled with wider challenges has made it very difficult to find and recruit good calibre finance staff to support these projects. While downsizing the civil service is always popular, the impact is when posts like these go unfilled and the cost increases to projects vastly outweigh the theoretical savings made.

Image by Ministry of Defence; © Crown copyright



So what does all this mean? Well in simple terms it means that the next defence review has got to make some very, very difficult decisions. We are seeing the legacy of 10 years of focusing on headline eye grabbing ‘cool stuff’ coupled with an aversion to difficult decision making about how to stop doing stuff that would ease pressure.

The constant debate in defence is, frankly poisonous. The demands that the UK has to do X or Y because of ‘reasons’ means that its very hard to have a frank conversation about how to properly fund or resource it. The unwillingness to look beyond the ‘oooh shiney’ pictures of cool stuff by many people means we focus too much on tank numbers, weapon fits on ships and types of aircraft and not on the deeper and more meaningful question about what sort of military power we want to be.
Really tough decisions need to be made to break this cycle. They will really uspet people and they will probably cause much heartache and angst – but unless these tough decisions are taken, and capabilities, missions and roles switched off forever, and headcount cut and tasks abandoned, then Defence will continue to suffer.

There is no more money – its not there, it won’t happen and as has been seen, when limited funds are given, they come with one hell of a price tag of in year efficiencies which really means more cuts. Until the UK is able to have a deep and meaningful conversation about how it makes the transition into doing defence as part of a global presence that is affordable and meaningful, these reports will continue to be written.

A long journey lies ahead and the Review will face the choice of either more of the same, taking and adopting measures that may save face but cost lives, or stepping back from some areas and focusing instead on being really good in others. This is a difficult Review but for everyones sake the time has come to say ‘what do we want to stop doing so that we can stay credible’?  

Comments

  1. Evening
    Sir H neatly précised what has become a total shambles - a lack of robust leadership sustained by continuous operations and the need to buy new kit the government - as is now shown in the NAO report, something the government could never afford. You only need to read the MoD Equipment Plan Summary to see how the department is still in a total denial of what the NAO has been saying for the last three years.
    It has now come to the time where fundamental reform of the department has to happen - it is no longer fit for purpose in its current state. Change has to come from the outside - renaming commands or functions within commands (JFC to StratCom and ISS to Defence Digital) only highlights the little ambition and vision the department has of how to solve its problems.
    The Government has stated that by year end the review will be complete, you only have to read the Times to see a rear guard action of former military officials and un-named current military officials bickering over timetables and who is going to run the review.
    If Dominic CUMMINGS needed anymore ammunition - he has got it, handed on a plate by the very department who are trying to excuse themselves out of any blame what so ever.
    Sir H précis above articulates the very reason that the MoD should be kept as far away from the review as possible - this review isn't an equipment review, its a strategic review where the MoD happens to provide some of the capability required for HMG to achieve its strategic goals.
    No wonder things like FSS has been "paused", no point in having them if you cannot afford to put anything to sea for them to support.
    The MoD currently has 1600 ongoing large projects within the EP - how many are still fit for purpose, how many still have a senior user, how many are just clock watching (yes ISS that's you) stating that they have no ability to change direction or utilise discretionary cash to change the scope of the deliverable.
    Where are the senior leaders within defence, making tough decisions (or having their photo op with a minster).
    You have to remember these people are the very people who make the decisions, who make the difficult choices - its seems they are content to push the problem to the right and let it be the next persons problem.
    Today is a wake up call for No10 - you have been presented a shambolic department, consistently overspending and over promising, consistently coming up with excuses why they cannot deliver, consistently imagining extra efficiency savings (knowing full well they will never be met) - you can now see why No10 put a loyalist trained financier into the Procurement Role, made it a full ministerial role reporting directly back to No10.

    Two reports have been released today - one is a reality, the other a fantasy of lies.
    I know which one CUMMINGS will read....I can only imagine his advice.

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  2. Apologies for the poor grammar above but hopefully the point is clearly articulated

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  3. Not sure how you read the above and came to the conclusion that the problem was ‘too many civilians at the MoD’.

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  4. So no defence of the in-year affordability cuts? Makes a nice change. We do need shiny kit, we don't need to overpay for it. MOD needs a multiyear settlement and for the Treasury to be prevented from withholding the money

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    1. I think you missed the announcement that the UK was committed to 2% of GDP to be spent on defence. What is that but a multi year guidance on defence expenditure? How do you get to the conclusion that the treasury is the problem here? The comment that it 'withholds' suggests that this is the MOD's cash that they are being prevented from accessing. It isn't, it's the tax payers money and the government of the day dispenses it as it sees fit. What you are suggesting would amount to the government being unable to decide on expenditure and forced to follow previous governments decisions. No government would agree to that.

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    2. It's well documented that money is witheld by the Treasury to balance in year budgets despite having being committed to the overall project cost. This contributes significantly to cost overuns on projects as delay frequently means higher costs, which means less capability for the money spent which means higher per asset costs which leaves us with £1bn destroyers etc, etc. This is self-defeating.

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    3. If it's well documented could you provide a link to when this happened?
      The following shows how funding is actually done. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/827379/20190319-JSP462_Pt1.pdf
      Parliament votes for a budget and the MoD is expected to keep within that limit, or it has to come back to parliament for an excess vote, if it does that, it needs to have a really good reason why it wasn't able to keep within limit. There is no treasury intra year claw back, it doesn't exist.

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    4. I see your link and raise you: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/742188/Managing_Public_Money__MPM__2018.pdf

      Money is only released by the Treasury (on behalf on Parliament, if you like) as when it is 'needed'. There may be no claw-back but there doesn't need to be. It is very easy for the Treasury to react to an overrun elsewhere by witholding cash needed for a different project in order to ensure that the overall yearly estimate is kept to - the MOD know that this is the guideline. This has a certain bureaucratic logic to it, however as the result frequently will be additional costs on a second project (now described as an overrun and blamed on the MOD) which leads to fewer ships or vehicles or capability being bought or maintained we end up with rules designed to protect annual budgets destroying the affordability of adequately scoped and managed projects because another project has been poorly run. Overall the public gets less for their money and MOD gets a terrible reputation as a whole, when actually only a few projects have gone very badly astray and shafted everything else.
      Ultimately the way this is handled by the Civil Service is self-defeating. The Treasury and MOD should be forced by law to factor in the true costs of knock-on delays like this into the decision-making process and to deliver to the PAC, NAO and the general public accurate summaries of what this process costs us in cash and capability terms.
      There should also be a form of 'special measures' for projects that are over-running by a certain amount, where a team of additional project managers are appointed to support the delivery of the project without further additional costs and a report should be prepared, by law, describing in detail what went wrong.

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    5. The link you supply doesn't say what you said and does support what I said.
      When parliament approves a figure it's up to the department how its spent, no treasury approvals, money being dispensed when it's 'needed' or anything else. The stipulation is that you can't exceed what the parliament voted, unless you come back to parliament to explain what went wrong. That's it.
      The only exception is that for big projects additional oversight is provided by the treasury, but that doesn't appear to have reported since 2014.

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    6. The Treasury does not, at the start if the financial year, simply wang all departmental budgets into departmental bank accounts with a stern reminder to stick to their budgets. Treasury approvals are required in practice as if they don't want to release funds for a project, they will not, regardless of prior agreements. You don't answer my point about good projects being made more costly because of badly run or mis-scoped ones. Between them and Treasury and the MOD preside over a system where increasing costs by £187m purely by delaying expenditure, presumably into a subsequent financial year, counts as improving the affordability of the equipment plan/project. For this to be routine method of business, as the NAO says, is madness. To believe the Treasury plays no role in this madness is I think overly-optimistic. If the Treasury does play a role in perpetuating this farce, and it is not what I have said or something like it, then what are they doing? Why are the Treasury not forcing the MOD to use better financial management practices if they disagree with the MOD's focus on annual budgets? The Treasury does not because that is the Treasury's focus too. That is how the Treasury demands budgets are managed. Ergo, blame the bloody Treasury which is no more fit for purpose than the Home Office.

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    7. From the document you rpovided a link to. 2.1 Conditions for use of public funds
      2.1.1 Ministers have very broad powers to control and direct their departments. In general,
      they may do anything that legislation does not prohibit or limit, including using common law
      powers to administer their operations or continue business as usual.
      The role of the treasury is described

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    8. The role of the Treasury is described and that is why we cannot exempt the designers of the framework within which all spending decisions are made from criticism over the outcomes of those decisions. That is how the Treasury gets away with it year after year.

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    9. as 2.1.3 The Treasury runs the control process because parliament expects the Treasury to control
      public expenditure as part of fiscal policy. The primary means through which the Treasury
      controls public expenditure is multi-year budgets, agreed collectively at spending reviews. The
      Consolidated Budgeting Guidance sets out the rules for their use.
      So you can see there isn't a governance mechanism for the treasury to make decisions on individual projects. It doesn't have a mechanism for doing what you say they do.
      If you have found an example where treasury approval for funding a project is required, could you share it?
      The reality is that project funding decisions are made by the MOD not the treasury, logically this makes sense as the treasury is a control function, not a delivery function, they don't have the technical expertise to insert themselves into the process.

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    10. If I understand the argument correctly the treasury is to blame for the MoD deferring to later years projects, which increases the cost of the projects? And the blame is due to the fact treasury enforces the limit on that year's spending at the departmental level?
      I think the problem isn't the treasury, it's the MoD. I want departments to keep within their budget, that's simply good governance, and if the budget is perceived as not sufficient that's a political decision, to be decided by politicians in the government, nothing to do with the treasury.

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  5. I am troubled by the fact that the UK's strategy, once agreed, will then still have to fall within a 2% of GDP Nato guideline as this is a cheap label on which to hang spending commitments.

    Are these two elements in any way connected? I suspect not. If they are, it would worry me that they would never meet in the middle. I get the impression that any strategy is being created to fit within a 2% financial target unrelated to the strategic intent.

    I couldn't see the NHS being funded in this way. If funding was at the level it used to be, I reckon the strategy and service could be delivered. Alas, a focus on reduced cost places more emphasis on reduced numbers which will ultimately lead to less of everything, a higher cost to making defence products in the UK (as we're already seeing), and defence jobs going abroad. Meaning fewer exports, lower tax receipts, and more cost-cutting - and a repeat of this ever-depressing cycle.

    Leadership and long-term vision is needed now not posturing with a strategy led by "misfits and wierdos", whoever they are.

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    1. The 2% of GDP being insufficient depends upon what the strategy is, which depends on what our foreign policy is. If our foreign policy is based on an isolationist armed neutrality, 1% of GDP would probably be quite sufficient.

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  6. Are there any affordable Indian Ocean roles the Rn could have if the cuts continue?

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  7. So a forecast possible deficit of 7% of budget (180bn/13bn) over 10 years is the end of the known universe and panic stations!
    Not sure anyone commenting has had any experience of long term budgets but an estimate of an estimate is only an estimate. Problem is most of the comments are predicated on 30 year old emotive analysis.
    What you need to know, amongst other things are; accuracy of previous NAO/MOD predictions. Probable budget variations, major contingencies etc
    The end of the world? I don’t think so.

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    1. The NAO is reporting using the MOD figures, it's not a competition for predictive accuracy. That said, if you look at the number and amount of overspends versus underspends from programmes delivered over the past decade, then the smart money is on the NAO being right.
      The £13bn has to be found from efficiency savings (under spends) or programmes cut. Saying it's just an estimate, while true, doesn't change that challenge.

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  8. This situation has been building for the last 20 years. Mismatch between ambition and resources, bespoke platfoms/systems procured in small numbers therefore high cost per unit, expensive delays and continually kicking the can down the road to store up more problems for tomorrow. Unless extra Treasury money can be found more painful cuts are no doubt in the pipeline. We surely have to start doing things differently but how? It seems to me that short-termism replaced strategic thinking shortly after the end of the Cold War.

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  9. The bottom line is the UK needs to decide what it needs to do and then work out the spending needed to achieve that. Its no go starting with a base figure or 2%GDP then trying to fit all the pieces into said envelope.
    The British military is tiny and there isnt enough funding. Everyone can see it. Its no use just saying theres no new money.
    Theres no new money because the government is prioritising spending elswhere. There is money if the government sees fit to use it.

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  10. The first decision of this review should be a very simple political one - does the UK want to maintain the Strategic Deterrent. If yes, then it is removed from the MOD budget, as even at an already eye watering £46bn, the issues with the Astute programme has shown us it will not be on time or on budget and will only continue to mess up the rest of the MOD budget if retained (and ps CASD is the only effective form of deterrent available to the UK). If, the politicians decide we do not need a strategic deterrent, then the full amount will not be saved, as we we still need to build the next generation of SSN (as a strategic industrial policy) and a grip has to be had on decommissioning of all those nuclear submarines queuing up with the cost mounting...

    Next, determine what is the minimum purchase of F35Bs for the FAA to provide carrier support and then cancel the difference between that figure and 138 - again less money will be saved at first imagined, as the RAF (who do not want this model anyway plus the cost of these extra planes isn#t even in the budget yet) and will need to purchase a further tranche of Eurofighter, and Tempest will have to be brought forward.

    Third, cancel Warrior and Challenger upgrades, they have dragged on and on, and only provide a sticky plaster over the obsolescence issue. Again, less money than might be thought will be saved, as the army will still need to bring personnel to the fight under protection, so an all wheeled approach is likely to happen, although AJAX, again having taken far too long to procure, is a solution looking for a problem, that no one in the Army seems to know what to do with - cancel it, sure, but no doubt a small print clause would mean it would cost more to do this.

    Next, stop paying bonuses (that amount to more than anyone in the army earns in salary) to senior civil servants in programmes that are failing...

    Cut out accounting practices that allow a cost to be shoved right, to fit into an annual budget, but which increases the programmes total cost, and also demands funds are taken from other projects to pay for it...

    Then, and only then, once a coherent strategy for UK's future armed forces is agreed, it is funded appropriately, whether that be 3% of GDP or 1% of the foreign aid budget

    Our armed forces personnel deserve better than having a shadow hang over them every 5 years and the wider population need to be reminded that it is sensible 'to speak softly and carry a big stick'

    I feel better now ....

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    1. If you remove the strategic deterrent from the MOD budget then who pays for it? The health dept, the schools, the department for work and pensions? £46 billion is a pretty chunky bit of change to find, even over 10 years, and the unlucky department might be wondering why they end up having to oversight and fund the inevitable cost overruns rather than concentrate on what their main task is.

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    2. Cancelling Warrior won't save anything. If the army goes all wheeled on Boxer it will cost far more than a Warrior upgrade per vehicle.

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  11. A fact of life for all countries, on defence issues and other advanced technology, is that they will cost more than the estimate; even the USA realises there will be no possiblity of funding a 355 ship navy and that they've also gone as far as they can to eke out the Arleigh design - they are going to need some 'shiney stuff' (what on earth do you categorise under that, Sir Humphrey?). As you read between the lines, it may well be a case that, overall, the MOD has reached a point where it just cannot identify how to cut more equipment or make more meaningful 'efficiencies' in a field where all classes: marine, land & air, are at a significantly low level for the Government's statements & ambitions as well as our likely adequate protection. In fact, I'm surprised that the 'shortfall' is not considerably higher over the projected period if you look at the complexity of defence and compare it with the ballooning costs of infrastructure and social projects, some before they've barely begun (and note that I'm not criticising the requirement for these). Stand back from the clamour over defence costs in this country, on this wider perspective, and you could make a reasonable case that the MOD has kept a fairly tight lid. Don't think that a move to IT is going to act as a panacaea, either. It will also become eyewatering if it's to defeat peer aggressors whilst, if it's indeed cheaper, everyone else and their dog will also be able to field a plethora of such 'wonderful' (if not so 'shiny') stuff in the future - costly. As a final remark, I have to smile that the NAO think a solution is to INCREASE expenditure on civil servants in order to make cost cutting accounting decisions. Life's a ball!
    Cheers,
    Gavin Gordon

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  12. A couple of observations -

    - In terms of cost Successor trumps everything. A 10% cut in Successor's budget makes most of the problem go away. The MOD should hire a crack team of industrial costing engineers and go through BAE Submarines with a fine tooth comb. Cancelling T31 or cutting a T26 is chicken feed by comparison

    An ex-colleague of mine at Barrow has recently bought himself a new X5, paid cash for it. He's a welder.

    - The army's vehicle plans are still a mess. CH2 and Warrior upgrades are never going to work. Shrinking to a 60,000 all wheeled expeditionary force should be on the table, BAOR is history.

    - The GBP is widely expected to rise against the USD over the next few years which would save quite a bit, I wonder whether this is factored in.

    ReplyDelete
    Replies
    1. Successor is estimated at £31bn lifetime, 10% of that doesn't come close to £13bn over 10 years.
      Where are you getting the GBP/USD estimates from, I can't see that in the forward rates?

      Delete
  13. There are some very interesting replies to this post.
    One point I haven't seen much of is what is our foreign policy? Unless we have a clear vision of what that is, then the discussion about defence is unguided. Are we staying in NATO, or are we pursuing isolationism? Are we involving ourselves in the Far East or keeping local? At the time of the Brexit vote there was talk of a global Britain, but that came without a practical definition and seems to being quietly shelved.
    Identity the foreign policy first, then look at the defence strategy to follow it, then look at what is needed fulfil that strategy.
    For all the talk about resources, what really seems to be in short supply is a clear vision of what we want to achieve.

    ReplyDelete
    Replies
    1. Defend the North Atlantic is as good an option as any, F.
      Gavin Gordon

      Delete
    2. Not as easy as you might think. Foreign policy is not fixed but evolves in response to worldwide disruption, change and the shifting and fragmenting of the global balance of power. Think the collapse of the Soviet Union, the war on terror, Putin, Trump, Brexit etc. To some extent defence is always playing catch-up as you cannot simply change capabilities/assets which have taken decades to acquire in response to an unexpected change in foreign policy. All you can do at least in the short-term is adapt what you already have to the new situation. You cannot simply keep starting afresh with a clean sheet. Reviews which attempted to achieve alignment (1966 and 1998) did not stand the test of time. I understand that Johnson is attempting to align foreign policy with defence and security and good luck to him as he will need it.

      Delete
    3. I agree foreign policy will change, but if you look at a country like Ireland, it's remained fairly static for extended periods of time (neutrality, European integration, friendly with US), on the other end of the scale if you look at a country like France you again see a multi decade continuity. Yes there are responses to changes in the external environment, but a statesman from the 1970's transported to today would recognise the policies and vision very quickly.
      Defence will always be following on from the foreign policy, turning thoughts into action and capabilities takes time, but my contention is that we don't have a clear vision to start with. I would argue further, that this is a feature of the Johnson government not a bug.

      Delete
    4. Ireland is a minor player though and not comparable with the UK. I would also argue that the French position has actually changed quite a bit over the decades, from national strategic autonomy to moving closer to NATO to the 'Europeanisation' of defence and foreign policy. Like the UK, the French military has downsized dramatically over the last 30 years. They realise that they can no longer afford to be a 'pocket superpower', hence the priority now being given to collaboration with EU partners.

      Coming up with a clear vision is not that easy when the waters are murky and volatile. What seems sensible in 2020 may well not be a decade on, as SDR 1998 (the lack of funding aside, which is another issue) proved. I agree in principle that defence and foreign policies should be aligned, my point is that actually doing this is fraught with problems. Particularly so perhaps for an upper-medium player like the UK. We are aligned with the US but wary of Trump and his wavering commitment to NATO, alienated from the EU, wary of overseas interventions, feel threatened by Russia and China yet need an economic relationship with Beijing. The 1960s Dean Acheson quote that Britain has lost an empire and not yet found a role is still true really. I somehow doubt that the current government will find the answer.

      Delete
    5. Another factor I forgot to mention is the reputational damage that the UK has suffered over the last 20 years - Iraq, Afghanistan, Brexit, the looming threat of Scottish independence etc. We are not seen as a stable, pragmatic and reliable partner in the way that we once were which is going to make things complicated in future. I am not calling judgement on these factors just flagging up how others will perceive them.

      Delete
    6. I take your point about Ireland, I was using it as a point of reference because it's our nearest geographical neighbour and the historic ties.
      I would challenge that French foreign policy has changed substantially, France was in NATO at the start, it still is a semi detached member in some ways (it isn't part of the Nuclear Planning Group for example) and it's commitment to European defence projects dates back to at least the 1960's. When you look at the relationships with historic colonies in Africa it's easy to imagine a time 60 years ago.
      I totally agree that the future is very complicated, we are moving into a multi polar world where our historic alliance with the US is now explicitly transactional, and sometimes putting us in direct conflict. We have detached ourselves from the EU and generated bad feeling in the process. I was going the use the Dean Acheson quote myself, the period of time we have been in the EU has patched over that we never came to an satisfactory answer.
      But, there still needs to a vision of what our role in the world is to project to others. More over we need a clear definition for ourselves to answer the question, what is the point of the UK?

      Delete
  14. One does need to be quite careful with NAO reports. Are its facts accurate? Highly likely! However are its opinions always necessarily well informed, balanced or compelling? It rarely has a real depth of expertise in the subject matter it is auditing, and in those circumstances any auditor would need to work hard to truly understand the nature of what they are auditing and to deploy the pre-requisite knowledge to be able to provide a well judged opinion. The press often likes to describe the NAO as a public spending watchdog, but remember that it works for parliament and as such has a political function. Finally, ask yourself if the NAO has ever provided evidence that the UK MOD is less effective or efficient than its counterparts in major countries such as France, Germany, Italy or the United States; and whether there are any auditors who have ever delivered a major public sector procurement projects or programmes, especially to the standards they hold others to; and how is the NAO itself held to account?

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  15. Evening All
    From the responses above - this is a very emotive subject.
    I'll stick my oar in again - hopefully this time my grammar and comprehension will be slightly better than my original post.
    The corner stone of UK foreign policy is the CASD - Defence Mission 1
    The full cost of the system is now fully within the MoD budget (CDEL - capital cost of buying the system and RDEL - the cost of running the system). This is thanks to Osbourne and creative work done by the Treasury. The SDA, who manage the programme sits outside of DE&S - it has been a glaring success (if you discount the £1.3Bn spend that the NAO called almost criminal in its negligence).
    Simple solution would be to remove the CDEL cost from the MoD and place it back within central government and cover it with the "reserve" - central government (The Cabinet Office) is then responsible for its delivery to the user (Royal Navy, FOSM, CTF 345). This creates a funding breathing space of about £1.5Bn per annum. The challenge is then to keep all the other programmes away from that money - they will be like wolves smelling blood.
    Challenge the Single Statement of User Need (SSUN) for each of the 1600 projects going through the EP at present (this can be an internal exercise done by the MoD scrutinised by the NAO).
    Give ministers individual responsibilities for the Defence Missions - make them directly accountable to parliament, make senior officers the SRO of said Defence Missions, directly accountable to the minister for their delivery.
    Example - Defence Mission 1, Minister responsible - Secretary of State for Defence, SRO, Dep Commander StratCom. Make FOSM the military customer who is responsible to the Secretary of State of the FCO - The real customer.
    Make the defence missions the outcomes, make the single service commands the service providers. A defence mission would then be allocated a budget which would be held at the ministerial level, run at StratCom and delivered at the 2 star level.
    Remember Defence is only one way the government exercises foreign and domestic policy and enforcement.
    More to follow (Dinner)

    ReplyDelete
  16. In 1939 The Ministry of Supply was responsible for War Office equipment and Ministry of Aircraft Production for Aircraft.
    Do we need a new Department with its own Minister and Exchequer grant to control the programme. Freeing up the MoD to run the services.

    ReplyDelete
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