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New defence money potentially lost in “funding black hole” at centre of UK defence equipment plan

16 March 2021

The Ministry of Defence has once again published a ten-year military equipment and capabilities Plan with a funding "black hole" at its centre, potentially as big as £17.4 billion. MoD also faces additional cost pressures estimated at more than £20 billion to develop future defence capabilities not yet included in the Plan. In a report published today the Public Accounts Committee raises the alarm again that "this is highly destabilising for defence and must not continue".

The MoD remains stuck in a cycle of focusing on short-term financial pressures. It has sought to balance its annual budget by again deferring or descoping the development of capabilities, resulting in poor long-term value for money and the use of all its contingency funds in 2020-21 to help offset funding shortfalls.

MoD's assessment of the Plan's affordability also assumes it will make significant levels of efficiency savings in the future but again its record offers little hope on this front and it has "continued to include unrealistic savings in the Plan" - £3.7 billion of savings in the 2020-30 Plan which it has not implemented plans to deliver.

The failure to even factor in, much less achieve, savings – and find necessary additional ones – only makes the existing Plan even less affordable: before any consideration of developing the new military strategy and capabilities expected in the long-delayed 'Integrated Review of Security, Defence, Development and Foreign Policy'.

In November 2020, the government announced an additional £16.5 billion of defence funding over the next four years, intended for modernising UK defence and investment in new technologies like cyber and space capabilities. But with the existing equipment budget not balanced, MoD "must make tough choices to end the vicious circle of short-term financial management and delays in developing military capabilities."

Once it has finally established a balanced equipment programme, MoD will "need to develop a more sophisticated approach to assessing future funding pressures and managing its equipment expenditure".

Meg Hillier MP, Chair of the Public Accounts Committee, said:

"The outgoing Permanent Secretary of MoD was clear in evidence to our inquiry that the new £16.5bn defence funding settlement is not being added to a balanced budget and is simply, in his words ‘not all going to go on new and revolutionary kit’. On the face of it, it’s potentially swallowed whole by the up to £17.4bn funding black hole at the centre of our defence capabilities, and Sir Stephen was equally clear about the capability reductions that will have to happen for the UK to look forward to any enhancements.

What is crucial is that this new money is not instead just eaten up, once again, by the constant, debilitating time and budget overruns that have been eroding our national defence and security for years."

Further information

Image: MoD