MoD 'misleading' over budget shortfall

Thursday, March 04, 2010

The Ministry of Defence has provided "misleading" evidence to the defence select committee, including answers that were "at best confused and unhelpful, and at worst deliberately obstructive", according to the committee's latest report.

During the inquiry, the MoD told the committee that it had reduced the overall equipment funding gap from £21 billion in 2008 to £6 billion in 2009 but could not explain how this had been achieved.

"The Defence Committee cannot fulfil its scrutiny role for Parliament if the MoD refuses to provide such information about its activities," said committee chairman James Arbuthnot. "The MoD will need to provide the next defence committee with more accurate and complete information."

The committee also doubted the MoD's claim that it had reduced the number of Type 45 destroyers from 12 to six after gaining a "better understanding of the capabilities of the ship".

"The spiralling costs of the ship and the pressure on the equipment programme budget suggest that the reduction in numbers was in fact primarily down to affordability," the report said. "The misleading explanations provided by the MoD in this case are another example of the unhelpful nature of MoD responses to our questions."

The report also echoes comments from previous studies of the ministry's equipment programme which suggest the ministry has commissioned considerably more work than it can afford to pay for.

The committee cites the National Audit Office's major projects report and the Gray report as evidence the equipment programme is unaffordable, and slams delays in projects to meet in-year budgets, a measure which has been shown to increase overall procurement costs. The cost increases on the Queen Elizabeth class carrier programme as a result of delays were estimated at £674m, over 10 per cent of the final budget.

The committee said the MoD has taken decisions to delay projects without understanding the full implications of those decisions. The report also criticised the management of the FRES programme.

"We have tried on many occasions in the past to elicit details about FRES from the MoD without ever receiving clear answers," said Arbuthnot. "We can only conclude, with regret, that the MoD has none to give."

The committee were also critical of falls in the defence research and technology budget - from £540m in 2007/08 to £471m in 2009/10. The budget is expected to decrease further in 2010/11 to £439 million. The committee said that 15 years ago MoD research expenditure was £665 million, equating to £947 million in 2008/09 terms.

"Spending less on research and technology will make the UK defence industrial base progressively less competitive and will make the Defence Industrial Strategy inoperable," said Arbuthnot. "To compromise the future development of defence technology, in order to make proportionately small short term contributions to the management of the equipment programme funding gap, is ill-judged. The research programme cannot be turned on and off at short notice and the benefits can only be realised with a consistent and long term commitment of resources."

While the committee says the MoD has since admitted problems with the equipment programme, it says it will now have to work hard to demonstrate that it can implement effective reform.

Reacting to the report, minister for Defence Equipment and Support, Quentin Davies, said: "We are currently managing some 2,000 projects and over the past two years, nearly 90 per cent have been delivered to cost and over 80 per cent have been delivered to time, but we recognise that further improvements must be made. That is why we commissioned the Bernard Gray review into defence acquisition, accepted the majority of the review's recommendations and published the Strategy for Acquisition Reform. This strategy includes clear commitments to improve the way we manage our future equipment programme, by bringing costs into balance and being more transparent – all of which will ensure the MoD delivers the future equipment our armed forces need effectively and efficiently.

"The FRES programme, which was the subject of much justified criticism, has been replaced by individual acquisition programmes. These are being procured under a much improved and accelerated procedure. The Secretary of State will be making an announcement about the new SCOUT and reconnaisance vehicle very shortly."