MoD kit overspend rose by £3.3bn

15 October 2010

Equipment costs across 15 major defence projects rose by £3.3bn in 2009/10, according to a National Audit Office report.

The causes of the increases found in the 2010 Major Projects Report were the same as those identified in 2009; the department was "not making realistic budgetary provision for all likely project outcomes" and was "slowing down projects".

The result of both practices are overspends in the billions of pounds, even on some individual projects.

In once case highlighted in the report, the MoD decided that it needed to spend £2.7bn on the Typhoon programme, including the purchase of 16 additional aircraft that it did not want, in order to meet contractual agreements.

A decision to slow down the Queen Elizabeth Class aircraft carriers in 2008 led to further project cost growth of £650 million in 2009/10. The total cost growth attributed to the 2008 decision now stands at £1.56bn, with no improvement in capability or numbers.

To address cost overruns, the department has also reduced the number of items, and therefore capability, to be procured. The Nimrod MRA4 reconnaissance aircraft numbers have progressively reduced from 21 to nine, making the aircraft's unit cost three times the figure originally expected.

Despite this, the NAO report found that cost performance on the majority of projects had been broadly stable, with timescale slippage also reduced "significantly" since the 2009 report and 98 per cent of the projects' Key Performance Indicators expected to be met.

Amyas Morse, head of the National Audit Office, said: "In-year performance on the majority of large defence projects which we examined has been encouraging. This reflects the efforts which the department has put in to improving project control and introducing innovative practices at the level of the individual projects. But central departmental decisions were taken to balance the defence budget which had the effect of driving very significant additional cost and delay into the equipment programme; this represents poor value for money for the taxpayer."

South Norfolk MP Richard Bacon, a member of the Commons public accounts committee, said the report was "yet another chapter in the Ministry of Defence's financial horror story".

"The MoD's ham-fisted attempts to balance the defence budget have simply ensured that taxpayers will get a much larger bill in the future," he said. "The MoD needs to learn to live within its means".

The projects included in the report are the A400M transport aircraft, Astute submarines, Beyond Visual Range Air-to-Air Missile, Tornado Capability Upgrade Strategy (Pilot), Falcon communications system, Future Joint Combat Aircraft, Future Strategic Tanker Aircraft, Lynx Wildcat helicopter, Merlin Mk2 helicopter, Military Flying Training System, Nimrod MRA4 reconnaissance aircraft, Queen Elizabeth Class aircraft carriers, Type 45 Destroyer, Typhoon combat aircraft and Future Capability Programme and the Watchkeeper unmanned aerial vehicle.

Further details can be found on the National Audit Office website.