The National Audit Office’s (NAO’s) report says that action taken by the Ministry of Defence to balance its overall budget in the short term following the Strategic Defence and Security Review (SDSR) has contributed to a near £500m in-year cost increase in the 15 largest defence projects.
The NAO adds that, when coupled with previous cost growth, these projects are now £6bn above forecasts made when the main investment decisions were taken.
The NAO also adds that additional costs have been avoided by reducing the amount of equipment the Department originally planned to buy, saying that had the Department not reduced equipment numbers, cost growth could have been approximately 20 per cent above the approved costs.
Amyas Morse, head of the National Audit Office, said today:
The Ministry of Defence has been hampered by a legacy of poor planning and performance on some past projects, and the resulting cuts and delays are not value for money.
But it is welcome news that the Department has finally accepted that the financial position it is in is serious and is actively working towards balancing its books in the longer term.
Mr Hammond said:
This Government inherited a black hole in the Defence Budget and the NAO has rightly welcomed the fact that we are now balancing the MOD’s books. We have got a grip on the equipment programme through the difficult decisions taken in the SDSR and radical reform of the Department.
The trend of vast cost increases seen under the last Government has been halted. The 0.9 per cent overall increase this year is still too much, but it is seven times lower than the last year of the previous administration.
It was right to take tough decisions in the Strategic Defence and Security Review to deal with an equipment programme that was out of control. The Nimrod MRA4 was over eight years late, almost £800m over budget, and had seen the unit cost of each aircraft soar by 200 per cent, with no clear idea of when the capability would be delivered.
Several media outlets have today focused on claims in the NAO report that, by extending the Astute build programme, the MOD will have to use older boats beyond their out-of-service dates, work the smaller fleet of Astute submarines harder, or reduce scheduled activity for submarines. Some media outlets speculate that this could put national security at risk.
This is not the case. We will always have submarines available to deploy on operations. The Royal Navy currently operates six Trafalgar Class attack submarines, and seven Astute Class attack submarines are being introduced. There is no significant change to the availability reported in last year’s NAO report; it was manageable then and is manageable now. We are mitigating Astute delays by extending the service life of Trafalgar Class submarines.
The NAO report also claims that the decision to extend the construction time of the Astute Class submarines has incurred additional costs amounting to the cost of acquiring a further boat.
Mr Hammond continued:
We do not agree with the NAO that the additional cost of ensuring a seamless build for both Astute and the successor submarines could have paid for an eighth Astute. Once build and through-life costs are taken into account, an extra boat would cost £1.4bn - more than stretching the programme has cost.
In concluding his response to the NAO report as a whole, Mr Hammond said:
Overall, much progress has been made, but more work is needed to achieve better value for the taxpayer while providing the Armed Forces with the equipment they need. Getting this right is key to securing Britain’s defence for the future.
The introduction of the Major Projects Review Board is helping ensure our biggest programmes remain on track. I intend to take a leading role in ensuring this agenda is delivered.