Auditors flag fiscal ambiguity in UK military procurement plans | Daily News Byte

LONDON – The British government’s budget watchdog says the newly published Ministry of Defense ten-year equipment plan is affordable but fails to take into account the country’s difficult economic situation.

“While the plan continues to serve a useful purpose in reporting to Parliament on planned spending, the volatile external environment means that this year’s plan is already out of date,” the National Audit Office said in its report on the 2022-2032 defense spending plans. by the MoD on Tuesday.

The government expects defense equipment spending to total £242 billion ($290 billion) over the next ten years, compared with an estimated £238 billion ($285 billion) in last year’s programme.

“The department faces significant and increasing cost pressures that will have an immediate impact on its spending plans,” the auditors wrote. “The department believes it can manage these pressures but has left itself limited flexibility to absorb any cost increases in equipment projects or other budgets.”

The instrument plan is based on data submitted by the end of March this year and does not take into account exchange rate changes, rampant inflation, fuel costs and the impact of the Russian invasion of Ukraine.

The MoD, however, says its plans remain relevant.

In a preface to the equipment plan, Defense Secretary Ben Wallace acknowledged that there were difficulties ahead in equipment costs.

“Not immune to plan risk, we have set ambitious savings targets and made tough decisions in spending priorities on mandates,” he wrote. “We are confident, however, that the capabilities we are investing in, and the spending decisions we have made over the past year, keep pace with the evolving defense landscape and ensure we have a stable financial footing for this and future plans,” Wallace said. was

It remains to be seen how relevant the future plans will be.

In September, then Prime Minister Liz Truss commissioned the MoD to reconsider the details of an integrated review to be published in 2021 in light of the changing security environment.

That work continues under the new government of Prime Minister Rishi Sunak and Chancellor Jeremy Hunt and is expected to be completed during the first quarter of next year.

The outcome of the review will determine whether and when the government receives additional money for the MoD to reflect the global security situation following Russia’s invasion of Ukraine.

Truss promised the MoD to increase defense spending to 3% of GDP from the current level of 2.1% by 2030, but Britain’s dire financial situation has cast a shadow over the spending pledge.

“Before we can make that commitment it is necessary to revise and update the integrated review, as it was written before the Ukraine invasion,” Hunt told parliament on November 17 in what is known here as the Autumn Statement.

But the equipment plan warned that without the extra cash the MoD would need to ax capabilities and programmes.

“Without additional funding it is clear that difficult decisions will be required to reduce the scope of the plan and the funding profile may need to be reshaped to align the delivery of key military equipment with objectives,” the MoD document said.

As it stands, defense leaders optimistically hope to achieve savings of more than £13.5 billion ($16.2 billion) to balance the books on the equipment plan.

Most of those savings depend on the MoD renegotiating existing commercial contracts.

The auditors believe it is clear that the MoD is facing significant and increasing cost pressures and has left itself limited flexibility to absorb cost increases across equipment and other budgets.

The MoD will need to make difficult prioritization decisions to stay within its means and maintain enough flexibility in its planning to respond quickly to changing threats, the NAO said.

Measures have already been put in place to reduce some of the cost pressures, including changes in trade policy to moderate the impact of inflation.

“We are increasingly using index-linked, fixed-price contracts to prevent firms from applying high premiums to firm price bids or not bidding at all. We are also ensuring early engagement with key suppliers to discuss how inflation will be accounted for in future contracts, including our view of what is reasonable for payroll costs, the MoD plan said.

“Similarly, our unsecured contingency fund will also help to alleviate this pressure,” he said.

Constraints across the industry may also influence the MoD’s ability to keep programs and budgets on track.

The NAO said budget stakeholders in the MoD are beginning to report supply chain risks and industry capacity constraints, including skills gaps and, more recently, increased demand for defense equipment in other countries.

This trend will likely make it more difficult to deliver projects within existing schedules and budgets, they said.