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New defence money risks being lost in ‘black hole’: MPs warn

By Harry Lye 16 Mar 2021 (Last Updated March 24th, 2021 15:51)

A new report from the UK Parliament’s Public Accounts Committee (PAC) says that newly-announced money for the Ministry of Defence (MOD) risks being lost in a “funding black hole” that lies at the heart of the MOD’s equipment plan.

New defence money risks being lost in ‘black hole’: MPs warn
2 Para Battlegroup training to fight in belowground as part of Exercise Wessex Storm, in an underground tunnel complex in the South West. Image: MOD/ Crown Copyright.

The MOD recently published its ten-year equipment plan which PAC says at worst indicates a funding gap of £17.4bn over the next decade. There is also an estimated £20bn in future defence capabilities not included in the plan. The spending watchdog said the situation was “highly destabilising for defence and must not continue”.

PAC chair and MP Meg Hillier 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.”

Last November, Prime Minister Boris Johnson announced a £16.5bn increase in defence spending over the next four years – set to be used largely for investment in new high-tech capabilities.

However, MPs warned that with such a sizeable black hole in the equipment plan the MOD should ‘make tough choices’ to end the ‘vicious circle’ of short-term financial measures and delays in developing equipment.

Hillier added: “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.”

The report also criticises the MOD for including ‘unrealistic savings’ in the equipment plan, citing £3.7bn in savings for the 2020-30 plan of which the MOD has not implemented plans to deliver.

Commenting on the savings, the MPs added: “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’.”

The recent equipment plan marks the fourth year in a row that the MOD’s plan has been deemed ‘unaffordable’, at best the 2020 to 2030 plan includes a projected shortfall of £7.3bn in funding.

In 2020-21, the MOD cut £1bn of spending to balance its books, however, MPs said the department ‘yet again’ did nothing to address ‘the fundamental problem with the long-term unaffordability of the plan’.

MPs recommend that in its next equipment plan the MOD ‘must’ demonstrate an affordable plan that has the resilience to ‘absorb financial pressures’ like cost inflation and changing needs.

The PAC also called for full transparency on how the new £16.5bn for defence would be allocated within three months of the Integrated Review’s publication.