UK armed forces face £17 billion black hole in equipment budget

The equipment plan for Britain’s armed forces is “unaffordable” and faces its largest budget black hole for more than a decade, according to a damning report by parliament’s spending watchdog. 

The National Audit Office said the Ministry of Defence estimates a shortfall in its budget for new weapons and equipment over the next 10 years of £16.9 billion — the largest deficit in the department’s annual 10-year forecasts since they were first published in 2012. In a worst-case scenario, it could reach £29.8 billion, The Financial Times reports.

At the end of March this year, estimated costs were £305.5 billion compared with a budget of £288.6 billion.

The watchdog said one of the main causes of the shortfall were increased costs in nuclear and naval programmes, which combined had risen by £54.6 billion.

The report added that the UK’s soaring inflation had contributed to the equipment plan’s increased costs, with the MoD not receiving additional funding to cover it, forcing the different services to “manage the effects within their own budgets”. The department estimated in August that inflation would account for £10.9 billion of the increased costs.

Professor Malcolm Chalmers, deputy director-general at defence think-tank the Royal United Services Institute, said the report was “the most damning I have seen” on the MoD’s equipment plan. “It reads like a situation where the government has lost budgetary control,” he added.

The report highlighted that individual services had taken different approaches to preparing their forecasts in the plan. While the Royal Air Force and the Navy had included full predicted costs for the capabilities the government expects the MoD to provide, the Army had only included those it could afford. 

The watchdog also found that the equipment plan did not reflect “all the cost pressures to develop new and support existing capabilities” that were set out in the government’s 2021 integrated review of foreign and defence policy, which was updated earlier this year.  

Some notable projects omitted include the extension of the life of the Warrior and Challenger 2 armoured vehicles. Other projects were included but not fully funded. As a result, the plan “does not disclose the full funding gap between government objectives and the budget available, and therefore underestimates the cost pressure that the MoD faces,” said the NAO. 

It added that the department had decided to defer decisions on spending priorities until the next government-wide spending review, expected in 2024 and that the MoD was considering using an extra £1.95 billion allocated for boosting ammunition stockpiles in this year’s spring Budget to offset its funding shortfall in 2023-24 and 2024-2025.

Gareth Davies, head of the NAO, said that while deferring choices was “understandable given the government’s ambitions expressed in the updated integrated review, [it] risks poor value for money if programmes continue which are later cancelled, scaled down or deferred because they are unaffordable”.

John Healey, Labour’s shadow defence secretary, said ministers had “lost control of the defence budget, given up on good government, failed to fix the ‘broken’ defence procurement system, sent inflation soaring and wasted billions of public money”.

The MoD said that while the report recognised “the significant impact global headwinds and high inflation has had on UK defence, it does not and could not accurately reflect the current or future state of the Armed Forces Equipment Plan” and was “a dated snapshot from April 2023”.

The department added that the government had “significantly increased” spending on defence equipment to £288.6 billion over the next decade and remained committed to increasing defence spending to 2.5 per cent of GDP “as soon as economic and fiscal conditions allow”.