Forty-Eighth Report - MoD Equipment Plan 2022–2032

The refreshed Integrated Review may revise judgements about operational requirements and identify new priorities which are not currently funded in the Equipment Plan. The Ukraine conflict has necessitated a refresh of the 2021 Integrated Review. The Department expected that the … Read more The refreshed Integrated Review may revise judgements about operational requirements and identify new priorities which are not currently funded in the Equipment Plan. The Ukraine conflict has necessitated a refresh of the 2021 Integrated Review. The Department expected that the refresh would be completed in the first quarter of 2023 and that the core of the Equipment Plan would still hold good. The Government published the refresh in March 2023, but the Department will now have to reflect the changing priorities from the refresh in a further Command Paper, as well as reflecting lessons from Ukraine and recent announcements, such as the combat air partnership with Japan and Italy and the AUKUS partnership with the United States of America and Australia. The Department says it will argue for new capabilities and add these to the Equipment Plan if it secures additional funding from HM Treasury. However, it will need to prioritise investment decisions if new demands exceed available funding. The Department assumes that the refresh decisions will inform the Chancellor’s next Budget, planned for March 2023 at the time we took evidence, but it had not agreed the timetable. If the 2023 Budget does not fund the revised requirements, enacting the changed priorities might be delayed by a year. Furthermore, the Department has been slow to implement the capabilities set out in the original Integrated Review, several of which it has not fully funded in the two Equipment Plans since 2021. Recommendation 2: The Department should clearly set out to HM Treasury as soon as it can what capability requirements and priorities arise from the refreshed Integrated Review, the funding requirements to provide these, and the risks arising 6 MoD Equipment Plan 2022–2032 from any shortfall. We expect to see the Department reflect these decisions in the next Defence Command Paper and its 2023 Equipment Plan and will challenge the Department on the changes next year. Show less

The Department has not demonstrated the necessary urgency to deliver enhanced capabilities to deter hostile parties. The Ukraine conflict has demonstrated the renewed importance of land capabilities. However, the Department acknowledges there is significant risk that the UK could not … Read more The Department has not demonstrated the necessary urgency to deliver enhanced capabilities to deter hostile parties. The Ukraine conflict has demonstrated the renewed importance of land capabilities. However, the Department acknowledges there is significant risk that the UK could not provide NATO with an operational Army division and that the current Equipment Plan does not resolve this. Lessons from Ukraine show that the Army needs to increase its long-range precision artillery, air defences and medical supply chain beyond the capabilities included in the current Plan. Furthermore, the Department is struggling to deliver existing projects to modernise current land capabilities. Notably, timetables for introducing Boxer and Ajax armoured vehicles have slipped significantly, leaving the Army reliant on out- dated vehicles and unable to provide the necessary deterrence of adversaries. Even when Ajax is finally introduced it will not operate to its full potential without the Morpheus communications system, which is also delayed. We are unconvinced by the Department’s assertion that it is doing all it can to speed up these programmes or its claim that it could only be quicker by taking more risks. Recommendation 3: The Department should reconsider whether it strikes the right balance between risk and delivery speed in procurement and write to us alongside its Treasury Minute response setting out its scope to deliver programmes faster. It should also set out in next year’s Equipment Plan how it will ensure that the Army fully benefits from the investment in new equipment by the timely delivery of military hardware and the technology needed to enable interoperability. Show less

The Department’s assessment of the Equipment Plan’s affordability still relies on over-optimistic assumptions about the cost of programmes and the efficiencies and cost reductions it will achieve. Although the Department assesses that the Equipment Plan is affordable over ten years, … Read more The Department’s assessment of the Equipment Plan’s affordability still relies on over-optimistic assumptions about the cost of programmes and the efficiencies and cost reductions it will achieve. Although the Department assesses that the Equipment Plan is affordable over ten years, this obscures significant financial pressure. There is a deficit of £2.6 billion over the first seven years of the Plan and the ten-year plans of four of the six Top Level Budgets are in deficit. Most notably the Army’s forecast costs are £2 billion more than its budget. Overall affordability is based on potentially over-optimistic assessments of project costs, with the Department’s Cost Assurance and Analysis Service estimating that costs could be at least £5 billion higher than forecast. The Plan’s affordability also relies on the Department achieving a £5.2 billion surplus in the final three years of the Plan, and on the Department achieving all cost reductions and efficiency savings included in the Plan. This includes £2.1 billion in the next three years which Top Level Budgets do not yet have plans to achieve. We doubt that the Department can achieve all these savings, but its contingency to cover any shortfall during this period is just £0.5 billion. The Plan’s affordability also relies on some projects being delayed, the Department having reduced project cost forecasts by £13.2 billion to reflect this. Recommendation 4: In future Equipment Plans, the Department should explain the uncertainties that exist in its assumptions. It should present the affordability position as a range, based on a full assessment of internal and external uncertainties, and candidly set out what the best- or worst-case scenarios would mean for our Armed Forces’ capabilities. MoD Equipment Plan 2022–2032 7 Show less

The Department has ignored the worsening economic environment in its latest Equipment Plan and faces significant financial pressures on its equipment programme. The Department has not included external cost pressures, including inflation and foreign exchange movements, in its central assessment … Read more The Department has ignored the worsening economic environment in its latest Equipment Plan and faces significant financial pressures on its equipment programme. The Department has not included external cost pressures, including inflation and foreign exchange movements, in its central assessment of the Plan’s affordability. This is despite identifying when it produced the Plan that inflation could increase project costs by up to £2.1 billion over ten years. It did not include this inflationary pressure in its affordability analysis despite it being more than 80% of the Plan’s forecast surplus of £2.6 billion. Inflation has since risen higher than the March 2022 forecast, and the Department accepts it will struggle to manage affordability as a result. Further, the pound to dollar exchange rate has remained below the Plan’s worst-case scenario for several months, increasing the cost of several major Plan programmes. In the worsening economic environment, there is an increased possibility that some of the £25 billion of risks that the Department deemed unlikely—and has not included in cost forecasts—may occur, further increasing pressure on the Plan. Cost of living increases caused by rising inflation also mean that the Department might struggle to attract and retain staff with the skills it requires to deliver equipment programmes. We do not think that the Department has sufficiently taken these factors into account when considering the affordability of the plans. Recommendation 5: After the Integrated Review refresh, the Department must: • urgently reassess the affordability of its equipment procurement and support programmes; • move quickly to achieve the assumed savings; and • assess the level of headroom it needs to respond promptly to changing external events. We will seek an update from the Department at an evidence session in 2023. Show less

We are concerned that the Department has not yet developed a supply chain that can reliably and quickly deliver the capabilities and stockpiles it needs. The Department has started to replenish stocks gifted to Ukraine, the cost of which HM … Read more We are concerned that the Department has not yet developed a supply chain that can reliably and quickly deliver the capabilities and stockpiles it needs. The Department has started to replenish stocks gifted to Ukraine, the cost of which HM Treasury will cover through the Reserve. It is also working with HM Treasury on a case-by-case basis to agree on a reasonable replacement when items are no longer in production or where the UK’s requirement has changed. However, the Department does not expect to replenish all depleted stocks, such as NLAW anti- tank weapons, for at least two years. The Department says that one important lesson from the Ukraine conflict has been the need to shift from its approach of buying batches of munitions to supporting continuous production lines which suppliers can ramp up when required. It says it has started to work with key UK suppliers to secure production lines, and the 2022 Autumn Statement provided an additional £560 million over the next two years to help support this. The Department is also discussing with NATO allies how to stimulate the wider supply chain to meet the alliance’s long-term needs. Recommendation 6: The Department should write to us alongside its Treasury Minute response setting out its progress in developing a plan with the wider defence industry to improve the scale and efficiency of its supply chain. 8 MoD Equipment Plan 2022–2032 1 The Equipment Plan in a more volatile world Show less

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Defence (the Department) on the Equipment Plan 2022 to 2032.1

In response to Russia’s invasion, the Government has decided to review its 2021 Integrated Review. This work has been led by the Cabinet Office. The Government published its Integrated Review Refresh 2023 in March 2023.15 The Department now expects to … Read more In response to Russia’s invasion, the Government has decided to review its 2021 Integrated Review. This work has been led by the Cabinet Office. The Government published its Integrated Review Refresh 2023 in March 2023.15 The Department now expects to publish its own refreshed plans in a new Defence Command Paper, which in turn will have implications for its Equipment Plan.16 The Department anticipated that the core of the Equipment Plan would still hold good but that there would be some noticeable changes to reflect lessons from Ukraine and other recent announcements, such as the combat air partnership with Japan and Italy. It also thought that further decisions, such as on the AUKUS partnership with the United States of America and Australia announced in March 2023, and on the programme to replace the nuclear warhead, would be reflected in the 2023 or 2024 planning rounds.17 The Department cautioned it would take time to firm up Integrated Review plans and address the challenges of deliverability.18 Show less

The Department said that it would argue for new capabilities through this process, and if it received more resources, it would add these to the Equipment Plan. However, it accepted that it would need to prioritise investment decisions if new … Read more The Department said that it would argue for new capabilities through this process, and if it received more resources, it would add these to the Equipment Plan. However, it accepted that it would need to prioritise investment decisions if new demands exceeded the funding from HM Treasury.19 In March 2023, as part of the Integrated Review refresh, the Prime Minister announced that the Department would receive £5 billion of additional funding over 2023–24 and 2024–25.20 Of this new money, it will spend £3 billion across 10 Qq 13, 14 11 Q 13 12 Q 33 13 Committee of Public Accounts, Defence capability and Equipment Plan, Tenth Report of Session 2019–21, HC 247, July 2020 14 Committee of Public Accounts, Improving the performance of major defence equipment contracts, Twenty- Second Report of Session 2021–22, HC 185, November 2021 15 Q 26, Integrated Review Refresh 2023 16 Q 26 17 Q 28, British-led design chosen for AUKUS submarine project - GOV.UK (www.gov.uk) 18 Q 52 19 Q 49 20 Integrated Review Refresh 2023, P34 10 MoD Equipment Plan 2022–2032 the defence nuclear enterprise and the remaining £2 billion on replenishing stockpiles and increasing them in line with a reassessment of appropriate levels.21 In November 2022 the Secretary of State for Defence had told Parliament that the inflationary pressure on his budget over the next two years was £8 billion.22 Show less

The Department has been slow to implement the capabilities set out in the March 2021 Integrated Review, several of which it has not fully funded despite publishing two Equipment Plan reports since then.23 Furthermore, as part of the Integrated Review, … Read more The Department has been slow to implement the capabilities set out in the March 2021 Integrated Review, several of which it has not fully funded despite publishing two Equipment Plan reports since then.23 Furthermore, as part of the Integrated Review, the Department set aside £6.6 billion from 2021–22 to 2024–25 for research and development. This is already generating ideas to address future threats, including the accelerated adoption of Artificial Intelligence and next-generation Directed Energy Weapons. However, the £4.4 billion set aside to exploit this investment, and turn these ideas into capabilities, is only available from 2025–26.24 Delivering enhanced capabilities Show less

The Ukraine conflict has demonstrated the renewed importance of land capabilities, but the Department acknowledged that there has been slippage in several major programmes.25 We are unconvinced by the Department’s assertion that it is doing all it can to speed … Read more The Ukraine conflict has demonstrated the renewed importance of land capabilities, but the Department acknowledged that there has been slippage in several major programmes.25 We are unconvinced by the Department’s assertion that it is doing all it can to speed up these programmes, or its claim that it could only go faster if it took more risks.26 Show less

In the meantime, the Department’s struggles to deliver projects to modernise land capabilities leaves the Army reliant on out-dated vehicles.27 Although the first Boxer armoured fighting vehicle is due to be delivered in 2023, it will not achieve initial operating … Read more In the meantime, the Department’s struggles to deliver projects to modernise land capabilities leaves the Army reliant on out-dated vehicles.27 Although the first Boxer armoured fighting vehicle is due to be delivered in 2023, it will not achieve initial operating capability until 2025.28 The Department recently updated us on the ongoing saga of the delayed Ajax armoured vehicles.29 The Department was finally able to report some positive news about the programme, as the user validation trials had been completed successfully.30 However, it was unable to give us a revised initial operating capability date.31 Show less

Even when Ajax is finally introduced, it will not operate to its full potential without the Morpheus communications system. This will integrate Ajax across the land, air and sea domains, allowing real-time information-sharing and connectivity with other capabilities, such as … Read more Even when Ajax is finally introduced, it will not operate to its full potential without the Morpheus communications system. This will integrate Ajax across the land, air and sea domains, allowing real-time information-sharing and connectivity with other capabilities, such as Lightning II jets, on the battlefield.32 However, Morpheus has also been delayed, having originally been due by the end of 2021.33 As a consequence, Ajax will be fitted initially with Morpheus’s predecessor, Bowman, which does not have the same 21 Integrated Review Refresh 2023, P34 22 House of Commons Defence Committee, 2 November 2022, US, UK and NATO, Q275 23 C&AG’s Report, para 1.16 24 Q111; Letter from Permanent Secretary to Chair, 23 January 2023, p.3 25 Q 31 26 Qq 36–38 27 Q 104 28 Q 35 29 Committee of Public Accounts, Armoured Vehicles: the Ajax programme, Seventh Report of Session 2022–23, HC 259, June 2022 30 Q 96 31 Q 99 32 Q 105 33 Q 41 MoD Equipment Plan 2022–2032 11 integration capabilities. The Department was unable to tell us when Morpheus would enter service, but the military planning assumption is that this will be towards the end of the decade.34 Show less

Furthermore, the Department acknowledged that even if all the Army equipment in the Plan was delivered, that would not guarantee it could provide an operational division. This is because the current Plan does not address some risks, such as the … Read more Furthermore, the Department acknowledged that even if all the Army equipment in the Plan was delivered, that would not guarantee it could provide an operational division. This is because the current Plan does not address some risks, such as the need for “joint enablers” which facilitate operations.35 The Department provided examples of the capabilities that the Army would need to address these risks, such as an improved ability to strike with precision at long-range, more comprehensive integrated missile defence against air attack and medical supply chains able to deal with multiple casualties.36 34 Qq 105, 106 35 Q 33 36 Qq 48, 94 12 MoD Equipment Plan 2022–2032 2 Delivering the Equipment Plan Internal savings and adjustments Show less

The Department told us that its 2022–2032 Equipment Plan is affordable, as the equipment budget exceeds forecast costs by £2.6 billion (1% of budget). However, we noted that the aggregate surplus obscures financial pressures in the short-term and in some … Read more The Department told us that its 2022–2032 Equipment Plan is affordable, as the equipment budget exceeds forecast costs by £2.6 billion (1% of budget). However, we noted that the aggregate surplus obscures financial pressures in the short-term and in some Top Level Budgets – those organisations, including front line commands, responsible for delivering defence outcomes within budgets delegated by the Department. The Plan is in deficit for the first seven years by £2.6 billion and is only affordable because of a £5.2 billion surplus in the final three years. Furthermore, over the full ten years, four out of six Top Level Budgets are in deficit.37 Most significantly, the Army’s equipment programme is more than £2 billion in deficit over the ten years of the Plan.38 Show less

We also noted that the Plan is only affordable if the Department achieves intended £13.8 billion of savings, £5 billion of which it has not yet developed plans to achieve.39 The Department may be over-optimistic in expecting to achieve all … Read more We also noted that the Plan is only affordable if the Department achieves intended £13.8 billion of savings, £5 billion of which it has not yet developed plans to achieve.39 The Department may be over-optimistic in expecting to achieve all intended cost reductions and efficiency savings.40 In addition, of the savings for which it does not yet have clear plans, the Department must find £2.1 billion of these in the next three years. The Department’s contingency over those three years is only £0.5 billion, which means it has limited ability to absorb any failures to achieve savings, or unexpected cost increases.41 Show less

The Department may be over-optimistic in its assessment of project costs. The Department’s Cost Assurance and Analysis Service estimates that project costs could be between £5.2 billion and £14 billion higher than those in the Plan. The Department told us … Read more The Department may be over-optimistic in its assessment of project costs. The Department’s Cost Assurance and Analysis Service estimates that project costs could be between £5.2 billion and £14 billion higher than those in the Plan. The Department told us that the latter figure was a worst-case scenario and that the different cost calculations are a matter of professional judgement.42 The National Audit Office report highlighted the need for the Department to consider project risks more fully, including reflecting these independent project costings in its own forecasts.43 Show less

We are concerned that the Department seems reliant on delaying delivery of capabilities to keep the Plan affordable.44 The Department told us that the £13.2 billion management adjustment for realism represented a small amount of over-programming, and was based on … Read more We are concerned that the Department seems reliant on delaying delivery of capabilities to keep the Plan affordable.44 The Department told us that the £13.2 billion management adjustment for realism represented a small amount of over-programming, and was based on historical performance and its assessment of deliverability, with supply chain issues making it harder to spend money as planned.45 We are also concerned that the Plan does not include all the capabilities set out in the Integrated Review; if these were included in future years it would add further pressure on the affordability of the Plan.46 37 C&AG’s Report, paras 6, 7, Figure 4 38 Q 51 39 Qq 55, 56, 64 40 Q 54; C&AG’s Report, para 7 41 Q 54 42 Q 79 43 C&AG’s Report, para 10 44 Q 58 45 Qq 52, 56 46 C&AG’s Report, para 1.16, Figure 6 MoD Equipment Plan 2022–2032 13 External pressures Show less

The affordability of the Plan is also under pressure from external economic factors, including rising inflation and unfavourable exchange rate movements. In March 2022 the Office of Budget Responsibility forecast that inflation would reach 8.7% by the end of 2022.47 … Read more The affordability of the Plan is also under pressure from external economic factors, including rising inflation and unfavourable exchange rate movements. In March 2022 the Office of Budget Responsibility forecast that inflation would reach 8.7% by the end of 2022.47 The Department reported that this would increase cost pressure on the Plan by £2.1 billion, but acknowledged that this estimate might not accurately reflect rising inflation.48 By November 2022 inflation was higher than this forecast, at 10.7%, suggesting that this cost pressure is higher. The Department told us it seeks to mitigate the effect of inflation by using forward purchasing and firm price contracts, but we are unconvinced that this will substantially reduce the pressure.49 We are also concerned about the impact of unfavourable exchange rate movements with the pound-dollar exchange rate below the Department’s worst-case scenario in December 2022. The Department mitigates the volatility of exchange rate fluctuations with forward purchases. But, given the major purchases made from the United States, notably £6.5 billion over the next 10 years for F-35 aircraft, this could significantly affect the affordability of the Plan.50 Show less

Economic factors such as inflation and exchange rates will cause significant risks to the plan’s affordability. The Department told us that it has £25 billion of risks that are not included in its forecast costs because it deems these unlikely … Read more Economic factors such as inflation and exchange rates will cause significant risks to the plan’s affordability. The Department told us that it has £25 billion of risks that are not included in its forecast costs because it deems these unlikely to occur, compared to £13 billion of more-likely risks that it does include in project cost forecasts.51 It will only take a relatively small change to significantly affect affordability, given that the Department currently has only a £2.6 billion surplus on the Plan and £4.3 billion of equipment contingency over 10 years.52 Show less

We are also concerned about the impact of inflation on the Plan’s delivery, particularly the Department’s ability to obtain the skills required. The Department told us that it and its suppliers do not have enough data scientists, software engineers or … Read more We are also concerned about the impact of inflation on the Plan’s delivery, particularly the Department’s ability to obtain the skills required. The Department told us that it and its suppliers do not have enough data scientists, software engineers or project managers. This puts at risk the delivery of a range of information, communication, and technology programmes.53 This risk may increase if staff leave due to below-inflation pay rises. The Department has offered staff a pay rise of 3.75% and every future additional 1% pay rise above those planned will cost £1.4 billion over the next nine years. The Department acknowledged that the pay settlement was challenging and would remain so.54 Supply chain Show less

The Department acknowledged that inflation also makes it difficult for suppliers to deliver due to rising staff and material costs.55 As a result, the Department is changing its contractual approach to take account of the inflation risk and avoid suppliers … Read more The Department acknowledged that inflation also makes it difficult for suppliers to deliver due to rising staff and material costs.55 As a result, the Department is changing its contractual approach to take account of the inflation risk and avoid suppliers charging a higher premium for continuing to take this risk on.56 47 Q 95 48 C&AG’s Report, para 2.14; Ministry of Defence, The Defence Equipment Plan 2022–2032, P11 49 Q 88 50 Q 89, C&AG’s Report, para 1.15 51 Q 86 52 Qq 79, 81 53 Q 51 54 Q 112 55 Q 52; C&AG’s Report, para 2.13 56 Q 88 14 MoD Equipment Plan 2022–2032 Show less

The Department faces significant challenges replenishing its stocks and delivering new capabilities to meet the threats of a more volatile world. The Department has begun replacing stocks gifted to Ukraine, either on a like-for-like basis or with an equivalent where … Read more The Department faces significant challenges replenishing its stocks and delivering new capabilities to meet the threats of a more volatile world. The Department has begun replacing stocks gifted to Ukraine, either on a like-for-like basis or with an equivalent where gifted capabilities are no longer in production or the Department now has different requirements.57 However, we are concerned that replacement is not occurring quickly enough, with, for example, the Department confirming that it will take at least two years to replace NLAW anti-tank weapons gifted to Ukraine.58 Show less

The Department acknowledged that UK stocks were not sufficient even before gifts to Ukraine.59 A recent Royal United Services Institute report stated that at the height of fighting in the Donbas, Russia was using more ammunition in two days than … Read more The Department acknowledged that UK stocks were not sufficient even before gifts to Ukraine.59 A recent Royal United Services Institute report stated that at the height of fighting in the Donbas, Russia was using more ammunition in two days than the UK held in total.60 The Department told us that the Ukraine war has shown that its principle of buying munitions and capability in batches is no longer the right approach. It intends to shift to having supply chains with continuous production which can be quickly increased when required, for example in times of war.61 Show less

HM Treasury has provided the Department with £560 million to restart production lines in UK companies.62 The Department told us that it is working closely with key suppliers in the UK, including BAE Systems, MBDA and Thales, to invest in … Read more HM Treasury has provided the Department with £560 million to restart production lines in UK companies.62 The Department told us that it is working closely with key suppliers in the UK, including BAE Systems, MBDA and Thales, to invest in long-term strategic capabilities. The Department subsequently wrote to us outlining its acquisition reform initiatives and explaining that DE&S is implementing a refresh of its strategy under its new Chief Executive.63 Improving the supply chain will also require working with allies. The Department has also placed requests for supply with US companies and has engaged with fellow NATO countries to discuss how they can collectively stimulate the industrial supply chain to meet the alliance’s long-term needs.64 We note that attempts to increase supply will be challenging given the current inflationary economic environment, particularly given that inflation tends to be higher in the defence industry than the general economy.65 57 Q 22; Letter from Permanent Secretary to the Chair, 23 January 2023, p.1 58 Q 25; Letter from Permanent Secretary to the Chair, 23 January 2023, p.1 59 Q 21 60 Q 17; Royal United Services Institute, Preliminary Lessons in Conventional Warfighting from Russia’s Invasion of Ukraine: February-July 2022, P55 61 Q 20 62 Q 22 63 Letter from Permanent Secretary to the Chair, 23 January 2023, p.4 64 Q 20 65 Q 88 MoD Equipment Plan 2022–2032 15 Show less