Today’s NAO report is yet another reminder of the dismal state of the defence equipment budget. The graph below sets out how bad the situation is until 2020. The best case scenario is a £6bn budget shortfall — and that is based on some quite rosy assumptions.
The MoD buys kit, which often takes a decade or more to deliver, on the basis that their cash budget will rise by 2.7 per cent a year. In good times that would be acceptable (although you have to wonder why they think the Bank of England will overshoot its inflation target by 0.2 per cent). But in these straightened times, that seems dangerously optimistic. If the budget is frozen (the blue line in the graph) the gap in the 10 year budget rises to an eye-watering £36bn.
Now imagine the worst case scenario, where the MoD budget is cut in line with other departments in Whitehall that have not been protected. A 2.7 per cent a year real terms cut would put the budget deficit at more than £60bn, which basically would mean the department could only afford half the kit it is committed to buy.
One last point on the NAO report, which was brutally frank about the unaffordable budget. Just remember that the new head of the public spending watchdog is of course Amyas Morse, the former commercial director at the MoD. He was part of the machine that endorsed the decisions that exacerbated the long term problems. Does he have scores to settle from his time at the MoD? I don’t know. But most people tend to leave this troubled department bearing scars.
Jim Pickard
Kiran Stacey