Lord Coaker
To ask His Majesty’s Government what assessment they have made of the National Audit Office’s value for money analysis of the Ministry of Defence’s Equipment Plan 2023 to 2033, published on 4 December.
The Minister of State, Ministry of Defence (The Earl of Minto) (Con)
My Lords, the National Audit Office’s report on the equipment plan states that it does not consider the value for money of the MoD’s equipment expenditure or of the specific projects mentioned; nor does it comment on the policy choices that the department makes to develop a plan that meets its future needs. While the National Audit Office report recognises the significant impact that global headwinds and high inflation have had on UK defence, it does not and could not accurately reflect the current or future state of the Armed Forces equipment plan, given that it pre-dates the publication of the defence Command Paper refresh.
Lord Coaker (Lab)
My Lords, the NAO report is deeply disturbing at a time when we have war in Europe, conflict in the Middle East and growing threats globally. As we have just heard from the Minister, the MoD just dismisses it as a dated snapshot that does not reflect reality. The NAO says that the plan is unaffordable and that forecast costs exceed the available budget by £16.9 billion. It says that the MoD estimates that the funding gap could range between £7.6 billion and £29.8 billion. How is that just a dated snapshot?
The Earl of Minto (Con)
My Lords, the Ministry of Defence certainly does not consider the report in such a way. Where the Ministry of Defence is coming from is that our Armed Forces are operating in an increasingly contested and dangerous world, and we are working hard to deliver what our servicepeople need to keep the United Kingdom safe. We are in a period of great change, which is why the equipment plan budget has increased to £288.6 billion over the next decade. It is about the next decade—10 years forward.
Lord Stirrup (CB)
My Lords, one of the most interesting forecasts in the NAO report is not a figure but a word: “Unknown”. It is the forecast of the equipment plan cost if it were to reflect all the capabilities outlined in the 2023 integrated review and defence Command Paper refresh. The gap between resource and ambition is serious and leaves us exposed in an increasingly dangerous world. When are the Government going to get a grip on it?
The Earl of Minto (Con)
My Lords, I do not buy that the plan is unfundable and unworkable. There is significant flexibility within the figures and large contingencies to allow the flexibility of the correct platforms to be developed over the period of time to meet the defence needs for the state.
Baroness Goldie (Con)
My Lords, does my noble friend the Minister agree that it is wrong to look at the defence equipment plan as some kind of rigid, unchangeable proposition, for the very reason he has just indicated? We have to have headroom, which is necessary to allow for flexibility, pursuant to the defence Command Paper refresh, but also because of emerging technologies and our constant journey with artificial intelligence. It is important for everyone to remember that inherent flexibility is actually a strength.
The Earl of Minto (Con)
My Lords, it is a great honour to answer a question from my predecessor. She is absolutely right: we are looking at a 10-year timeframe and only 25% of expenditure is committed. We have a contingency budget in there of more than £4 billion.
Baroness Garden of Frognal (LD)
My Lords, the equipment plan bandies around some interesting figures: the noble Lord, Lord Coaker, mentioned £16.9 billion, while I picked up £7.6 billion and £29.8 billion—obviously, precision is our watchword. The noble and gallant Lord, Lord Stirrup, picked up the very alarming word “Unknown” for the costs and, where they are known, they are deemed to be “unaffordable”. This is not a good projection. Can the Minister project a rather more accurate estimate of the financial cost? In particular, how does the MoD intend to meet the acute skills shortage gap? Without the skills, our brave military personnel are going to be lost.
The Earl of Minto (Con)
The noble Baroness makes a good point. In fact, there is considerable investment in skills—particularly in the areas of nuclear and shipbuilding—within these figures, all of which are costed. She is absolutely right that the skills gap that the industry is facing is entirely being funded and down to government.
Lord Browne of Ladyton (Lab)
My Lords, following on from the most important question arising from this report, raised by the noble and gallant Lord, Lord Stirrup, I wish to make a couple of points to the Minister and ask him a question. First, this report, like all NAO reports, was agreed by the department.
Secondly, the report specifically says that the equipment plan
“does not reflect all the cost pressures to develop new and support existing capabilities set out in the 2021 Integrated Review”,
which was updated in March this year. I recollect that the then Secretary of State for Defence, Ben Wallace, said that the extra £5 billion was welcome but that £11 billion was needed.
Thirdly, the report highlights the fact that the individual services have differing approaches to preparing the forecast in the plan. The Navy and the Royal Air Force include predicted costs for the capabilities that the Government expect from them while the Army includes only what it can afford. These issues need immediate attention, do they not? They should be attended to immediately.
The Earl of Minto (Con)
My Lords, I agree with much of what the noble Lord has said. One of the key points about the NAO report is that it does not reflect the aspiration to increase defence spending to 2.5% of GDP when economic and fiscal conditions allow. If one puts that back in, it obviously completely changes the finances.
On the question of consistency, I am in entire agreement. I am very new in this role. I have looked at budgets for the last 40 years and I have never seen a budget that resembles anything like this one, and that is not just the absolute figures. The way in which it is constructed means that it is very difficult to get to exactly the way in which the money moves around. That is something that I commit to the House that I will learn and then lose not much more sleep over.
Lord Craig of Radley (CB)
My Lords, can the Minister confirm that none of the cost of the equipment provided to the Government of Ukraine has been or will be met from the defence budget, and that that will include any restocking of war stocks that have been gifted to Ukraine?
The Earl of Minto (Con)
My Lords, I thank the noble and gallant Lord for that question. I can confirm that all equipment gifted to Ukraine is well without these figures. Your Lordships will know that, as well as the £5 billion that was granted by the Chancellor, an additional nearly £0.5 billion was given to restock the stockpiles that are required.
Lord Bellingham (Con)
My Lords, I wish the Minister all the best in his new appointment. Further to the question from the noble Baroness, Lady Garden, the NAO report refers to supply line risks and constraints caused by skills gaps, plus the shortage of key components. Much of that is the consequence of the war in Ukraine. We must continue the support for that war but, further to the noble Baroness’s question, what more can the Minister and the department do to address the skills gap by working with key contractors and suppliers, such as BAE?
The Earl of Minto (Con)
My noble friend makes two very good points. One is about the extremely complicated supply chain that the defence industry has to follow and the extreme pressures that inflationary costs bring to bear on that. It is not just headline inflation; the inflationary costs go from raw materials right through to the completed product. It is extraordinary and very varied. The question of the skills gap is at the heart of one of my right honourable friend’s tasks in the other place in ensuring that British industry, particularly organisations such as BAE Systems, is sufficiently available to get the skills.
Lord West of Spithead (Lab)
My Lords, the report is extremely worrying. The Government seem to have the ability to talk as if these things are not crucial. There is no doubt that we need more money spent on defence. I understand that we are looking at 2.5% when the situation allows. Yes, we are very short of money, but sometimes, if things are so dangerous and worrying, you have to adjust your priorities.
We seem to be lulling ourselves into a false sense of security. If the Government really think that our military is being sufficiently funded and all things are rosy, I am very worried. If that is just what they are saying to put a good face on it here, fine, but I have a horrible feeling that they believe things really are rosy. I ask the Minister to look at the real impact of this NAO report, because there is no doubt that things we have been promised will not come.
The Earl of Minto (Con)
My Lords, I assure the noble Lord that the Government take the report extremely seriously, as I said to the noble Lord, Lord Coaker. An enormous amount of work is going on in the department to look at the changing defence requirement for the next 10 years and the impact that it is likely to have on the cost implications. Everybody is fully aware that the Government wish to get to 2.5% as a minimum and I am sure that, when fiscal conditions allow, that will be delivered.