Armed Forces Readiness and Defence Equipment

Debate between Meg Hillier and Lord Beamish

Thursday 21st March 2024 Commons Chamber

[Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

I really welcome this debate, in which five former Defence Ministers are speaking. That is probably a record—certainly in recent years. I very much thank the Chair of the Defence Committee for laying out the global challenges this country faces and some of the capability concerns. Given the expertise in the Chamber, I know that we will hear more about that.

I stand here as Chair of the Public Accounts Committee, which sometimes feels a bit like the second Defence Committee because of the amount of time we spend examining the vast expenditure that this country makes on defence. Taxpayers give this money to the Government trusting that it will be spent well, but sadly all too often we see that it is not spent as well as it should be. We see money going in but we do not see the capability coming out that we require. The PAC examines that defence spending and the delivery; our job is to look at the economy, efficiency and effectiveness of how taxpayers’ money is spent by Government. As I say, the Ministry of Defence too often falls short on that.

The Committee has huge concerns about the MOD’s ability to deliver projects on time and to budget. This report is only one of our latest on the subject. Just because we have war paint on ships or something is very important, interesting and exciting technology to support our men and women on the frontline does not mean that it should not be treated like any other major project in Government and be managed well and properly. There is no point in having something perfect but late if our frontline personnel need it. As our report highlights, recent global events, which I will not go into, as the Chair of the Defence Committee has outlined them, throw into sharp focus why it is so vital that we deliver on time and that we have the capability, including industrial capability, to ramp up when something, such as munitions, for example, are used apace.

The PAC has examined the annual equipment plan from the MOD for more than 12 years. We have done that throughout the time I have been a member of the Committee, for the past nine years of which I have had the privilege of being its Chair. The defence equipment plan is the 10-year programme for the capability that the MOD says it requires and it lays out how that will be funded, and where the challenges and gaps in funding are. All bar last year’s plan were deemed unaffordable, but the PAC took the view that even in the year when the plan from the MOD came out as affordable, it was based on assumptions that were not realistic, and we did not believe it was fully affordable.

In simple terms, affordability is about the gap between the capability the plan lays out and the money available. As the plan covers 10 years, there have been times when Ministers, including some of the former Ministers present and perhaps even the current Minister, might have come up with reasons for that. They say, “Over 10 years, it is fine. We’ll juggle it a bit. We will balance a bit. We’ll get efficiency savings here and there.” We have seen those arguments and excuses far too often, and the efficiencies do not arrive or issues arise and defence programmes are put off and delayed. By delaying them we see a reprofiling of the costs, but no real reduction in them, and we see those chickens coming home to roost.

This year, the gap between the capability required and what is affordable is £16.9 billion—so it is nearly £17 billion over the 10-year period. We can then add in what the Army would deliver. It is perhaps worth my explaining that for some odd reason—the PAC has taken a strong view on this and even the permanent secretary at the MOD has acknowledged that there was an anomaly—when the Commands and the MOD put in their costs for the programmes, most of them put in the full costs of all the capability required, but the Army puts in only the costs of what it could afford. If we add in the capability that the Army actually requires, we are adding a further £12 billion to that nearly £17 billion, thus making the gap even bigger. There has been a clear deterioration in affordability. It is fair to say that £10 billion of that is because of inflationary costs—we partly know the reasons for that, but I am not going to go into them now—and about £2 billion is to do with foreign exchange costs. Again, the PAC examines those regularly with the MOD and the Treasury, but however we hedge it there will be some challenge on foreign exchange because of the nature of some of our defence procurement.

[Mr Kevan Jones (North Durham) (Lab)]

Does my hon. Friend agree that that has been made worse by the MOD’s tendency to purchase off-the-shelf solutions from the United States in dollars, which is now accounting for a huge amount of the defence budget? As she says, even with hedging, this is a deadweight around the defence budget.

[Dame Meg Hillier]

My right hon. Friend raises an important point, and we could almost have a whole debate about that. We do not have time to go into the full detail today, but I will touch on our defence industrial strategy. That is what a lot of this comes down to; if we are buying things off the shelf, it can sometimes be more cost-effective, but we need to be careful and cautious, because the longer those projects are for, the greater the risk of foreign exchange challenges. There is also sometimes a risk to our own sovereign capability and the longevity of some of our defence industries.

We recognise that, with our allies, we work in an international world on this. So there is no straightforward answer, but defence industrial strategy is an area that not only the MOD but the whole of Government should be looking at, as it is vital. Both the Chancellor and shadow Chancellor talk about growing the economy, and our defence industries are based in areas where, if we could up the skills and jobs available, it could provide a major boost to the economy. So there are a lot of opportunities there.

The MOD has not credibly demonstrated how it will manage its funding to deliver the military capabilities the Government want. Our latest report says that they need to get “firmer control of defence procurement” because of this very large deficit in respect of the capability requirements needed. The budget has increased, and I am sure the Minister will stand up to tell us how much extra money is going into defence, but this is about not just the money, but how it is managed. The budget has increased by £46.3 billion over the next 10-year period compared with what was set out in last year’s equipment plan. As I said, the PAC has warned that the deficit is even bigger than expected, so that extra budget will be taken up by the deficit if it is not managed down. Part of the reason for that deficit is inflation, but another major impact on it is the costs of the Defence Nuclear Organisation, which is responsible for the vital nuclear deterrent. Those costs have increased by £38.2 billion since last year’s plan.

One of our Committee’s other concerns is that the MOD has been putting off making decisions about cancelling or reprofiling programmes. Reprofiling is not always a good thing, but sometimes we have to trim according to what is necessary. If the MOD cannot afford the plan, it should take a hard decision, but it has optimistically assumed that the plan would be affordable if the Government fulfilled their long-term aspiration to spend 2.5% of GDP on defence each year, despite there being no guarantee that that will happen. Of course, in an election year there is not even a guarantee as to which party will be in government to consider that. We know, and the Defence Committee will know even more than the PAC, how much the MOD is increasingly reliant on the UK’s allies to protect our national interests. That means that we also have to play our part by making sure that we are delivering that.

For all the time that I have served on the PAC— 13 years this year—the MOD has been led by optimism bias, and it is now pressing on based on not optimism but the sniff of optimism, as there is so little left in that approach that will deliver. We must call that out and call a spade a spade, by saying that the MOD can deliver only what is affordable. So either the money goes in or the MOD trims what it is trying to do, because the approach of trying to do everything all at once and not being able to afford it is just not going to work.