Warning over MoD budget shortfall

The Ministry of Defence could be forced to cancel whole equipment programmes to fill a black hole in its budget, an influential group of MPs warned.

Edward Leigh warned the MoD faces an escalating budget shortfall Edward Leigh warned the MoD faces an escalating budget shortfall [PA]

The Public Accounts Committee said the department's funding shortfall could rise to more than £36 billion in the coming decade - many times the official estimate of £6 billion.

It also repeated criticism that the MoD has been increasing total bills by delaying projects to make short-term savings.

Committee Chairman Edward Leigh said: "Britain's defence budget is fundamentally unaffordable.

"The MoD estimates it at £6 billion over the next 10 years but that figure depends on the assumption (surely optimistic) that there will be a year-on-year increase in funding of 2.7%.

"According to the NAO, even if cash spending on defence remains flat, then the projected deficit will be of the order of £36 billion. The deficit could be even higher than that. Matters have worsened to the point where the department will have to take difficult decisions, such as to cancel whole equipment programmes."

In its Ministry of Defence: Major Projects Report 2009, the committee said "intentional decisions to delay some projects have increased total procurement costs" and "overall are poor value for money".

"The decisions were taken by the Department as part of a wider package to try to make the defence programme affordable over the next few years.

"They account for two thirds of the £1 billion of cost increases on projects in the last year. Crucially, they mean the Armed Forces will not get the operational benefits of new capabilities as quickly as expected and some equipment will only be delivered in reduced numbers."

The committee said it had identified "tentative signs" that projects were being better managed by the MoD, although the decisions to "slip" projects made it difficult to assess performance.

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