Spiralling nuclear costs make UK’s Ministry Of Defence’s equipment plan unsustainable.

While there are shortfalls in every ‘Top Level Budget’ (TLB) in the plan, huge increases in the forecast cost of the MOD’s nuclear weapon upgrades is the most significant driver of these deficits.

Nuclear Information Service 20.12.2023, DAVID CULLEN

The Ministry of Defence’s plan for equipment acquisition over the next decade has once again been branded unaffordable, with overspending on its nuclear programme now clearly responsible for the overall insolvency of the plan. After two years where the plan was predicting a modest surplus, due to the greatest increase in UK military spending since the Korean war, the apparently inexorable rising costs of the government’s nuclear weapon upgrades have created the largest deficit since the government started publishing these plans in 2012.

The Ministry of Defence (MOD) plans its equipment spending around a 10-year budget set by the Treasury. This is longer than most departments, due to the substantial costs and lead-in times involved. The plan covers spending on all equipment used by the armed forces, from submarines to small arms ammunition. The plan is updated annually to cover the next 10 financial years, and is intended to show Parliament that the MOD is able to properly finance its ambitions in military equipment spending.Once the plan is published the National Audit Office (NAO) carries out an analysis of the affordability, which is published separately. The MOD decided not to publish its 2023 Equipment Plan, telling the House of Commons Public Accounts Committee that it needed more time to “work through the consequences” of the 2023 Integrated Review Refresh (IRR) and its accompanying Defence Command Paper. However, all of the financial analysis for the plan has been undertaken and the NAO has published a report based on that analysis.

The MOD’s assessment

The MOD’s own figures show that there is a £16.9bn shortfall in the plan, compared to the £2.6bn surplus in the previous year’s plan. While there are shortfalls in every ‘Top Level Budget’ (TLB) in the plan, huge increases in the forecast cost of the MOD’s nuclear weapon upgrades is the most significant driver of these deficits.

The Defence Nuclear Organisation (DNO), the TLB which oversees the majority of the MOD’s spending on its programme, has seen its spending on the equipment plan increase 62% since last year to £99.5bn. The DNO appear to have been given approval to spend whatever is deemed necessary to avoid delays in the production of the Dreadnought submarine class, as the NAO says it has prioritised delivery to schedule “over immediate cost constraints”. This approach is apparently supported by the Treasury, and although it is hard to dispute their claim that fewer delays will in general lead to lower overall costs, it is a questionable approach to financial management………………………………………………………………………………………………………………….

………………………………………….. Over the full life of the Dreadnought programme, CAAS estimates that costs will be £4bn higher, a substantial increase from their estimate last year of costs being £1.2bn above current forecasts.

……………………… The NAO also highlights the propensity of project delays leading to increased costs, both in the projects themselves and in related programmes, such as maintaining equipment that had previously been scheduled for retirement. This has frequently been the case within the MOD’s nuclear programme, and again raises questions about the substantial ‘adjustments for realism’ in the DNO’s current calculations.

A lack of plans

The gulf in the MOD’s equipment plan finances in general, and nuclear project finances in particular, is emerging despite substantial increases in funding from the Treasury. In the 2023 Spring Budget £3bn of additional funding was announced alongside the IRR, and current budgets allow for annual increases of £2bn, both specifically for nuclear projects. £2bn of the Dreadnought programmes nominal £10bn contingency fund had already been spent by March 2023, and the current forecast cost for the project appears to anticipate another £1bn being spent. The Treasury have apparently ‘set out the arrangements’ for further contingency spending, although it is still to be agreed on a case-by-case basis. In practice, the contingency does not exist as a separate fund, and this ‘contingency’ is just a mechanism for the Treasury to approve overspend.

While the stated commitment of the MOD and Treasury to funding the Dreadnought programme above any other considerations is clearly intended to dispel any doubts about the viability of that project, it is hard to see any resolution to the current state of the equipment plan that does not involve spending on conventional equipment projects being cut. The NAO warns about this prospect and highlights the reliance of nuclear-armed submarine patrols on conventional forces that are not currently protected by the ring-fencing of the MOD’s nuclear spending.

………………………….. The MOD’s refusal to take difficult decisions now merely increases the number of tough choices that will await an incoming government after the next election. The most likely outcome of those choices is that once again conventional military spending will be cut to fund the government’s nuclear ambitions. https://www.nuclearinfo.org/comment/2023/12/spiralling-nuclear-costs-make-the-mods-equipment-plan-unsustainable/