7. The Government undertook the Strategic Defence and Security Review in 2010 to address the gap of up to £42 billion between the defence budget and forecast expenditure, including spending on the equipment programme. Since then there have been two more reviews which have further reduced the equipment programme to make extra savings.19 Despite these three reviews the Department was only able to say that the defence budget is 'broadly in balance'.20
8. The Department told us that it could not confirm the size of the remaining imbalance while its work on the latest planning round was continuing.21 The Department explained that it is on course to achieve its aims and has made improvements in the approvals and scrutiny of projects. The Department considers that these improvements, coupled with the previous Secretary of State's personal review of major projects, should ensure that the defence budget will be in balance in the future.22
9. The Department has committed to publishing a ten year statement on the equipment programme; the NAO will conduct an audit to test the affordability of the statement.23 But after more than 18 months of promising, the Department has yet to publish this statement or formally invite the NAO to perform its audit.24 The Department stated that they expected to invite the NAO in within 'weeks rather than months'.25
10. There is still a culture of over-optimism with regard to costs within the Department.26 The Department acknowledged that it will take time to change people's attitudes, but told us that it is putting the right incentives in place to change behaviours.27 For example, the Department had conducted an exercise which involved reviewing the equipment programme to challenge all the assumptions underlying project teams' cost forecasts. This review led to a £5.5 billion increase in expenditure forecasts.28
11. The Department is planning future expenditure on the basis of an assumption that it will receive a 1% real terms increase in funding after 2015. However, assuming this level of funding in the future is not certain, particularly in view of uncertainty about current economic conditions, the Department has not assessed the impact on its plans if this proves to be the case.29 We remain concerned about the potential consequences to current and future defence programmes if the Department receives lower than expected funding in the future.30
__________________________________________________________________________________
19 Q4
20 Q2
21 Qq 5-7
23 Q 3; The Defence Strategy for Acquisition Reform, Cm 7796, paragraph 2.7, page 10
24 Qq 19-20
25 Qq 21-22
26 Q11
27 Q15
28 Qq12-13
30 Q 144