Plans for new warships and jets becoming unaffordable, watchdog warns

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Plans for new warships, jets and other vital military equipment risk becoming unaffordable because of increased costs and the collapse in the value of sterling, the Commons spending watchdog has warned.

The cross-party Commons Public Accounts Committee said it was "very concerned" about the £178 billion defence equipment plan.

It warned that in the coming years the impact of the fall in the value of the pound against the US dollar could increase the cost of programmes, with the F-35 fighter jet and P-8 Poseidon maritime patrol aircraft "particularly vulnerable to exchange rate fluctuations".

The MPs said: "We are very concerned that the Ministry of Defence's equipment plan is at greater risk of becoming unaffordable than at any time since its inception in 2012."

Keeping the plan affordable was "heavily reliant" on a "highly ambitious, but still under-developed" programme of efficiency savings.

"The plan continues to be vulnerable to cost growth because of uncertainties around the costs of new projects, continued problems with cost control on some long-standing projects, and the significant fall in the value of the pound against the US dollar," the MPs added.

"The department has used more than £10 billion previously set aside to meet new requirements to help fund its existing core programme, leaving it little flexibility to deal with changing military priorities."

The committee said: "We are worried that the increase in commitments without a commensurate increase in funding puts this stability and the ability of the Department to deliver what our forces need to operate effectively at real risk."

The MoD expects to spend £178 billion between 2016 and 2026, but the MPs warned that "uncertainties and over-optimism in project costs mean that the cost of the plan may be significantly understated".

The report noted "continuing problems" with the nuclear-powered Astute hunter-killer submarine programme and warned that there was a risk of similar difficulties with the new Dreadnought class boats which will carry the Trident nuclear deterrent.

The MPs also criticised the Type 26 warship programme, with failure by the MoD to agree a "workable way forward" with the main contractor "which has compromised maritime capability and placed further upward pressure on costs".  

The impact of the fall in the value of the pound will be felt over the coming years, if it continues to remain below the 1.55 US dollar to £1 rate used in the plan.

Forward purchase contracts, which mitigate the risk of currency fluctuation, will expire in 2018-19, the committee said.

"Consequently, if current exchange rates persist, the cost of the plan will increase by approximately £5 billion," the report noted.

When the National Audit Office reported on the issue in January, Defence Procurement Minister Harriett Baldwin said the £178 billion plan "will deliver the best kit for our armed forces at the best value for the taxpayer".

She said: "We are focused on maintaining an affordable programme and delivering the efficiencies we need to reinvest in cutting-edge ships, planes, versatile strike brigades, and greater cyber capabilities, so that our armed forces have the equipment they need to keep the UK safe and secure."