MoD budget claims 'over-optimistic'
Claims the Ministry of Defence has finally got to grips with its equipment budget after years of cost overruns and delays may be "over-optimistic", MPs have warned.
The Commons Public Accounts Committee said that, despite the 2010 Strategic Defence and Security Review and two subsequent cost-saving exercises, the MoD was still only able to say the defence budget was "broadly in balance".
And it warned that in the light of the continuing public spending squeeze, planned real terms increases in the equipment budget from 2015 may prove to be "unrealistic".
"It is unacceptable that the department still cannot identify the extent of the current gap between resources and expenditure," the committee said. "The department is basing its current 10-year equipment plan on Treasury planning assumptions that are now likely to prove over-optimistic.
"The department was told at the time of the comprehensive spending review settlement that it could expect 1% real terms equipment budget increases from 2015. It is planning its budget on this basis, but in the light of current economic conditions that assumption may be unrealistic."
The committee said that despite signs of improvement in the equipment programme, the estimated cost of its 15 largest projects still rose by £466 million in 2010-11.
Since their original approvals, the total costs of the projects had risen by £6.1 billion to stand at £60 billion - an 11.4% increase - while total delays now stood at 26 years and 10 months.
Committee chairman Margaret Hodge said there was a need for greater realism within the MoD towards procurement process.
"Much of the cost increase over the last decade has been down to the fact that the estimates for large programmes significantly underestimated the real cost," she said.
"Rather than the over-optimism which has held sway at the start of major projects, what is needed is realism: about the complexities of projects, the long-term costs of decisions taken today and the implications down the line of short-term budget cuts."