UK unveils £159 billion defence equipment plan, but doubts remain

LONDON Thu Jan 31, 2013 1:46am GMT

Britain's Defence Secretary Philip Hammond arrives to attend a Cabinet meeting at 10 Downing Street in central London, January 22, 2013. REUTERS/Andrew Winning

Britain's Defence Secretary Philip Hammond arrives to attend a Cabinet meeting at 10 Downing Street in central London, January 22, 2013.

Credit: Reuters/Andrew Winning

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LONDON (Reuters) - Britain published on Thursday a 159-billion-pound long-term defence equipment spending plan, a move aimed at reversing decades of mismanagement but which drew only qualified praise from experts.

The plan covers spending from 2012 to 2022, the first time the Ministry of Defence (MoD) has outlined defence equipment spending over such a long period, reflecting the gestation time of major military projects.

Equipment covered in the plan contained no surprises, having been outlined in the MoD's last major planning exercise, the 2010 Strategic Defence and Security Review (SDSR), which charted a course for British security needs by 2020.

British arms firm BAE Systems, Europe's largest defence contractor, is behind most of the large projects outlined in the plan, including submarines, ships, aircraft carriers and the Typhoon fighter jet.

The MoD has for years been criticised by spending watchdogs for over-optimistic cost and time forecasts for equipment projects, a matter that has grown in importance as Britain slashes spending to fix a budget deficit.

The spending plan includes a 4.8 billion pound contingency allowance to manage unexpected cost increases, as well as an unallocated 8 billion pounds for future equipment needs.

"Step by step, we are clearing up years of mismanagement under the last government by ending the culture of over-promising and under-delivering," Defence Secretary Philip Hammond, a Conservative, said in a statement, referring to the opposition Labour party.

Labour labelled Hammond "hubristic" and said his claims to have balanced the defence budget were "wild".

The MoD said the spending plan addresses what had been estimated to have been a 74 billion pound equipment funding gap, and that it had received the backing of the National Audit Office (NAO), parliament's spending watchdog.

OVER-OPTIMISM

However, the NAO said in a report reviewing the MoD's spending plan that while the ministry was approaching defence spending on a "more prudent basis" and had "taken significant positive steps", uncertainty remained.

"There is systemic over-optimism inherent in the department's assumptions around the costing of risk and uncertainty .... which may not be sufficiently mitigated by the contingency provision," the NAO said.

It stressed that its assessment of the spending forecast only took into account equipment procurement and not equipment support costs, which at 86 billion pounds makes up more than half of the spending plan.

The NAO also said the plan was "unlikely to be realistic" without a comprehensive analysis of risks and uncertainties.

John Louth, director for defence, industries and society at the Royal United Services Institute defence thinktank in London, said the MoD's plan lacked detail and was vulnerable to shocks.

"Whilst they should be applauded for publishing a 10-year plan, the information we have is very thin. It doesn't really talk about any accounting assumptions or anything that gives an understanding of how the numbers were generated," he said.

"If you have a 10-year forecast, you're making an awful lot of assumptions over how the world will be over that 10-year period .... We haven't been able to forecast any of the operations we've been involved with," he added.

An MoD spokesman said future "wider economic conditions" could have an impact on the plan, as well as another SDSR planned for 2015.

PROJECTS COVERED

The major defence equipment projects covered in the MoD spending plan are:

* 35.8 billion pounds on seven BAE-built Astute-class submarines and developing a replacement for the four Vanguard-class submarines used for Britain's Trident nuclear deterrent.

* 18.5 billion pounds on fighter jets, and UAVs, or drones, including the Joint Strike Fighter built by U.S. firm Lockheed Martin Corp, of which Britain has so far committed to buy 48, and the Typhoon, built by a consortium of BAE, Italy's Finmeccanica and European aerospace group EADS, of which Britain has ordered 160.

* 17.4 billion pounds on two aircraft carriers, six new Type 45 destroyers and the development of the Type 26 Global Combat Ship, all built by BAE.

* 13.9 billion pounds on air-to-air refuelling, passenger and heavy lift capability by leasing Airbus aircraft through the EADS-led AirTanker consortium.

* 12.3 billion pounds on armoured fighting vehicles, including the Scout - built by General Dynamics - and the Warrior, built by GKN.

* 12.1 billion pounds on helicopters, including the Boeing-built Chinook and Apache, and the AgustaWestland-built Wildcat.

* 11.4 billion pounds on assorted missiles, torpedoes and bombs.

(Editing by Jason Webb)