February 1, 2018 / 8:09 AM / 20 days ago

UK defence spending plans may fall short by 21 billion pounds - watchdog

LONDON (Reuters) - The budget set by Britain’s defence ministry to support new equipment needed in the next decade could fall short by 20.8 billion pounds ($29.5 billion), Britain’s independent government spending watchdog has said.

A National Audit Office report published on Wednesday found there was a shortfall of at least 4.9 billion pounds ($7 billion), potentially rising by another 15.9 billion pounds, if all the risks identified by the Ministry of Defence arise and it is unable to make the savings assumed under the plan.

The report, which could affect government spending decisions and private contractors such as Serco (SRP.L) and Babcock (BAB.L), said some of the costing expectations had been over-optimistic and that foreign exchange rates used had not been accurate.

Earlier this month the head of Britain’s armed forces expressed concerns that defence spending is being too tightly squeezed because of wider public spending cuts.

Government spending plans issued in late 2015 foresaw defence spending expected to rise slightly above inflation over a five-year period.

    The National Audit Office review found that the department had understated forecast costs related to the purchase of five Type 31e frigates not included in the plan, while the cost of nuclear-related projects continues to grow.

    ($1 = 0.7055 pounds)

    Reporting by Elisabeth O'Leary, editing by Estelle Shirbon

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