Ministry of Defence facing shortfall of nearly £21bn, audit office finds

Defence contractors such as Babcock, Ultra Electronics and QinetiQ were rattled by an official report that the budget to arm Britain's military could be facing a funding shortfall of anywhere between £4.9bn and £20.8bn.

The Ministry of Defence's equipment plan for 2017-2027 was accused of being unrealistic by UK public spending watchdog, the National Audit Office, on Wednesday, which said the MoD had provided no evidence as to how exactly it planned to pool together the roughly £7.9bn in total savings to put towards its procurement budget.

"The Department's Equipment Plan is not affordable," said Amyas Morse, head of the NAO in a harshly worded assessment of the ministry's decade-long procurement plans.

"At present, the affordability gap ranges from a minimum of £4.9bn to £20.8bn if financial risks materialise and ambitious savings are not achieved," he added.

The NAO revealed that the MoD had not included £9.6bn of forecast costs in its funding assessment, and had omitted a further £1.3bn in costs relating to the five Type 31e general purpose frigates.

The watchdog highlighted a potential £4.6bn in extra costs "due to the department not using foreign currency exchange rates that reflect market rates at the date of the plan."

Spending on equipment and support, which accounts for 40% of the MoD's budget, was limited in scope and would likely be incapable of covering any shortfalls from other parts of the budget, the report found.

The NAO said, although there was already a shortfall of £8.5bn in the budget for managing the defence estate, as negotiations over the contract covering married quarters for the forces were coming up, any potential changes there would likely push up costs significantly.

The MoD claimed to be well aware of the risks highlighted in its defence budget by the NAO as it attempted to downplay the NAO's "worst-case" scenario.

"The report's potential affordability gap of £20.8bn reflects the wholly unlikely and unrealistic situation where all equipment plan financial risks materialise and the MoD achieves none of its efficiency and savings measures," a MoD spokesman said on Wednesday.