An Abundance of Riches: MoD Procurement 2015-25

“An Abundance of Riches” is not a phrase you would normally expect to read in relation to UK defence spending in the 21st Century but I believe it is an accurate description of the growing size of the equipment procurement budget.
Type 23 Frigate HMS_Sutherland_(F81)_MoD

A guest post from AndyC

“An Abundance of Riches” is not a phrase you would normally expect to read in relation to UK defence spending in the 21st Century but I believe it is an accurate description of the growing size of the equipment procurement budget.

This assessment is based on the MoD’s defence equipment plan 2014 which can be found here https://www.gov.uk/government/publications/the-defence-equipment-plan-2014.  This plan tends to get overshadowed by the NAO report that comes out at the same time, as the latter tends to be more critical and so generates media headlines.

However, the MoD report provides plenty of detail that can be used to assess the state of the procurement budget by service.  To get an accurate picture of the position as we enter SDSR 2015 there remains one important caveat.  The figures in this report are already twelve months old so to get the true picture we have to remove the numbers for 2014/15 and add in estimates for 2024/25 – to be as uncontroversial as possible I’ve simply repeated the numbers for 2023/24.

For each budget heading this analysis will look at the ‘Equipment Procurement (Uncommitted)’ figure.  As the report is a year old we need to start by including the contracts that have been signed in the last twelve months and then those that are almost certain to go ahead even though the MoD has yet to sign a contract.  Finally, I’ve added in a few TD and personal favourites.

The budget headings below are those used on pages 18-31 have been re-ordered for the largest to go first:

Submarines – £19.1 billion in Uncommitted Equipment Procurement

Included in this are boats 5-7 of the Astute class but the vast majority of this huge total is the Trident successor programme and the maintenance of the nuclear deterrent.  It remains ‘uncommitted’ due to the politics of the Coalition.  While there is a small possibility that the deterrent could be cut to three boats the budget is there to pay for all four.  As this is the MoD’s largest procurement project it provides the greatest risk to the overall budget and will require the closest management.  However, any cost overruns can be controlled by delaying in-service entry and should not present a threat to the project as a whole.  The Submarines budget is therefore in reality fully committed.

Land Equipment – £8.9 billion

Included in this are the contracts of £3.5 billion for SCOUT SV and £1.3 billion for the Warrior capability sustainment programme.  Coming up is the Challenger 2 life extension programme and there’s now a separate budget heading for the ABSV adaptation of Warrior vehicles initially set at £100 million.  These two together could account for a further £1 billion which would cover the cost of a dedicated anti-tank Guided ABSV variant (a definite TD favourite!) and a new gun for Challenger 2.  Finally, there’s everyone’s perennial favourite the Utility Vehicle.  An order for up to 1,000 could replace the Bulldog and Vector and so equip the Light Role Infantry Battalions.  For something like the VBCI or Boxer that would cost about £3 billion.  In conclusion, the Land Equipment budget is fully committed.

Ships – £6.5 billion

Included in this is the contract for £350 million for Offshore Patrol Vessels.  Coming up is the start of the Type 26 programme.  Even if we assume that there is budget growth it’s unlikely that the cost of this will rise above £2.5 billion before 2025.  Then there’s three MARS solid replenishment ships, if they have to be tendered for commercially that should keep the cost down to £500 million.  Finally, there’s a requirement to replace RFA Argus.  If this can’t be done by a refurbished HMS Ocean then a new ship will be required – if we bought one of the Mistral’s or a similar ship it should cost no more than £500 million.

Even after taking into account all of these items there’s still £2.6 billion uncommitted and I can’t see what requires that much money.  Yes, at some point there will be a need for new amphibious ships and the replacement of a whole range of smaller ships but neither of these are necessary prior to 2025.  Perhaps the First Sea Lord is squirreling this away as an additional contingency for Trident or even to buy his own Maritime Patrol Aircraft!  So, unless I’m missing something this £2.6 billion could be returned to Central Provision.

Combat Air and Air Support – £6.3 billion

Included in this are the contracts of £2.6 billion for 14 F-35Bs with support requirements, £500 million for new basic and elementary training aircraft, £300 million for Captor E-scan radar and a further £300 million for Storm Shadow and Meteor integration on tranche 2 and 3 Typhoons.  Coming up is Brimstone 2 integration at £150 million and then there will eventually be an order to bring the number of F-35Bs up to 48 as committed to in SDSR 2010 – this could be as much as £2.4 billion.  However, the Captor E-scan radar is being paid for by an underspend in 2013 so this £300 million could be returned to Central Provision.

Helicopters – £2 billion

Included in this is the £500 million contract for Crowsnest radar for Merlin helicopters and coming up soon is the up to £250 million for new helicopter trainers.  We could also add TD favourites up to £150 million in total for such things as integrating Sea Venom on to Merlin’s, dipping sonar on to the Navy’s Wildcats and Martlet on to the Army’s Wildcats.  Even doing all of this would still leave £1.1 billion for the Apache capability sustainment programme which should be enough to upgrade all 66 helicopters and integrate Brimstone 2!  However, the Crowsnest radar is being paid for by the same 2013 underspend and so £500 million is available to cover either any cost overruns on the Apache project or to prepare for a replacement for the Puma helicopter in 2025/26.  The Helicopter budget is therefore fully committed.

Unallocated Headroom and Central Provision – £10 billion

Effectively, the budgeting above, has covered all of the outstanding commitments from SDSR 2010.  In addition allowance is made for some cost inflation with Type 26, a possible contingency is created for the replacement of RFA Argus, there are generous commitments to upgrade Apache helicopters, allow for the replacement of the Puma, develop a Guided ABSV, a new gun for Challenger 2 and a few TD extras.  Then there’s a surplus from the Ships budget of £2.6 billion and £300 million from the Air budgets that can be re-allocated.

Altogether that gives a whopping total of £12.9 billion in uncommitted equipment procurement that could be allocated in SDSR 2015.

Some of the likely contenders are:

  • £4.3 billion for an additional 54 F-35s.  Ordered at a rate of 14 per year from 2019 the total numbers would reach 102 in 2025.  This assumes a unit cost of £80 million which could be less as the production rate accelerates;
  • £3 billion for 12 Maritime Patrol Aircraft (including a replacement for Sentinel R1) and a stock of anti-shipping missiles*;
  • £2.1 billion for a further 700 Utility Vehicles to replace all other infantry vehicles in the Adaptable Force by 2025;
  • £800 million to replace the remaining Hawk T1s with a variant of the Hawk 200.  Personally though I’d go for a mix of secondhand F-16s for the aggressor training role and Hawk 200s for the Red Arrows which I believe could be cheaper and;
  • £600 million for a new basic AESA radar for tranche 1 Typhoons, (any F-16s) and all remaining Hawks plus Meteor integration on tranche 1 Typhoons and AMRAAM integration on Hawks.

So, even after a bit of indulgence in my own hobbyhorses there’s still £2.1 billion left uncommitted in Central Provision.

And then there’s £4.6 billion in the contingency reserve as well!

In fact, there’s even more flexibility provided by both the F-35 and Utility Vehicle purchases which could easily be stretched out to 2026 or 2027 respectively if there was the need.

I guess my point is: does it make sense to be able to buy every shiny little toy in the defence box but be unable to pay for enough infantry battalions or fast jet squadrons or escort frigates?

Maybe one of the key things the MoD should be looking at after 2020 is switching up to £500 million a year from the procurement budget to the revenue budget to ensure we have enough soldiers, pilots, seamen, submariners and engineers!

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