The NAO's concern is that if the £4.8 billion is not enough to cover program cost overruns, the Defense Ministry may be forced to dive into the £8 billion unallocated budget, which auditors say is “essential” to deliver the Future Force 2020 plans. Using the unallocated fund to protect the core program would “result in capability gaps,” they say.
Some observers note that bringing Urgent Operational Requirements (UOR) purchased for the conflict in Afghanistan into the core budget could use up of most of this fund.
At the moment, such purchases are paid for through the government's Treasury Special Reserve, which also funds military operations. General Atomics MQ-9 Reaper UAVs and fleets of specialist vehicles designed to cope with improvised explosive devices have been funded by the UOR system. If commanders want to fold such assets into the core budget, then the special reserve must be compensated.
The £8 billion “risk funding” provides little scope for new opportunities for manufacturers in the next decade. Some companies see the U.K. as reluctant to spend except for UORs. Most Western European countries publish budgets for 3-5 years, giving contractors some hope that new threats and technologies will ensure priorities emerge faster.
In addition to the NAO's skepticism, the U.K. House of Commons Committee—whose members are from all three political parties—has published a report urging the Defense Ministry to learn more quickly from errors. It also says the government should readily establish a defense industrial strategy to help improve U.K. exports, which the committee says are at a disadvantage.
As an example of ministry error, the committee points to the about-face on the Joint Strike Fighter variant choice. In 2010, on the ministry's advice, the coalition government selected the conventional-takeoff-and-landing F-35C, but in May 2012 the ministry reversed course in favor of the short-takeoff-and-vertical-landing F-35B, costing £100 million.
“It is clear that the decision was rushed and based upon incomplete and inaccurate policy development. It was taken without the ministry understanding how the change could be implemented,” says the committee. “Perhaps the primary example of how little the ministry understood about this decision is the fact that it was supposed to improve interoperability. This turned out to be incorrect.”
The committee says a critical part of the failure to improve defense procurement is the “absence of a defense industrial strategy, which supports appropriate national sovereignty, [and] puts the U.K. at a disadvantage against competitor countries.” It calls for an acquisition strategy that prepares the armed forces to act on a national basis but with “an understanding of where a level of mutual interdependence or partnership is acceptable.” The committee adds that the “length of time taken by some acquisition projects means that it may be many years before success or failure is visible, and by that time irreparable damage may have been done.”
The NAO says that while the Defense Ministry is facing a crucial test, if it can deliver the equipment it needs over the next decade and establish a track record over time, “the department will be able to demonstrate it has really turned a corner.”