Since May 2008 the Ministry of Defence has been examining its equipment programme. The aims of the examination were to adapt to the rising cost of high-end defence equipment and to provide more support for current operations. The key conclusions I am announcing today help us meet these objectives; other aspects will be taken forward through our regular planning round, which will conclude next March.

The work to date will bring the defence equipment programme more closely into balance. Inevitably this has required a reprioritisation of investment to ensure that we deliver those capabilities of the highest immediate urgency, while continuing to invest in capabilities needed to respond to future threats. We remain committed to doing more for our people, here and on the front line—improving their support and welfare, pay, medical care, rehabilitation services and accommodation.

Support to current operations remains our highest priority. Among the top priorities of our operational commanders are the provision of the right mix of protected patrol vehicles and additional helicopter capability. The recent announcement of nearly 700 more protected patrol vehicles for Afghanistan, at a cost of over £700 million, is evidence of our commitment to meet their requirements. In addition to our core budget, the Government will continue to fund the net additional costs of operations from the Treasury reserve. Since 2001 we have received nearly £10 billion, over and above the core defence budget.

As well as the protected mobility package, we have agreed with the Treasury a budget of a further £635 million in 2009-10 for other urgent operational requirements, with any expenditure over and above that being met initially by the reserve, but repaid by the defence budget after two years.

We undertook to inform Parliament about the major decisions emerging from our examination of the equipment programme as soon as we were able to do so. The following are the key conclusions.

In May 2008 we announced the provisional selection of Piranha V, offered by General Dynamics (UK) Ltd, as the preferred design for the FRES utility vehicle. Following a period of intensive negotiations with General Dynamics to address a number of commercial issues, it became clear to both parties that it would not be possible to reach agreement on the commercial conditions required to enable further progress on the basis of the current procurement strategy. I have therefore decided that we should withdraw General Dynamics (UK)’s provisional preferred bidder status.

Our examination of the equipment programme has, separately, considered the balance of investment and priority in the army’s armoured vehicle programme. We have concluded that, in the context of current operations, and bearing in mind the considerable recent investment in protected mobility, the highest priority should now be accorded to delivering the warrior capability sustainment programme and the FRES scout vehicle as quickly as possible. Against that background, we have decided to restructure the FRES programme, giving priority to FRES scout over the FRES utility vehicle. Whilst this will mean a delay to the programme, we recognise the importance of the utility vehicle and are now looking at the best way to take this procurement forward. General Dynamics (UK) will have an opportunity to compete in any future utility vehicle competition.

We have increased the number of helicopter airframes and hours available to our commanders in Afghanistan by around 60 per cent. over the past two years, and will make a further significant increase in helicopter capacity in Afghanistan over the next two years.

In addition to our planned battlefield helicopter procurements, we will be spending £70 million from the reserve to upgrade 12 Lynx Mark 9 helicopters with new engines, with the first aircraft available by the end of 2009. This will give commanders more helicopters able to operate effectively all year round in the hot and high altitude in Afghanistan, freeing up other aircraft for other tasks. Taken with the Chinook Mark 3 reversion, the additional planned Apache capability and the Merlins that we plan to move to Afghanistan once they have completed their mission in Iraq, this will deliver a significant increase in helicopter capability available to military commanders.

The new AgustaWestland future Lynx helicopter will provide even greater operational capability when it comes into service, as planned, in 2014.

We have concluded that there is scope for bringing more closely into line the introduction of the joint combat aircraft and the aircraft carrier. This is likely to mean delaying the in service date of the new carriers by one to two years. We are in close consultation with the Aircraft Carrier Alliance on how this might best be done. Construction is already under way and will continue, the programme will still provide stability for the core shipyard workforce, including 10,000 UK jobs.

We have also reviewed all the components of the MARS fleet auxiliary programme, and have concluded that there is scope for considering alternative approaches to its procurement which is likely to involve the deferral of the fleet tanker element.

I have also instituted a review, to be led by Bernard Gray, to examine progress with implementing reforms through the MOD’s acquisition change programme and make any further recommendations to secure better value for money in the delivery of major acquisition programmes.

Any further significant changes to the equipment programme will be announced following the conclusion of the MOD’s current planning round in March. While that work continues, I intend to control new commitments carefully to ensure we do not restrict our flexibility unnecessarily, though this will not be allowed to hold up support to current operations or our other highest priorities.