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Defence Equipment Budget (Cost Overruns)

Volume 506: debated on Monday 22 February 2010

2. What his most recent estimate is of the level of projected cost overruns in the defence equipment budget; and if he will make a statement. (317437)

7. What assessment he has made of projected cost overruns in the defence equipment budget; and if he will make a statement. (317443)

The most recent audited estimate of projected cost overruns in the defence equipment budget is a forecast increase of £1.242 billion in the financial year 2008-09, as reported in the 2008-09 annual report and accounts. These cost increases were virtually entirely attributable to two projects—the A400M aircraft and the Queen Elizabeth class aircraft carriers. I have no reason to suppose that this year there will be any such serious cost overruns. Nearly 90 per cent. of projects in the past two years have been delivered to cost.

In evidence to the Defence Committee, the Minister confirmed that at the start of the 2009 planning round the deficit in the equipment budget was £21 billion, and that at the start of the 2010 round it was £6 billion. What is the present value of the deficit and how does he explain the £15 billion reduction?

Those are two separate questions. We are not in a position to go beyond the £6 billion figure at the moment, but we are working on the figures as part of the present planning round at the end of the financial year. This is a netting exercise as the hon. Gentleman will understand. There may be some projects for which we have over-provided and will be able to write back some provision, and some projects will be descoped for operational or other reasons, or cancelled for non-performance. It is therefore impossible to predict the exact position at the end of the financial year.

As for the reduction in the forward projected deficit of £21 billion last year to £6 billion, that £15 billion was accounted for by several factors. In some cases, projects were repositioned in the pipeline until some later date, forgoing that capability for the time being. In the majority of cases, the reduction was because of the descoping of the programmes that we were undertaking anyway or an agreement to reduce the capability that we intended to order—

If I may be allowed a word in edgeways, it was not until recently that Ministers admitted to the Select Committee on Defence that there was any deficit. Indeed, it was only a short time ago—less than a year— that the Minister for defence equipment and support, addressing a conference called “Punching Above the Budget: A Prospect seminar”, said, “There is no…deficit.” So why have the Government now admitted that there is a deficit? It has been common knowledge among everybody who knows anything about defence that the Government have a programme far too large for their budget, so why did they not admit that years and years ago?

The hon. Gentleman knows perfectly well that the quotation that he has attributed to me was in relation to the last financial year, when there was not a significant deficit. The point that I have just made about the long-term deficit, as opposed to—[Interruption.] He obviously cannot understand the difference between a long-term deficit, going out to 10 years, and a current deficit, in the course of one year. If he cannot understand that, he will have to ask one of his hon. Friends to explain it to him.

One of the affected programmes is the Nimrod MR2 programme, which has been withdrawn and replaced by the Nimrod MRA4. There is now a gap between the two that will impact on search and rescue capability. When will the Ministry of Defence update the House on which fixed-wing aircraft will perform that task for long-range cover capability, and say what its range, radar and communication capability will be?

The answer is that a number of assets, not all of them fixed wing—some may be helicopters—will fill that gap.

The £1.2 billion cost overrun to which the Minister has referred constitutes yet another damning indictment of this Government’s pathetic stewardship of defence procurement throughout their time in office. It is interesting how little support he has from his own Back Benchers today. Where are they all? Does the Minister not accept that it is utterly irresponsible for the Government’s lamentable performance to be compounded by rushing through major project decisions in the dying days of this decaying Government? Does he not realise that although he might think he can buy votes in marginal seats by promising kit that he will not have to pay for, he will be bitterly disappointed when we win the next election?

All that electoral rhetoric is completely at odds with the facts. I have already explained that the deficit was due to two things, one of which is the A400M programme. That was the result of technical problems on the part of the supplier; it had nothing to do with the competence or otherwise of this Government. That is one of those things that, as the hon. Gentleman ought to know—and he does know, of course—invariably happens with new generations of military aircraft. As for the carriers, we made a deliberate decision not to bring forward that capability earlier than we needed it. By doing that we released quite a lot of current cash, which we needed to spend on more urgent items. That was good management; it was none of the things that the hon. Gentleman described it as being.