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Budget Post-2015

Volume 559: debated on Monday 25 February 2013

The defence budget for the financial year 2015-16 will be set in the current spending round, which is expected to conclude in the summer. The budget for subsequent years will be set in the next spending review. The Ministry of Defence has an agreement with Her Majesty’s Treasury that we may plan on the assumption of a 1% real-terms annual increase in the equipment budget—about 40% of the current defence budget, rising to 45%—from 2015-16 to 2020-21. Our equipment plan, which we recently published, is based on that assumption.

On 14 May last year the Secretary of State boasted that he had balanced the budget over 10 years. To prove his claims, he said:

“I have agreed with the National Audit Office that it will review the equipment plan and confirm that it is affordable.”—[Official Report, 14 May 2012; Vol. 545, c. 264.]

However, in January the NAO’s report damningly said that it could not

“offer a definitive view on the affordability of the Equipment Plan.”

Will the Secretary of State tell us how we can believe a word that this Government say on defence when their central claim to competence cannot be confirmed by the independent auditor?

I think the hon. Lady needs to go away and read the National Audit Office report carefully. To put it into context, she probably needs to read some previous NAO reports on equipment plans. For example, in its 2010 report the NAO discovered that in a single year under Labour just two programmes—Typhoon and the Queen Elizabeth-class aircraft carrier—rose by £3.3 billion in cost. In 2009, it said that

“the budget remains consistently unaffordable over the next ten years”

and that attempts to rebalance the defence budget had represented poor value for money. We are very happy with the NAO’s review of the equipment plan, which recognised the huge steps of progress that we have made and set out an affordability assessment model for the Department’s assumptions.

The Prime Minister promised real-terms growth in the post-2015 budget. Can the Secretary of State confirm that that will still be the case for the equipment budget and the non-equipment budget?

The Prime Minister has made it clear that he stands by his view that the equipment plan budget needs to increase in real terms, and we have a pledge from Her Majesty’s Treasury that we may plan on the assumption of a 1% real-terms increase. Our planning assumption is flat real-terms growth for the remainder of the budget.

I do not think that that was precisely what the Prime Minister said. Nevertheless, does my right hon. Friend the Secretary of State agree that if we possibly can we should continue to meet the NATO objective of spending at least 2% of our gross domestic product on defence?

I agree with my right hon. Friend. The plans that we have set out do indeed show that we will continue to comply with that 2% threshold.

Will the Secretary of State enlighten the House on what discussions he has had with the Treasury in the light of the Prime Minister’s most welcome announcement last week that some of the aid budget might very usefully be diverted to peacekeeping operations? The Department for International Development is to have another £2.65 billion extra this year, but how on earth is it going to spend it when the Ministry of Defence is so short of cash?

I shall leave it to my right hon. Friend the International Development Secretary to explain how DFID proposes to spend its budget. There is already a high level of co-operation between the Ministry of Defence, the Foreign Office and DFID. It makes absolute sense to look at how we spend the budgets available across those three Departments in order to achieve their objectives and secure the UK’s vital national interests.

Last May the Secretary of State announced to an outburst of self-congratulation that he had balanced the MOD’s books and, as we have heard, he even called on the National Audit Office to validate his assertion. Instead, however, the auditors have declared that his costings are “over-optimistic” and his approach “not statistically valid”. Put simply, the NAO said:

“The costings are not sufficiently robust to support the affordability assertion.”

Is it not now time for the Defence Secretary, just like the Prime Minister, finally to admit that he has failed to deliver on his boasts on the MOD budget?

No, and I am sorry that the hon. Member for West Lancashire (Rosie Cooper) has stolen the right hon. Gentleman’s thunder. We now have an equipment plan that includes £4.8 billion of centrally held contingency, £8.4 billion of contingency in the individual projects, and £8 billion of unallocated headroom. The right hon. Gentleman might have noted that the right hon. Member for Barking (Margaret Hodge) recently said that, since the election, the MOD has made

“welcome progress…particularly on the purchasing of equipment”

and “great strides forward”. That is in marked contrast to the National Audit Office and Public Accounts Committee’s assessment of what happened under the previous Government.

The Secretary of State should spare us the lecture. This is the party that sold off the Harriers, that could not decide which aeroplanes to put on the carriers, that sends our one carrier to sea without any aeroplanes and that cost the country tens of millions of pounds.

To return to the budget, we now know that when the Defence Secretary told this House that the defence budget was balanced, he meant that only 40% of it was costed. The National Audit Office looked at just £1 in every £5 of the MOD’s budget, and even then it discovered a £12.5 billion black hole in the plans. The NAO said:

“Achieving affordability is…contingent on savings being achieved elsewhere in the budget.”

Will the Defence Secretary confirm the NAO’s figure for the new black hole and that his plans to boost the equipment budget will fall on the back of further cuts to our armed forces and their welfare?

No. The right hon. Gentleman is simply wrong. The figure of £12.5 billion is from CAAS—the internal cost assessment and assurance service. It was quoted by the National Audit Office and has subsequently been reassessed at £4.4 billion. [Interruption.] No, it was by CAAS and has been reassessed at £4.4 billion. The right hon. Gentleman is simply wrong.

Labour has to decide whether it is going to engage seriously in this debate or not. At last year’s Labour conference, the right hon. Gentleman told his party that it

“must deal with the issues we would if we were in power…No smoke and mirrors, no delay in tough decisions”.

Just two weeks ago, however, he told The Daily Telegraph:

“I’m not going to say we will guarantee to overturn this cut or the other.”

Which is it to be: tough decisions or more ducking and weaving?

The 2011 independent commission acknowledged the increased cost of collectively training Territorial Army units over their regular brethren when force generation factors were taken into account. Given that the Green Paper makes clear that TA units will be more frequently used, will the Government justify their claim that replacing regular troops with reservists is cost-effective?

As my hon. Friend knows, we have allocated £1.8 billion over 10 years for additional training, infrastructure and equipment for the reserves to try to rebuild the broken trust that resulted from the previous Government’s slashing of funding for reserve training and equipment. On the economics of using reserves instead of regular forces, it is true that, when deployed on operations, reserves are more expensive than regulars, but, held as a contingency, reserves are significantly lower cost than regular forces. We are simply trying, within the budget envelope available, to create the greatest amount of military capacity it is possible to generate.

Is the Secretary of State able to give any detail as to the exact consequences of the Prime Minister’s welcome statement on the use of the DFID budget alongside the budgets of the Foreign Office and the Ministry of Defence for the future of defence diplomacy?

As I have said, we already co-operate significantly. The conflict pool is a tri-departmental pool of funding that is used for upstream stabilisation and capacity-building operations. The Prime Minister was alluding to a commitment by all three Departments to look again at how we can do more of that to support the UK’s national interests, while at the same time support the development agenda. It is a simple fact that unless there is security it is not possible to have economic development or effective poverty eradication.