From the Analysis Desk: New UK Defence Equipment Plan sees Greater Funding for Procurement at the Expense of Sustainment
The UK’s recently released 2017 Equipment Plan reveals that between 2017 and 2026 the UK intends to spend £2.4 billion less than the figure stated in the 2016 Equipment Plan for the same period.
This reduction will be seen in the equipment support with projected spending over the period from 2017/18 to 2025/26 falling by £3.5 billion from £82.4 billion in the 2016 Equipment Plan to £78.9 billion.
The majority of this reduction can be found in the planned equipment support for new equipment, showing a hope that the sustainment bill for newly procured weapons, platforms and systems will be lower than anticipated.
Increased Procurement Funding at the Expense of Support
Although the overall level of spending in the 2017 Equipment Plan is lower compared to the 2016 Equipment Plan, anticipated spending on new equipment for 2017/18 to 2025/26 has increased from $75.6 billion to $76.7 billion, with these increases seen in the first five years of the plan.
During these five years the level of funding available for each of the nine Operating Centres has broadly increased; with only Helicopters and Information Systems and Services (ISS) seeing a reduction over this period. Such a change does not reflect greater ambition by the UK in terms of procurement, instead it is likely a recognition that the previous plan failed to account for cost increases.
Such an increase underlines the fact that the procurement of new systems remains a key priority for the UK Ministry of Defence despite cost increases. What the plan also highlights however, is the fact that the UK is taking a significant risk in cutting the equivalent of Operations and Maintenance funds.
The danger is that the planned savings in support funding will be achieved by cutting back both existing and potentially future capabilities in terms of readiness and training.
Good News for Land Systems
The largest near-term increase can be seen in the procurement of land systems with planned spending between 1 April 2017 and 1 April 2022 increasing from £4.8 billion to £6.2 billion, a rise of 31%. The exact reasons for this increase are difficult to quantify based on the information provided in the report, although a factor is the increasing cost of the Warrior Capability Sustainment Programme (WCSP).
The cost of WCSP increased by £136 million in the last year, with the in-service date now pushed back to 2022. Rising costs of committed procurement only accounts for around 36% of the planned funding increase at approximately £500 million. The remaining £900 million is likely to have been added to account for higher costs for the Mechanised Infantry Vehicle (MIV) programme, and to a lesser extent, the Challenger 2 Life Extension Programme.
This could be an indication that at least in terms of budget planning, the UK is leaning towards the single source procurement of Boxer. The fact that spending on land equipment procurement is expected to peak in 2021/22 at approximately £1.9 billion provides an indication that MIV is expected to be in production by this point.
Further evidence of rising costs in the 2017 Equipment Plan can be found in the plans for Combat Aircraft with an increase of approximately £840 million in the first five years of the plan; rising from £4 billion in the 2016 Equipment Plan to £4.8 billion.
It is probable that this increase takes into account the value of the pound against the US Dollar, with the main focus of the Combat Air business unit being the procurement of F-35B Lightning II aircraft from the US.
Other procurement budget increases provide an indication that particular programmes are being accelerated. This is the case with the Air Support Equipment Plan which sees an increase in spending through to 1 April 2021; rising from £2.3 billion to £2.5 billion.
The short-term increase in spending on Air Support Equipment, we believe, will go towards accelerating the procurement of P-8 Maritime Patrol Aircraft. This will be followed by a steady reduction in spending on support aircraft, a reduction of approximately £500 million between 2021 and 2026 compared to the previous plan.
Savings Sought in Submarine Building?
The ship and submarine equipment plans are largely unchanged in the first five years, however from 2022 there is a trend towards lower procurement funding compared to the 2016 Equipment Plan. From 2002 to 2026 planned spending on ships is on average approximately £111 million lower than previously planned.
The UK National Audit Office has highlighted the fact that the figures for shipbuilding do not take into account production of the Type-31e frigate class. Combined with the reduction in spending from 2022 this indicates that the ships element of the 2017 Equipment Plan is underfunded, meaning that additional spending will be required above the £9.2 billion allocated for procurement.
It is predicted that this money will have to come out of the Equipment Support budget, which accounts for approximately 79% of the total 2017 Ship Equipment Plan. For this reason, it is a distinct possibility that at least one ship will be removed from service during the Modernising Defence Programme review currently taking place.
For submarines the decrease in planned spending is even greater, with the 2017 Equipment Plan showing funding on new submarines to be £1.1 billion lower than the 2016 plan. This represents a reduction of 14 percent. Such a reduction poses questions around the future of HMS Ajax, the seventh and final Astute Class boat to be produced.
If further cost increases are incurred in either the Astute or Dreadnaught programmes, HMS Ajax could be under threat. This is because the UK is far more likely to accept a reduction in attack submarine capability than risk its nuclear deterrent that will be provided by the Dreadnaught Class.
Risking Current Availability for Future Equipment
There is the possibility that whilst planned procurement funding has increased, this will not be sufficient to cover increased cost.
Comparing the 2017 Equipment Plan to the 2016 Equipment Plan makes it clear that greater funding is being made available for the procurement of new ships, aircraft and vehicles. At the same time there is also increased funding for weapons and ISTAR assets.
The major risk is that the savings required around equipment support will not be possible, requiring difficult decisions to be made about readiness, platform service life and potentially procurement. There is also the possibility that whilst planned procurement funding has increased, this will not be sufficient to cover increased cost.
This risk was clearly highlighted by the UK National Audit Office which can see a potential shortfall of up to £20 billion. It is for this reason that whilst the 2017 Equipment Plan serves as a good guide of the UK’s goals, it is difficult to predict what the 2018 plan will look like following the review of capabilities being carried out this year as part of the Modernising Defence Programme.