MoD's £20bn '˜black hole' casts doubt on Scottish defence contracts

The replacement for the scrapped fleet of Nimrod surveillance planes could be at risk after the National Audit Office revealed a black hole in the UK's military equipment plan of up to £20 billion.

Procurement projects may have to be axed entirely to fill the gap, with long-awaited investment in new ships and planes potentially on the chopping block.

SNP defence spokesman Stewart McDonald raised the alarm over nine Boeing P-8 Poseidon maritime patrol aircraft expected to operate from RAF Lossiemouth starting in 2020, replacing Nimrod aircraft that were controversially scrapped in 2010.

Hundreds of jobs in Ministry of Defence support and maintenance work, half of the equipment budget, are also feared to be at risk.

Submarines are seen alongside the jetty at the Royal Navy's submarine base at Faslane. Picture: Russell Cheyne

In its report, the NAO said, despite building in a £6bn contingency, there was an “affordability gap” of at least £4.9bn in the programme.

However, if all the risks of cost growth associated with the programme were to materialise, the shortfall would rise to £20.8bn.

“The Ministry of Defence’s equipment plan is not affordable,” the NAO said. “Unless the department takes urgent action to close the gap in affordability, it will find that spending on equipment can only be made affordable by reducing the scope of projects, delaying them, or cancelling them altogether.

Submarines are seen alongside the jetty at the Royal Navy's submarine base at Faslane. Picture: Russell Cheyne

“Such an approach risks destabilising the plan, compromising value for money, and undermining operational capability.”

The NAO said the plan fails to include £9.6bn of forecast costs, including £1.3bn associated with procurement of five Type 31e frigates, which shipyards on the Forth and Clyde are expected be involved in building. Costs of the navy’s new Dreadnought and Astute class nuclear submarines are rising faster than predicted, the report also found

With the bulk of UK military equipment purchased in US dollars, the MoD’s assumptions for the exchange rate are 24 per cent higher than the current values, with the pound’s heavy losses since the EU referendum contributing to the huge budget gap.

And the report criticises a “lack of transparency” in the MoD’s plans for £8bn worth of cost savings, stating that “the department does not have evidence that shows how it has achieved all the savings it has claimed to have made to date”.

Mr McDonald said it was “utterly unacceptable” that a budget shortfall could put the UK’s defence in doubt.

“The report raises the prospect of a return to the bad old days when projects were reduced, delayed or cancelled altogether, and so the MoD needs to be straight with the public and outline what capabilities it is willing to sacrifice to fill this black hole.

“Most astonishingly, the MoD’s exchange rate forecast are still not up to scratch, something which could call into question the affordability of vital projects like Boeing P-8 maritime patrol aircraft, or the F35 joint strike fighter.”

Commons public accounts committee chairwoman Meg Hillier warned that the plan was at “greater risk than ever before”.

“The Ministry of Defence simply doesn’t have enough money to buy all the equipment it says it needs,” she said.

“Until the MoD comes up with a realistic plan for funding new equipment, the MoD is bound to end up scrapping or delaying projects haphazardly. This is not a sensible way of looking after our national defence.”

Defence procurement minister Guto Bebb said the MoD’s modernising defence programme would consider how the plan could be delivered in a “sustainable” way.