House of Commons - Defence Equipment 2009

Defence Equipment 2009 - Defence Committee Contents

4 Funding of defence equipment and support

Comprehensive Spending Review settlement for defence

141. The Secretary of State for Defence announced the overall outcome of the Comprehensive Spending Review (CSR) settlement for defence in a Statement to the House on 25 July 2007. He told the House that:

The total departmental expenditure limit [DEL] for defence over the CSR period will be £34 billion in 2008-09, £35.3 billion in 2009-10 and £36.9 billion in 2010-11. That is an additional £7.7 billion for defence by 2011, and a 1.5 per cent average annual real terms increase against our CSR baseline, excluding the costs of operations that are met from the reserves and the time-limited defence modernisation fund.[216]

142. The MoD placed a paper giving some more details on the CSR settlement for defence in the House of Commons Library. The details are set out in Table 9 below.

Table 9: Details of the CSR settlement for defence

£m Baseline New Plans CSR07 annual average real growth

2007-08 2008-09 2009-10 2010-11

Resource DEL 32,618 33,579 35,142 36,679 1.3%

o/w depreciation and impairments 7,443 7,416 7,987 8,660

Capital DEL 7,404 7,871 8,187 8,871 3.4%

Total DEL 32,579 34,034 35,342 36,890 1.5%

Note:

The 1.5% average annual real terms increase is against the CSR baseline, excluding the costs of operations met from the Reserve and the time-limited Defence Modernisation Fund.
Total DEL comprises near cash Resource and Capital DEL, plus the cost of capital, which is a non-cash charge. This is consistent with Government Accounting.

Source: Ministry of Defence

143. We examined the Comprehensive Spending Review settlement for defence in our Report Ministry of Defence Annual Report and Accounts 2006-07.[217] We welcomed the increase in the MoD's budget for the period covered by the Comprehensive Spending Review 2007 (CSR 2007), but noted that the defence budget will be under substantial pressure in the period covered by CSR 2007 given the announcement of several funding commitments such as the future carrier programme.[218] At our evidence session on 13 November 2007 for our inquiry into the Ministry of Defence Annual Report and Accounts 2006-07, we asked the MoD's Permanent Secretary, Sir Bill Jeffrey, what was to happen next given that the Comprehensive Spending Review settlement for defence had been announced. He explained that:

what we will be doing is taking the spending review outcome as the starting point, looking at where the pressures are in the programme—and there undoubtedly are some—and trying to put together the sort of advice that our ministers will need in order to set priorities and ultimately to set budgets for the next three years.[219]

144. The Planning Round (PR 08) was expected to take "some months"[220]and the process would go into 2008.[221]Sir Bill Jeffrey said that "as we get into the early part of next year [2008], we will need to be much clearer about the budget for the three years that begin on 1 April 2008".[222]In our Report Ministry of Defence Annual Report and Accounts 2006-07 we concluded that:

We note that the MoD is currently preparing advice to ministers about the defence budget for the three years 2008-09 to 2010-11. The MoD acknowledges that there are pressures in the defence programme and that there are likely to be cuts in some areas, including cuts to the equipment programme. We look to the MoD to be realistic about the number of equipment programmes, the number of platforms within equipment programmes, and the phasing of equipment programmes, that can be funded. We plan to monitor the progress and the outcome of the current planning round closely.[223]

We examined the MoD's short examination of the Equipment Programme in Part 3 of our Report.

Funding of the Equipment Plan

145. Many defence commentators have raised concerns that the current Equipment Plan is underfunded.[224] In our letter to the MoD requesting a memorandum for our inquiry we asked about the funding of the equipment plan:

RUSI Acquisition Focus reported in RUSI Defence Systems Spring 2007 that "The equipment plan has been estimated as underfunded by some £15Bn or more over its ten-year period". What is MoD's estimate of the extent to which the Equipment Plan is underfunded?[225]

146. We were disappointed with the response provided by the MoD which made no attempt to provide us with an estimate:

The MoD is conducting Planning Round 09 which will help in ensuring that the equipment plan is realistic, affordable and matched with our priorities for the coming years.[226]

147. At our evidence session with industry representatives we asked about the issue of the funding of the Equipment Plan. Mike Turner considered than an extra £1.5 billion a year was needed for the defence equipment budget.[227] We followed this issue up at the evidence session with CDM who told us that:

I do not think you can simply say that the equipment budget is under-funded. Every programming Round it is a question of balancing aspirations, requirements and the amount of money available[228] […] Every government department, I suspect, would love buckets more money, but there is not buckets more money. So we have to tailor the money that is available to what is really required and not the "nice-to-haves" and the "highly desirables".[229]

148. We pressed CDM further on this issue. However, he stressed that:

It is not a question I can answer. I would suggest the figures you might have picked up from RUSI and various other places are perhaps a tad ill-informed. Those people are not part of the internal Planning Round that goes on every year[230][…] I think you will get a very clear feel once the PR 09 Planning Round is through. This is what we are working towards.[231]

149. We also raised the issue of the funding of defence equipment at our evidence session with the Minister for Defence Equipment and Support and asked if, following the short examination, the equipment programme was now affordable. The Minister said that the equipment programme was an affordable programme and explained that:

We have had to make an adjustment about exactly the pace with which we are bringing certain things forward […] some of the priorities are being increased and others are being set back a bit […] we will never have a situation in which everything can be afforded today, of which there are no changes in year—that just would not be a natural situation to be in—but I believe that the equipment examination exercise has relieved an awful lot of pressure, let me put it that way […] I would hope that we would only have to cut programmes if we really decided they were not really necessary, really essential, in the defence interests of the nation.[232]

150. Many commentators have suggested that the defence equipment programme is under-funded, but the MoD was unable to give us a clear answer and could not provide us with an estimate of the level of any such under-funding. We note that, following the completion of the short examination of the equipment programme, the Minister for Defence Equipment and Support considers that the equipment programme is affordable, no significant equipment orders having been cancelled, although the timetables for some have been slipped. We are aware that, in the past, slipping programmes has resulted in increased costs. We plan to monitor the outcome of Planning Round 2009 which is expected to be completed in spring 2009.

Pre-budget statement

151. The Chancellor of the Exchequer made a statement to the House on the Pre-Budget Report on 24 November 2008.[233] At the evidence session with industry representatives on 18 November 2008, we asked what representations the defence industry had made regarding the Pre-Budget Statement and, in particular, with regard to the defence supply chain and Small and Medium-sized Enterprises (SMEs). Mike Turner stressed the importance of SMEs to the UK's defence industrial base and highlighted current concerns:

Clearly the industry over recent years has been quite optimistic about the long term, particularly the DIS. You have seen that the number of apprentices who have come into the defence industrial base is quite huge actually. Just bear in mind that in the defence industrial base of the UK we have more SMEs in the defence industry in the UK than Spain, Germany, France and Italy put together. We have a huge SME base in this country dependent basically on the defence budget and the primes feeding through this work. There is no doubt about it now that the SMEs are getting quite concerned about the situation. We are seeing signs of apprentice numbers falling, and understandably so in the current climate.[234]

They [SMEs] are suffering now because, frankly, the primes are suffering on the major programmes. We are not flowing down and are unable to flow down money to the supply chain. We have made the point about SMEs in the defence industrial base. Frankly, I do not think we are being listened to. I do not see us as part of the stimulus package and I think it is a mistake.[235]

152. An article in the Daily Telegraph of 25 November 2008 reported that, following the Pre-Budget Statement, Ian Godden had said that:

It is a disappointment that the Chancellor has neglected to include an injection of much-needed funds for the UK defence industry. This oversight is disappointing given the contribution that this industry will make to the UK's economic recovery, a contribution that could be greater still if the Government had included it in the stimulus package. The Government not only controls the amount of investment in the defence budget but also where it is spent. This makes it the ideal sector for Government spending as a fiscal stimulus. This is more so given the regional diversity and highly skilled jobs that the industry represents, as well as the export potential of many of the projects that would bring a return on the initial investment.[236]

153. We asked the Minister for Defence Equipment and Support whether he was disappointed that there was no injection of funds for the UK defence industry in the Pre-Budget Statement. He said that he thought that "the Government very adequately indeed is funding defence". The Minister referred to the increases in the defence budget announced in July 2007 and considered that "equipment and support are doing extremely well in that context".[237] On the specific issue of an injection of funds as a fiscal stimulus, he outlined several reasons why he considered that the defence industry was not an ideal candidate for such a measure and told us that "defence is not an obviously efficient target for counter-cyclical fiscal stimulation".[238]

154. We note that there was no injection of funds for the UK defence industry in the Pre-Budget Statement of 24 November 2008. We are concerned to hear from industry that Small and Medium-sized Enterprises (SMEs) are "suffering" because money is not flowing down the supply chain. In its response to our Report, we expect the MoD to set out the extent to which it is aware that SMEs are experiencing problems and how it is proposing to address these in order to ensure that the current supply chain is retained.

155. We examine the issue of SMEs and the supply chain in Part 5 of our Report.

Defence research spending

156. In our Report The work of the Defence Science and Technology Laboratory and the funding of defence research,[239] we examined the impact of defence research funding. The Defence Technology Strategy (DTS), which was launched on 17 October 2006, notes that analysis had shown that there was a correlation between the quality of military equipment and the investment by governments in defence Research and Development (R&D). The military advantage achieved at any one time depended upon the R&D investment made over the previous 25 years. The analysis showed that "advantage can be gained or lost by increasing or decreasing R&D investment relative to other R&D investing nations".[240] Figure 1 in the DTS showed the "Relative Years Advantage in Equipment Quality as a Function of R&D Spend per Year". The DTS states that:

the analysis has shown that the advantage achieved at any one time depends on the R&D investment made over the previous 25 years. In particular, investments 5 and 20-25 years earlier are critical corresponding to development activity (about 5 years earlier) and defence research activity (typically 20-25 years earlier). Clearly advantage can be gained or lost by increasing or decreasing R&D investment relative to other R&D investing nations.[241]

157. In its memorandum to our inquiry the Royal Aeronautical Society highlighted the importance of investment in defence technology:

The Society fully appreciates the need to support the armed forces currently deployed in intense operations. Their safety and security must have top priority in defence spending. However, there is a risk that investment in technology upon which Britain's armed services will depend upon in the future will be squeezed between immediate operational requirements and the equipment programme. It is essential that funding for technology acquisition be maintained; without adequate MoD support in this area, the UK defence industrial base will decline, UK companies will lose their edge in world markets, global defence companies will not want to invest in the UK and ultimately the UK armed services will lose access to the high quality domestic assets needed to support equipment in the field and to acquire weapons to meet their specific needs.[242]

158. At our evidence session on 4 November 2008 for our inquiry into the Ministry of Defence Annual Report and Accounts 2007-08 we asked about the defence research budget and, specifically, about cuts in the research budget. Sir Bill Jeffrey said that the MoD attaches "very high importance to the Research and Development Programme".[243] However, for the research budget, he said that:

There has been some reduction recently. We are certainly very keen to protect this area of expenditure, if we possibly can, because it is, for the reason you give, long-term very significant. We are also keen, through the Defence Technology Strategy and other means, to give industry a sufficiently clear picture about some of our longer-term requirements for industry to feel able to invest more of its own money in this area because I think most of those whom I talk to in the industry feel that is not unreasonable, but they need a good sense of our judgment of what our future requirements are going to be.[244]

159. At the evidence session on 4 November 2008 we asked for a note setting out the level of defence research spending funded by the MoD over the last 15 years. The MoD subsequently provided this information which is set out in table 10 below.

Table 10: Net MoD research spending at current prices for the period 1992-93 to 2006-07

Year 1992-93 1993-94 1994-95 1995-96 1996-97

£ million 513 654 665 676 672

Year 1997-98 1998-99 1999-2000 2000-01 2001-02

£ million 564 560 552 566 557

Year 2002-03 2003-04 2004-05 2005-06 2006-07

£ million 515 524 639 598 632

Source: Ministry of Defence[245]

Note: the spending data are Inclusive of non recoverable VAT at current prices. Figures for 2007-08 are due to be published in September 2009

160. At the evidence session with industry representatives on 18 November 2008, Ian Godden, stressed the importance of spending on defence research:

If you want an industrial capability in a country there are two factors: one is the funding of specific programmes for specific platforms for specific services and pieces of kit; and the second is the research and development which underlies it. I think we all regret missing out on Stealth as an example where in a previous era we did not invest enough. If you look behind the scenes the research and development budget this year has been cut by seven per cent. To me that is about the capability for the future as well as the current programmes that we are all debating and to me that is as significant, if not more significant as a signal of what the current climate is doing to the long-term capability. It was a seven per cent cut and there was a cut the year before.[246]

The Winter Supplementary Estimates for the Financial Year 2008-09 were laid before the House on 25 November 2008.[247] In our Report Winter Supplementary Estimates 2008-09, published on 15 December 2008, we noted that there was a reduction of some £120 million in the Science Innovation and Technology Departmental Expenditure Limit (DEL) under Request for Resources 1. In our Report we acknowledged that changes in DELs often amount to little more than reallocations between Top-Level Budget Holders which represent no real reductions in spending. However, we asked for:

an explanation from the MoD for this significant reduction in the Departmental Expenditure Limit for Science Innovation and Technology and whether it signals a cut in spending and, if so, what the consequences of this reduction will be.[248]

161. We followed up the issue of defence research spending at our evidence session with the Minister for Defence Equipment and Support. We asked the Minister whether defence research spending had been cut and, if so, by how much and in what specific areas. The Minister said that "we have not made an announcement about that in the equipment examination. The matter is under review". Whilst the Minister acknowledged the benefits from defence research spending, he said that the MoD had "to look at it from the point of view of priorities, so I am not in a position to give you any assurances about that particular matter". He added that the MoD would be reviewing its defence research spending.[249] We pressed the Minister on this matter and asked whether defence research spending had been cut by 7 per cent as the Chief Executive of SBAC had claimed. The Minister could not provide us with an answer as he said he did not know what baseline had been used. He said that if you looked at defence research spending over the last 5-6 years "sometimes it goes up and sometimes it goes down".[250]

162. The UK's future military capability depends upon the investment made today in Research and Development (R&D) and the military advantage achieved at any one time depends upon the R&D investment made over the previous 25 years. We are extremely concerned to learn that defence research spending has been cut which, in our view, is short-sighted. We agree with the Minister that it is a matter of priorities and consider that it should be a very high priority. Sufficient funding for defence research needs to be ring-fenced. If not, the MoD must acknowledge that the role which our Armed Forces can play in the future will be substantially reduced. In its response to our Report, we expect the MoD to provide us with details of the extent of the recent cuts in defence research spending and set out the specific areas affected by these cuts. We also expect the MoD to provide us with its assessment of what impact the recent cuts in defence research spending will have on the UK's future military capability.

Measures to limit DE&S spending

163. An article on the Financial Times website on 16 November 2008 reported that CDM had "ordered an unprecedented crackdown on spending in a sign of the cash crisis at the MoD". The article said that an internal memorandum was sent by CDM to DE&S staff stating that, with immediate effect, "the default position is that no business cases are to be put to the approving authorities for approval" and "Projects that have already received approval are not to incur financial commitment". The article also reported that the memorandum set out exceptions to the clampdown on spending which included: proposals that support current operations of UK Armed Forces over the next three years; proposals that support the future deterrent programme; ones that are necessary to satisfy contractual or international obligations; and others where the MoD has already signed a production contract.[251]

164. At our evidence session on 25 November 2008, CDM referred to the measures to reduce spending as a "commitment regime".[252] We asked whether, given the memorandum sent to DE&S staff to reduce spending on equipment programmes, he considered this to be a routine year in defence procurement. CDM said that "what I was saying was that every year what is routine is that I have to balance what I am spending to make sure I come in on control total".[253] We asked whether it was routine to send round a memorandum to staff each year setting out measures to reduce spending. He said:

Did I last year? I think I did. I do not know. I either send a memo out or my finance director sends a note out saying: We have now reached the point in the year where we have to make sure that we are going to come in on control total. We discuss it at my management board every month. What is unusual this year is that it has appeared in the newspapers.[254]

165. We note that the Chief of Defence Materiel (CDM) sent a memorandum to DE&S staff in autumn 2008 setting out measures to reduce spending on equipment programmes. CDM calls the measures a "commitment regime" and considers this to be a routine practice. Whilst we support the need for robust financial control, it would appear to us that the measures taken by CDM to reduce spending on equipment programmes are a clear sign that defence funding issues are more acute than ever in the current financial year.

Defence Inflation

166. In our Report Ministry of Defence Annual Report and Accounts 2006-07 we examined the issue of defence inflation and drew the following conclusion:

The Comprehensive Spending Review 2007 settlement for defence is reported as being a 1.5 per cent average annual real terms increase against the MoD Comprehensive Spending Review baseline. But this is based on the general rate of inflation and takes no account of the reportedly higher rate of inflation which applies to defence products, in particular advanced equipment projects. We look to the MoD to press ahead with its plans to develop a robust price index for defence products which will assist the MoD in both its financial planning and in its negotiations with the Treasury in future spending reviews. We consider that a robust price index for defence products is vital for allowing real comparisons to be made and to enable the Committee to undertake more effective scrutiny in this area.[255]

167. The Ministry of Defence's Annual Report and Accounts 2007-08 sets out some of the issues relating to defence inflation and how the MoD was seeking to address these:

Most of DE&S procurement, by value, is through long-term contracts with prime contractors. MoD policy is to use firm prices for the first five years and fixed price with variation of price (VOP) clauses after that; VOP clauses should be based on relevant high level output price indices. For contracts within the firm priced period the Department is not exposed to changes in price of raw materials, labour and energy as any increases or decreases will have to absorbed by the contractor and supply chain as the agreed firm price is not subject to change. At present, the Department is unable to estimate its precise exposure to changes in costs of raw materials, labour and energy because it does not hold relevant information centrally. However, following the House of Commons Defence Committee comments on defence inflation in the last Annual Report and Accounts, the Government's response has been for the Defence Analytical Services Agency to compile a database of contracts with VOP clauses upon which a measure of defence inflation can draw. The work on compiling the database and producing a measure of defence inflation is scheduled to be completed for April 2010.[256]

168. Professor David Kirkpatrick, an Associate Fellow of RUSI and one of our Specialist Advisers, has produced a paper examining the claim that defence inflation was higher than the GDP deflator. The paper was published in the October 2008 edition of RUSI Defence Systems. In his paper Professor Kirkpatrick concluded that:

A detailed comparison between defence inflation and the GDP deflator would demand more detailed data on MoD expenditure than is available in the public domain, and is accordingly beyond the scope of this paper. However, the speculative and approximate calculation in the table below [note: table in the paper] suggests that defence inflation is likely to be consistently about three percentage points above the GDP deflator. It follows that if the UK Government intends to maintain the nation's military capabilities at their planned levels, it must provide increases in the annual MoD budget which are about 3% (or whatever similar percentage is derived from a more rigorous analysis) higher than the predicted values of the GDP deflator. If the government decides to provide a smaller increase, it should explicitly agree with the MoD the resulting savings in personnel and/or equipment, and acknowledge the associated reductions in the UK's military capabilities. If it fails to acknowledge those reductions, and the defence budget is accordingly overstretched by a mismatch between the MoD's resources and its aspirations, it is tempting for the MoD to make false economies (e.g. via delays to projects or inadequate risk management) which solve its immediate budgetary problems, but which in the longer term degrade the cost-effectiveness of the UK's armed forces.

In his paper Professor Kirkpatrick says that "it must be emphasised that all of the figures in this section are illustrative and not definitive; the argument has been put in a numerical format only in order to clarify the issues and to facilitate further discussion".[257]

169. At our evidence session on 4 November 2008 for our inquiry into the Ministry of Defence Annual Report and Accounts 2007-08, we asked about the issue of defence inflation. Sir Bill Jeffrey set out his understanding of the issue:

It is certainly the case, and I can recall in the equivalent session last year discussing this with the Committee, that some of our input costs are rising faster than general inflation, although it has fluctuated hugely in the last few months, and oil and fuel is one of these. I am aware of the analysis by Professor Kirkpatrick that you were briefed on at Shrivenham and it is an interesting one. I do not think we could immediately validate the figure of three per cent. It is like any analysis of this kind, it rests pretty heavily on the assumptions that are made at each stage as Professor Kirkpatrick sets out the argument and I think we would question in particular the assumption that we should not discount technological improvements in comparing the costs of different generations of defence equipment. However, it is an interesting piece of work and it is certainly an area that within the Department we are devoting quite a lot of attention to.[258]

170. The MoD's supplementary memorandum to our inquiry into the MoD's Annual Report and Accounts 2007-08 provided an update on the work the MoD were undertaking to examine the issue of defence inflation. The relevant extract from the supplementary memorandum is reproduced in table 11 below.

Table 11: MoD's progress in calculating the rate of defence inflation

The programme of work underway to develop a robust measure of inflation for total defence expenditure will produce publishable estimates for FY 07/08 and FY 08/09 by April 2010. For FY 09/10 we hope an estimate will be produced in September 2010; this cannot be produced earlier because data for some UK and foreign indices is not published until September.

Amalgamation of these work-strands will lead to a measure of inflation in the input costs of Defence (the goods and services we purchase and the wages we pay). We cannot measure changes in the output cost of Defence as we have no quantitative measure of Defence outputs, but would expect inflation in Defence output costs to be lower than that of input costs, thanks to efficiencies and productivity improvements in delivering outputs. It is also important not to confuse Defence Inflation with the escalation in unit cost of defence equipment. The latter tends to run above deflator inflation, because new generations of defence equipment are much more capable, than their predecessor.

Constructing a measure of inflation for equipment projects is a complex exercise. For example, most major equipment projects have 'variation of price' (VOP), clauses, relating to a particular industry index or range of indices. Details of VOP clauses are not stored centrally and appropriate details have to be obtained for each contract separately. Each contract's VOP arrangement is different. VOP clauses are a collection of formulae that use a wide range of price indices and exchange rates.

A prototype database for storing contract VOP details has been built. Processes for matching data to contracts payment data and to price index data should be complete by December 2009.

Latest estimates, based upon 123 contracts which we have been able to match to expenditure data, account for around £2.5bn annual expenditure. The average inflation rates for these was 3.6% in the year 2006/07 to 2007/08. For the top 10 contracts the rate ranged from 1.7% to 5.3%.

Source: Ministry of Defence[259]

171. At our evidence session on 25 November 2008, we asked CDM about Professor Kirkpatrick's paper and why defence inflation might be running at a higher rate than the GDP deflator. CDM said that:

The Kirkpatrick article, I think, is a very interesting one, and it is attractive but it is a bit thin on fact. I understand the financiers in the MoD are looking at the whole business of defence inflation, which we are interested in when we see the result. I think we just need to be fairly careful about what is input inflation and what is output inflation. The cost of steel went up hugely—50 per cent, I think—and then came down again; aluminium oxide went up, and I do not know whether that has come down again. Input inflation does go up and down. On the other hand, we then use those inputs to produce an output, and the output… is actually, very often, more expensive than a similar output 20 years ago. On the other hand, it is very much more sophisticated, and it has to be more sophisticated because the threat is greater. I am not answering your question—and I do not intend to—but there is a lot of thought that has got to go into this, I think. It is a very interesting question, but I do think we need to think this through very carefully.[260]

172. The issue of defence inflation was also raised at our evidence session with industry representatives. We asked whether industry had a view as to whether defence inflation ran higher than the average rate of inflation for the rest of the economy. Mike Turner referred to the position in the US:

The US defence budget planning received wisdom is that the defence industry, because it is at the sharp end of technology, has relatively low volumes compared to what happens in commercial industry and that inflation is significantly higher. The skills that are demanded in the defence industry mean that defence inflation is significantly higher than general inflation, and that is allowed for in the defence budgeting in the United States. I believe it is obvious to anybody that inflation is going to be higher in the defence industry. Volume, skills, technologies, materials all come together, and you are demanding the very highest level of capability which costs money more than the average and that is why, if you look at the defence industrial base, we pay people well in the defence industry in the United Kingdom compared to general industry. The good news in the US is that it is recognised.[261]

173. Following the evidence session on 25 November 2008, the Defence Industries Council provided us with a note setting out some of the factors relating to defence equipment and support which may contribute to defence inflation. The note acknowledged that "there is a lack of firm statistical information on which to base any analysis and we would therefore welcome an opportunity to study this issue in greater depth with the MoD".[262]

174. Defence inflation, and in particular defence equipment inflation, reportedly runs at a higher rate than the general rate of inflation. A recent research paper suggests that defence inflation may be running some 3% higher than the general rate of inflation. If true, this would seriously undermine the Comprehensive Spending Review 2007 settlement for defence which was reported as being a 1.5% annual real terms increase in the MoD budget for the period 2008-09 to 2010-11. The MoD is undertaking work, scheduled to be completed in April 2010, to produce a measure of defence inflation. We find the lack of urgency given to this project to be regrettable. The MoD must push forward this work as quickly as possible so that the results can feed into its negotiations with the Treasury in future spending reviews. We expect the MoD to work with organisations such as the Defence Industries Council to examine the issue of defence inflation and report back to us with its findings.

216 HC Deb, 25 July 2007,Col 865 Back

217 Defence Committee, Fifth Report of Session 2007-08, Ministry of Defence Annual Report and Accounts 2006-07, HC 61, paras 105-110 Back

218 Defence Committee, Fifth Report of Session 2007-08, Ministry of Defence Annual Report and Accounts 2006-07, HC 61, paras 110 Back

219 ibid, Q 13 Back

220 ibid. Back

221 ibid, Q 14 Back

222 ibid, Q 15 Back

223 ibid, paras 117 Back

224 The Department's Equipment Plan is a set of funding assumptions related to specific projects which the Department has judged it necessary to acquire so as to deliver the military capabilities Government policy will require the Armed Forces to be able to deploy in the future. These assumptions are subject to amendment in the light of changes in individual project circumstances and the strategic environment. In addition, each project is subject to a separate approvals process which may also lead to changes in the underlying assumptions about performance, cost and time. http://www.mod.uk/NR/rdonlyres/24E4FE29-C77B-4026-A61E-262FE6B582A7/0/equipment_capability_plan2005.pdf Back

225 Ev 78, para 2 Back

226 ibid Back

227 Q 9 Back