The National Audit Office (NAO) said the risks to the affordability of the 10-year equipment plan – announced today – were greater than at any point since its introduction in 2012.
The projected cost of funding the plan rose to £178bn last year – an increase of seven per cent compared to a rise of just 1.2 per cent between 2013 and 2015.
A large part of the increase was due to the £24.4bn of additional commitments announced in the 2015 Strategic Defence and Security Review (SDSR) including the Army’s Mechanised Infantry Vehicle and the Poseidon Maritime Patrol Aircraft.
Meeting the cost will absorb all of the £10.7bn ‘headroom’ built into the plan to meet emerging new requirements and require additional savings of £5.8bn over the next 10 years.
Around £1.5bn will come from savings elsewhere in the defence budget - such as military and civilian pay restraint or reducing the running costs of the defence estate.
Admiral Lord Alan West said branded the situation ‘worrying’ and said the government ‘needed to come clean’ about its funding black hole.
The former First Sea Lord criticised defence secretary Sir Michael Fallon for being ‘economical with the truth’ about the nation’s armed forces budgets.
‘This is very worrying’ the Labour peer said. ‘For them to say everything in the garden is green and rosy is very wrong – it just isn’t.
‘At a time when we’re trying to be closer allies with the world and with America, we’re just shrinking our military. That’s not going to impress President Trump at all. It’s bloody awful.
The possible cutbacks have also cast doubts over the affordability of the Royal Navy’s new multi-million pound Type 26 frigate programme, the costings of which the audit office said was ‘unclear’.
On top of that, the NAO warned the MoD had yet to generate £2.5bn of the £7.1bn savings already factored into the plan.
The NAO also disclosed that the MoD’s independent Cost Assurance and Analysis Service had calculated that the financial risk to the plan was being underestimated by £4.8bn.
While this was still within the £5.3bn contingency provision, the NAO said it did not cover the estimates for the new SDSR commitments.
In addition, with £18.6bn of the plan to be paid for in US dollars and £2.6 billion in euros, the costings were vulnerable to further fluctuations in the value of sterling.
The head of the NAO Sir Amyas Morse said: ‘The affordability of the equipment plan is at greater risk than at any time since its inception.
‘It is worrying to see that the costs of the new commitments arising from the review considerably exceed the net increase in funding for the plan.
‘There is little room for unplanned cost growth and the MoD must actively guard against the risk of a return to previous practice where affordability could only be maintained by delaying or reducing the scope of projects.’
Last year, the government announced it was axing HMS Sultan in Gosport by 2026, as well as selling off HMS Nelson’s historic Wardroom building.
Gosport’s Fort Blockhouse is also on the MoD’s disposal list, which is set to be sold by 2020.
An MoD offfical said it is conducting a review of its estate, adding: ‘This work is on-going and no final decision about the future of sites not already announced for release has been made at this point.’
Defence procurement minister Harriett Baldwin said the government was committed to delivering ‘the best kit for our armed forces at the best value for the taxpayer’.
‘We are focused on maintaining an affordable programme and delivering the efficiencies we need to reinvest in cutting-edge ships, planes, versatile strike brigades, and greater cyber capabilities, so that our armed forces have the equipment they need to keep the UK safe and secure,’ she said.