23 May 2012

MOD looks to investment with balanced books

Defence Secretary Philip Hammond’s recent landmark announcement that the MOD’s budget deficit has been wiped out for the first time in a generation means the UK defence industry must get ready to respond to some big changes – and opportunities.

Having emerged from the £35 billion debt ‘black hole’, which had slowed defence procurement down, the MOD is now free to begin buying with a renewed determination.

Mr Hammond said: “For the first time in decades, we have delivered a credible and sustainable budget and we can now confidently pledge to deliver to our Armed Forces almost £160 billion worth of equipment over the next decade that we know we can afford.

“This allows us to begin to put the uncertainty of the last few years behind us and build for the future on a solid foundation as we move forward with Defence Transformation.”

The balanced budget was achieved through a series of tough decisions combined with radical reforms of the MOD’s financial processes. It is hoped that this shift in focus will help future defence spending to remain efficient and dynamic.

The MOD is planning a fully costed programme which will provide the Armed Forces with the assurance they need to confidently invest in new equipment. Plans include the provision of 14 new Chinooks, a programme of new armoured fighting vehicles, the building of the two Queen Elizabeth Class aircraft carriers and an additional C17 aircraft.

The core committed equipment programme amounts to just under £152 billion over ten years against a total planned spend of almost £160 billion. That £152 billion includes, for the first time, a centrally held contingency of over £4 billion.

The CBI welcomed the news of the balanced budget but say they are keen to see a more collaborative approach from the MOD.

Matthew Fell, CBI Director for Public Services, said: “The Ministry of Defence must adopt a collaborative approach with industry to ensure that the Armed Forces get the equipment that they need, at a price that represents value for money for taxpayers.”

A collaborative approach may play a positive role in the most recent projects announced by the MOD, which include a £1 billion investment in facilities at the Atomic Weapons Establishment (AWE) and the award of contracts worth £350 million for work on the next generation of nuclear deterrent submarines to replace the Vanguard Class submarines which currently carry the UK’s nuclear deterrent, Trident.

Certainly, engagement with large UK defence companies such as BAE Systems, Babcock and Rolls-Royce, as well as engagement with smaller companies, is expected for these projects. It is anticipated that around 2000 UK jobs will be sustained and secured through the works.

The Defence Secretary confirmed that the Government is committed to maintaining a continuous submarine-based nuclear deterrent through into the 2060s – which means there is a lot of potential business ahead for the UK defence industry.