UK Cut's Support Naval and Land Projects.

UK ministers have cut some GBP1.4 billion (USD2.1 billion) from its 10-year defence procurement spending plans and re-allocated spending from logistic support budgets to bolster new equipment purchasing, according to the country's spending watchdog, which brands the move a "high-risk approach".

UK Cut's Support Naval and Land Projects.

The National Audit Office (NAO) annual reviews of the UK Ministry of Defence's (MoD's) Major Projects and Equipment Plan described the ministry as relying on "over-optimistic forecasts of costs and future savings".

According to the NAO, the ministry's Equipment Plan 2014-24 is GBP1.4 billion less than the forecast cost of the 2013-23 version at GBP162.9 billion.

The Equipment Plan details how the ministry is shifting resources between capabilities, as well front-loading new procurement by an extra GBP4.4 billion at the expense of long-term logistic support. Some GBP8.2 billion in cuts are being made to the budgets for spare parts and repairs of in-service equipment.

It reveals that spending on warships, submarines, information systems, and land forces equipment is going up by nearly GBP8.5 billion over the 10-year period, while spending on helicopters, ISTAR, and air support is remaining largely static, but that combat air budgets have been reduced by GBP600 million.

The ministry will only be able to deliver its ambitious programme of equipment purchases on time and budget if GBP6 billion in programme efficiencies can be achieved. It points out that only a limited proportion of the anticipated savings have been achieved so far.

Amyas Morse, head of the NAO, said on 14 January that "the Ministry of Defence has, however, chosen a higher risk approach to managing the affordability of the equipment plan by relying on over-optimistic forecasts of costs and future savings, not all of which might be achievable in reality. The department will need to be watchful and swift to react if costs start to grow."

"Project teams continue to make over-optimistic forecasts of procurement and support costs," said the NAO. "Budgets set using over-optimistic forecasts could result in overall budgets for procurement and support being significantly understated. If [the MoD's] contingency were insufficient [to cover any cost overruns], the ministry would need to draw on the GBP9.2 billion set aside to deliver equipment needed for wider defence capability currently outside the core programme."

The NAO's Major Projects Report (MPR) shows that the overall forecast cost of the 11 projects examined has not changed significantly during 2013-14. For the 11 projects within the sample of 17 projects that have moved forward to the demonstration and manufacture stage, the forecast cost of the projects has reduced by GBP397 million.

Minister for Defence Equipment, Support, and Technology Philip Dunne said: "I welcome the NAO report, which recognises the progress we are continuing to make. We have reduced costs by almost GBP400 million in our major projects and enjoyed our best performance on cost since 2005 and time since 2001. 

There is always more we can do, but I am delighted the great strides the department has made have been recognised. The report also provided a positive assessment of progress in defence equipment and support where reforms augur well for the future.".

The MPR for the first time revealed that the ministry had signed a 're-baselined' contract with Lockheed Martin in March 2014 after slower than expected progress on the demonstration phase of the Warrior Capability Sustainment Programme. It has also emerged that currency exchange rate movements had saved GBP257 million from the UK's participation in the Joint Strike Fighter project.

Last year's MPR revealed that the ministry was scrapping an over cost and over budget project, dubbed Ciphere, to consolidate electronic crypto-graphic capability. This has since been re-launched as the Cyrpographic Enabling Service.