Wednesday, February 15, 2012

PAC and NAO reports on MOD accounts

The Public Accounts Committee released its report onto the MOD Major Projects for 2011. There are issues, and there's been a 466 million increase in MOD projects costs in the year, but the report is nonetheless quite appreciative of the work done by the Department, and notes that real progress in balancing the books is being made.

The NAO added a report which express doubts at how the MOD will be able to manage the loss of so much personnel in so little time. Overall, though, it also express a general appreciation for a job well done by the MOD, considering the very challenging moment. They also publish their own report into the MOD activity in the 2010/2011 period. 
This one report contains interesting data: 

- The Army is run on a budget of 7.4 billion.  
- The RAF is run on a budget of 3 billion. 
- The Navy, Royal Marines included, costs 2.4 billion. 
- The MOD is still paying 2.9 (3.9?) billion in net additional costs of "Operations and Peacekeeping". When they say that Afghanistan is funded by the Treasury, know that it is not really true, not entirely at least. The (3.9?) i added because there's a contraddiction in the report: a graphic shows 2.9 billion, but the text accompanying it talks of 3.77 billion Net Additional Costs coming from Afghanistan ops and 22 million from Libya ops [up to 31 March 2011 only]. The graphic is probably wrong, and 3.9 is probably the correct figure.
- Half a billion is swallowed by the Chief of Joint Operations. The US did cut their Joint Forces Command to save money. Are we sure that for the UK it's worth having a separate Joint Chief, now a RAF Marshal, which (seems) to have not really defined authority over "tri-service" assets such as ISTAR? Half a billion can keep Sentinel R1 running for 10 years or probably pay for most of the Sea King MK7 replacement, if a Merlin solution is chosen. I'd think about it again. 
- Central cost of the MOD is 2.9 billion. 
- In 2010/11 Equipment Acquisition budget was 8.5 billion, of which 1.1 billion came for the Treasury reserve and covered UORs.  
- The most expensive items the MOD is buying are Typhoon (37 billions, including 13 billions expected running costs) and the FSTA tanker (12.9 billion expected expense). Further down are the Type 45 program (6.5 billion) and CVF, which now is indicated at an expected value of 6.2 billion, including Conversion to cats and traps budget.

However the focus of this brief article will be on some very important revelations that come out of the Oral Evidence supplied to PAC and that makes for far more concrete and interesting news that, however, very few will get since reading through 144 questions and answers to get to the little, precious info is of course not something many will do!
I've waded through them, and found these interesting facts:

On the 10 years equipment plan

Ursula Brennan, on 30 November 2011, told the Committee that the MOD hoped to be "weeks, not months" away from asking the NAO to look into the 10 Years Equipment Plan and validate it. Unfortunately, the PAC report now came out and specifically notes that said invite failed to materialize yet. It'll take some more time before we can finally see said plan.


I noted in a previous article the confusing budget figure of 1300+ millions (nearly 1.4 billion, in fact) for Development and Manufacture of FRES SV Recce Block 1. Back then it was not possible to make other than guesses about the nature of the amount.
Now we learn that said budgeting figure comes from:

- The well known 500 million pounds budget for development, prototyping and trials, inclusive of the assembly of 7 prototypes, including Common Base Platform, which is the hull over which all variants are to be built.
- 500 millions in Long Lead Item orders for the production of the Recce Block 1 vehicles. There is no firm commitment to this yet, it is a budget forecast, and a contract will be signed not earlier than 2013, most likely.
- The rest of the amount covers the establishing and supply of Training and support to the Army for bringing FRES in service; 20% of VAT over the whole activity and allocation of money for Forecasted Inflation adjustements.

It remains the fact that 1.4 billions out of 5.5 planned to be spent in 10 years for Armor projects are virtually committed, and they will apparently deliver just 7 prototypes and parts for the production to (hopefully) follow. It is not exactly an heartening figure. One would expect production costs of RECCE Block 1 to be damn low when the actual production starts, after such a large early spend. But before any firm order for frontline vehicles is placed, the 10-years armor budget is already down to 4.1 billion. Not a good thing, also because armored vehicles orders are rather easy to cancel or defer, much more than big orders for ships or planes, and they end up being the most vulnerable to budget adjustements. The committee, indeed, couldn't help but note that there is a quite high risk of eventually ending up wasting the money sunk in development was FRES SV to fall victim to budget cuts.

On Nimrod MRA4

3.4 billions wasted, by now it is official. At the moment of cancellation, there were 200 millions left for the MOD to spend on Nimrod: apparently, BAE needed more than that to complete activity and deliver working planes, but this is not openly confirmed and definitely not specified. Might have been, might have not been. We might never know the reality and the amounts involved.
Of the 1.8 billion saving on 10 years (the expected cost of running the planned Nimrod fleet), the MOD does not yet know how much will effectively be booked, since negotiations with BAE on contract cancellation costs have not concluded yet, and the cost of Nimrod termination is thus still not defined. 

Worse, the MOD officers listened in the hearing made clear that, at the moment, there is no real plan to acquire a replacement Maritime Patrol Aircraft in the 10 years timeframe. An MPA won't figure in the Equipment Plan at publishing.
The MOD is however involved in the Poseidon P8 development and is evaluating alternatives for the future, while sending MPA crews abroad to work on airplanes of allied countries, from the US to Australia, under the Seedcorn initiative. A change of priorities could still see an order placed, perhaps as part of the next SDSR, but said order would in no case be under the 1 billion mark, without considering the running costs in following years: it would thus represent a large shift of money from other voices of the budget, and it will be challenging to make room for it.

On the financial black hole and on the 1% budget uplift

The MOD books are finally being balanced and put in order. Both the NAO and PAC are recognizing the progress, and the MOD plan is said to now be "Broadly in Balance". which should mean that only little adjustements in the various planning rounds will be needed from now on, and not big cuts.

However, the MOD is planning on the 1% real-term uplift in Equipment budget promised by government and Treasury for the period from 2015 to 2020. There is no contingency plan. The Committee has expressed fears that the budget uplift could fail to materialize, and urged the MOD and the Treasury to come up with some contingency planning to get an idea of how much a disaster it would be if even that little (3.3 billions) boost is eventually denied.

The fears of the Committee are, unfortunately, more than understandable. But the it really is horrible to see that so little confidence can be placed in the government's committment to such an important promise.
Whoever denies the MOD the tiny uplift promised will have to bear the consequences of a massive impact on defence capabilities, and the MOD really will not be to blame in the case. They are planning with that they are told to. Their role is to fit in the budget they are given, and this, as of now, includes a 1% uplift. 
The government should once and for all make its mind up and choose its priorities. 

India is publicly saying that they find "offensive" the fact that the UK gives them aid money that they do not want. 
Surely that money can be better spent somewhere else, no? 280 millions a year would have kept going Largs Bay (12 million per year), the 345-tanks Challenger II fleet (some 10 millions a year is the value of the 40% cut according to government), AS90 fleet, and all of the Type 22s and even Ark Royal. Comfortably. 
To give an idea, the whole Type 23 fleet of 13 ships is run on roughly 320 million pounds per year.

One thing the PAC should URGENTLY look into, and they should do so very carefully, is the Aid budget, aims and initiatives. Not only we are being told that the UK money to India is wasted, but that they do find it offensive. 
Surely it is a no brainer to stop giving money to them. Aid money has an important role to play in the UK's security, and it should also buy better economical and political relationships with foreign countries. This is reality, like it or not. If Bono Vox wants to throw money away for nothing, he should use his own. 
If aid money to India is buying contempt, it is a really, really poor way to use 280 million pounds a year. 


  1. Gabriele

    “One would expect production costs of RECCE Block 1 to be damn low when the actual production starts, after such a large early spend.”

    So have you any idea, Gabriele, about how many FRES SVs might possibly be obtained? The CGS (General Sir Peter Wall) on 31/1/2012 in a speech, I think it was to IISS, said
    of FRES SV Scout that he believed it was going to be affordable. (Moreover, he mentioned the Army’s hope that it could procure a wheeled armoured utility vehicle (presumably FRES UV).

    Now it seems to me that if the future Reconnaissance Regiments are going to be anything like the existing ones (with of course only two Recce squadrons (instead of three) equipped with FRES (the third equipped with Jackal or something similar), then the numbers would have to be something like this:

    Each FFR squadron would have approx. 20 plus FRES SVs (all versions: Scout, Protected Mobility, Command, Recovery etc.). Multiply that by 2 to make up a regiment’s worth = approx. 50 (with RHQ vehicles). and then by 5 (for the 5 MRBs) and you would then have roughly 250. Quite a lot of vehicles. And that is apart from any you might need in an Armoured Brigade or Armoured Regiment HQ formations.
    Are they affordable? My figures might be way out.

  2. Well, the proper Scout vehicle will be needed in number of 12 for FFR Sqn, so 24 per regiment. In addition there are 10 Recce Platoons (each in every Armoured Infantry and Tank Regiment), each with 8 vehicles.

    Buying all of them would mean 200 vehicles. Some 6 more would replace the Scimitars inside A Sqn 1RTR in the training role.
    There's at least 10 more Scimitars at BATUS, plus other CVR(T) some of which are modified to "look" like T80 and BMPs in the exercises.

    The Block 1 has options for acquiring over 500 vehicles, up to 270 of which were to be Scouts.
    When taking Whole Fleet Management and Defence Planning Assumptions into count, i think that the Scout fleet could do with a 240-vehicles order, or perhaps with even less.
    (The assumption after all is that only a max of three regiments at a time will be out in the field)

    It is hard to say how many vehicles get acquired. I wish i knew.
    But RECCE Block 1 overall should still deliver more than 400 vehicles to be meaningful, i think, when all variants are taken in consideration.

    And even so, there will still be a lot of FV430 MK3 continuing to work well into the 2020s.

  3. Gabriele

    Thanks for the info. Am a lot clearer now.

    I wanted to mention another point. I suppose I should really have put this in with your excellent post on Logistics but I thought you might not see it there for some time.

    I read a post recently (I think it was in the RLC section of the 'ARRSE' (unofficial British Army website and on the subject of Marchwood). The contributor obviously worked there and had some up-to-date information on how the Marchwood fleet is being rationalized. Apparently both the RCLs and the LCVPs are being withdrawn! The Rigid Raiders have already gone. All this seems very bad news to me. The capacity and the flexiblity of Britain's largest military port are being eroded. They are getting some more Combat Support Boats but it looks as if they, the Mexeflotes and the Workboats will be all that is left.

    I think it is Serco who are taking over the running of the privatized port and there might just conceivably be some good news there in that that organization hs produced a lot of new vessels for what used to be the old Royal Maritime Auxiliary Service (now called Marine Services?). These vessels have been obtained under a kind of PFI arrangement, I think, and Serco Denholm might do something similar for Marchwod. We can only hope.

    Another possibility might be the transfer of LCUs and LCVPs from the Royal Marines.

    But running down of capacity is happening all around us.

  4. It is indeed bad news, and surprising to hear. But i guess that Serco is supposed to fill the gap with its own vessels: in Portsmouth and elsewhere they are doing very well and have brought in use a lot of new vessels, so it might not be entirely that bad.

    The two RCLs based in Cyprus would stay, i'm hoping?

  5. Hi Gabreile,
    I was very interested to read the cost's for RN, Army and RAF.
    I didn't realize how big a chunk the Army had, and how little the RN made do with.
    I would like to see some adjustment in favour of the RN!

  6. A few years ago there was a more detailed breakdown of activities and components. I've been stupid and i've not saved it away, and when i tried to find it again online in the last few days, i failed.

    It was very interesting, really... The Type 23 fleet runs on little more than 300 millions a year. The FAA costed over 1 billion (the Harrier was still around, though, among other things) and the RM were priced at around 900 million at most, or perhaps 600. I think the RFA runs on 300 millions or so a year.

    Surprisingly cost-effective, to my eyes. I hope to find that report again sometime soon. Now it is outdated, of course, but as a general heading, it still makes for valid info.

  7. Hi Gabriele,
    I think the RN does very well with its limited budget.
    The type 23 fleet is very good value for money.
    I would support an increase in the RN share of the budget, I think we would get more value for our money, and a much more powerful navy, and maybe even some MPA!

  8. I'm very much impressed by the financial effectiveness of Royal Marines, too.
    Which are also available to fleet rules, 1 in 3 instead of 1 in 5 for the Army.

    The "extremism" of calling for less army and more Marines is not without its reasons...