ANNUAL ACCOUNTS PAINT BLEAK PICTURE FOR MINISTRY OF DEFENCE FINANCES
The Ministry of Defence (MoD) annual report and accounts for 2010-11, published earlier this summer, have further exposed the disorganised state of the Ministry's financial situation.
The accounts report a net operating cost of £47.1 billion and assets of some £127.9 billion mainly consisting of land, buildings, fighting equipment and stores together with gross liabilities of some £21.3 billion.
The affordability of the defence programme is highlighted as a significant internal control issue for the Ministry. The accounts acknowledge the £38 billion deficit in the defence equipment programme identified during the Strategic Defence and Security Review (SDSR – see below) and concede that “there is still more to be done” in tackling the deficit. An audit of the costs and affordability of the equipment programme will be published later this year by the National Audit Office, with MoD taking the view that “it would be inappropriate to speculate on the size of any remaining gap in the meantime”.
Reductions in staffing numbers are also flagged as an area of concern, with shortages in suitably qualified and experienced personnel posing risks in several key areas, including safety and security. The accounts identify skill areas where there are insufficient trained personnel to meet armed forces requirements, including Nuclear Watch Keepers for the Royal Navy's nuclear powered submarine fleet, with a year-end staffing shortfall of 18% for Category A Watch Keepers and 24% for Category B Watch Keepers.
Inventory and stock control, leaks from within MoD – which “reached new levels during the SDSR” – and the poor condition of the defence estate, especially the fuels and explosives estates, are also identified as further areas where there are internal control risks.
Once again, the accounts have been qualified – meaning that they do not meet accepted accounting standards – by the Comptroller and Auditor General. The Auditor warns that: “I have not obtained all the information and explanations that I considered necessary for the purposes of my audit; and proper accounting records have not been maintained” because MoD has failed to comply with accounting requirements for determining whether a contract contains a lease and is unable to account for £5.2 billion of military equipment, inventory, and capital spares.
£120 MILLION PROJECT HYDRUS COSTS WRITTEN OFF
A footnote in the Ministry of Defence annual accounts for 2010-11 reveals that the government is preparing to write off spending of £120 million incurred on Project Hydrus – proposals to build a new hydrodynamics research facility at the Atomic Weapons Establishment (AWE) Aldermaston.
The project received planning permission in September 2010 but was cancelled shortly afterwards when the UK and France signed a joint treaty on defence and security co-operation. As part of the agreement the two nations decided to construct a joint hydrodynamics research facility at Valduc in France, replacing the Hydrus plans.
The MoD annual accounts note that “a joint radiographic and hydrodynamics facility with France resulted in the termination of Project Hydrus”, resulting in a constructive loss of £120,446,000. The exact amount of the loss has yet to be firmly established and has yet to be signed off within MoD.
MoD claims that the joint UK-France project has the potential to save considerable sums for both parties compared to developing separate national hydrodynamics research facilities, but is unable to be specific about future costs and savings because of the immaturity of current cost estimates.
Civil servants anticipate that some of the work done in preparation for Project Hydrus will be of benefit to the joint UK-France project, but the considerable sums already spent on inception, design and site preparation for the cancelled facility at Aldermaston appear to have been spent to no effect.
The annual accounts also note that a Systems Engineering Facility, also planned for construction at AWE Aldermaston to support research and development of non-nuclear components for Trident, has been cancelled “in favour of a more cost effective approach”. A constructive loss of £16,825,000 is listed for this project.
MoD has also recently released information on the costs of another major construction project planned for AWE Aldermaston. In response to a request made by NIS under the Freedom of Information Act the Ministry has revealed that the costs of Project Pegasus, the new Enriched Uranium Facility currently under construction at AWE Aldermaston, were estimated as £746,765,140 at 2006 prices.
OFFICE FOR NUCLEAR REGULATION PUBLISHES ITS FIRST CORPORATE PLAN
The newly formed Office for Nuclear Regulation (ONR) has published a four year corporate plan outlining how it will undertake the job of regulating the UK's nuclear industry.
The plan, which covers the period 2011-15, presents targets for ONR's delivery programmes in both the civil and military nuclear sectors and details the resources available for regulating each programme area.
Within ONR's nuclear weapons programme, which focuses on the regulation of activities at the Atomic Weapons Establishment, priorities include permissioning the various stages of construction and commissioning of major building projects, particularly Mensa, Pegasus, and Hydrus, and ensuring that AWE makes progress in developing a processing and storage facility for intermediate level radioactive waste.
The plan recognises the need to identify the potential impact of the SDSR on operations at AWE and commits ONR to ensuring that AWE responds appropriately to any need to extend the life of ageing facilities as a result of the SDSR, if necessary by making improvements to them.
Regulation of the Naval Nuclear Propulsion Programme is focused on the various sites which support the Royal Navy's fleet of nuclear powered submarines. At Devonport ONR's priorities are overseeing refuelling of HMS Vengeance in 9 Dock over the period 2012-15 and defuelling of the remaining Superb and Trafalgar class submarines in 14 Dock from 2012 onwards. At Barrow-in-Furness the regulator intends to ensure the safe commissioning and power range testing of Astute class submarines HMS Ambush, Artful, and Audacious, currently under construction, whilst at the Rosyth Naval Dockyard contaminated radioactive resins are to be removed from the site, which could be fully delicensed by 2017 subject to decisions on whether it has a future role in the MoD's Submarine Dismantling Project.
The plan makes no mention of regulation of other operational berths used by nuclear powered submarines, which include civil ports in major cities such as Southampton which are regularly visited by submarines.
ONR was launched in April this year as an agency of the Health and Safety Executive responsible for regulating the nuclear industry, and is currently undergoing reorganisation into a new structure which matches the main sectors within the nuclear industry.
The corporate plan highlights stakeholder engagement as a core activity for ONR, emphasising the need for open and transparent dialogue with all stakeholders in its activities.
DEFENCE COMMITTEE HIGHLIGHTS WEAKNESSES IN MINISTRY OF DEFENCE PLANNING
An investigation by the House of Commons Defence Committee into the Strategic Defence and Security Review, conducted last year by the government, has warned that the UK's military forces may be falling below the minimum level needed to deliver the commitments that they are currently being asked to carry out.
As a result of the UK's weakened economic condition and a drawdown of capabilities resulting from the SDSR, the Committee considers that UK forces are current;y operating at the maximum level envisaged by the Defence Planning Assumptions, and will face difficulties in conducting the tasks they are likely to face between 2015 to 2020.
The Committee's report says it is essential that the Ministry of Defence (MoD) has more certainty in its long-term planning and insists that the MoD must substantially improve transparency and control over its finance and budgetary practices.
The report reveals the MoD has dramatically increased its estimate of the gap between the costs of the defence equipment programme and the budget available to pay for it. At the time of the SDSR last October the gap was estimated to be £38 billion, but in evidence to MPs, the MoD has now revealed that the gap is "substantially in excess" of this figure, giving figures that suggest it may now have risen to over £50 billion.
Since the SDSR was published last October, the forces have suffered severe cutbacks to try to plug the funding black hole and the MoD has announced that numbers of civil servants are to be cut by 40 per cent – from 82,000 to 50,000 by 2020.
Responding to the Defence Committee's report, Defence Secretary Dr Liam Fox said: "A Defence Review had not been conducted for 12 years, resulting in an equipment programme that was woefully unaffordable. A multi-billion pound deficit was plaguing Defence, and tough, but necessary, decisions had to be taken. As the Committee rightly acknowledges, dealing with the deficit was a national security imperative”.
Dr Fox pointed out that, despite spending cuts, the UK continues to have the fourth largest military budget in the world and said that the Government planned to increase spending on military equipment by 1 per cent above inflation each year after 2015, assuming that the UK's economic performance improves.