Brexit leaves UK's £178bn defence equipment plan 'vulnerable'

The UK's £178bn ($223bn) defence equipment plan is "vulnerable" to currency fluctuations, the National Audit Office (NAO) warned on Friday (27 January).

The watchdog said that planning assumptions for the 10-year programme were currently based upon rates set before the result of the EU referendum.

With sterling dropping 19% against the dollar since the Brexit vote, the currency fluctuations threaten to "impact significantly" upon the affordability of the plan since £18.6bn of the programme will be paid in dollars and £2.6bn will be paid in Euros.

"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," said Amyas Morse, head of the NAO.

"The difference is to be found partly by demanding efficiency targets. There is little room for unplanned cost growth and the Ministry of Defence 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."

The watchdog also raised other concerns about ensuring the affordability of the plan. The NAO estimated that the MoD must find £5.8bn of savings from existing projects in the next 10 years.

But the plans for achieving the savings are "still under development", according to the watchdog. Harriett Baldwin, the defence procurement minister, who welcomed the NAO report.

"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.

A MoD source also stressed that the department addresses the impact of short-term foreign exchange variations as part of its routine financial management of the defence programme.