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10 February 2012 | Adam Leach

The Ministry of Defence should not plan its budget on the assumption it will get more money but instead factor in potential cuts, a spending watchdog has warned.

Ministry of Defence: The Major Projects Report 2011, published today by the Committee of Public Accounts, welcomed the fact that the rate cost increases on major projects had reduced but called action to further reduce it.

The committee suggested that the MoD work more closely with the Treasury so that it is aware earlier of potential changes to its budget. It also called for the department to include contingency measures allowing for project costs to be reduced in case of budget reductions.

The report said: “As well as ensuring realistic cost assessments at the start, all requests for new defence equipment should include measures that can be taken to cut costs if budgets have to be reduced later. The department must take account of the long-term cost and capability implications of all the decisions it takes, including the impact on other areas of the defence budget.”

The call from the committee for the MoD to factor in more contingency in its spending relates to the fact that its 10-year equipment plan, which it has yet to submit to the National Audit Office for an ‘affordability assessment’, is based on a one per cent budget increase in 2015, as agreed in the 2010/11 spending review. The committee said that because the economic picture has changed since the review, the plan is unlikely to meet the demands of the day.

Margaret Hodge, chairwoman of the Committee of Public Accounts, said: “We think that it is unrealistic for the department to plan its budget on the basis of a one per cent increase in its equipment budget from 2015, in light of current economic conditions.”