6. The Government requires certain critical defence technologies and industries to be located in the United Kingdom.[8] The Department buys submarines and warships infrequently and in small quantities, and so £305 million of the money reallocated to other budget lines in the Major Projects Report 2007 relates to maintaining United Kingdom shipyards. The Department does not have measures in place to assess whether it is getting value for money from these payments to sustain the shipbuilding industry or, if in applying the principles of the White Paper, Defence Industrial Strategy, it is maximising economic benefit to the UK from defence expenditure.[9]

7. All of the crucial decisions on projects are linked to the ten-year forward budgets of the Department's 2008 Planning Round, which still is not finalised. The Department does not have enough money to fund all it wants to procure. It appears unwilling, however, to take decisions to help make the new or relevant projects affordable, for example, by cutting projects that no longer completely address the military threats that the United Kingdom faces, or are many years late. Until the key decisions on resourcing are taken, publication of the Defence Industrial Strategy 2.0 will be delayed.[10]

8. The future viability of the United Kingdom shipbuilding industry rests on the contract for the Royal Navy's new aircraft carriers, as these provide a significant steady stream of work. The Alliance procurement strategy, a co-operative relationship between the Department and key contractors and/or suppliers on a project such as BAE Systems and Thales UK, was announced as early as January 2003, but additional participants were required. By July 2007, BAE Systems and VT Group agreed to form a joint venture to build the ships, and to modernise and manage the reduction in staff and shipyards after the peak in the next decade. At the time of our hearing, some 43 weeks later, the Department was close to the point where a contract could be placed and eventually the contract was signed by the Department and the industry on 3 July 2008. Past experience shows that delaying projects leads to increased costs in the long-term.[11]

9. The Department has delayed making decisions and announcements on other key military equipment projects. The concept for a new, medium weight armoured vehicles fleet, known as the Future Rapid Effect System, was drawn up in 2001. A decision on the preferred design was expected in November 2007, after competitive equipment trials. Due to the slow progress on this project and experience on deployments, the Army's immediate need for increased protection against improvised explosive devices and mines has been met by additional expenditure to procure foreign vehicles such as the Mastiff, and by upgrading the British Warrior Infantry Fighting Vehicle.[12]

10. In 2005, the Department's review of the Guided Multiple Launch Rocket System showed higher than predicted levels of accuracy. The Department reduced the quantity of long-range surface to surface rockets to be procured from 6,500 to 4,080. It now believes 1,488 rockets will be sufficient for current operations. Rather than purchasing the remaining munitions, the Department will use a separate project to examine the potential to develop other weapons that can provide this military capability. The Department has, therefore, transferred a budget of £165 million to the Indirect Fire Precision Attack project. It is sensible that the Department is able to make trade-offs between projects to provide the best military response to a threat, reduce overlap and minimise obsolescence. However, the delivery date for the weapons must not be compromised by the fact that the Department has not completed its assessments to determine the types and the balance of munitions required. Frontline troops must not go short of equipment because the Department is not yet in a position to approve the main investment decision for the Indirect Fire Precision Attack project.[13]

9   Qq 18, 53, 55-57, 113 Back

10   Qq 7-8, 40, 42-44, 46, 50-52, 58 Back

11   Qq 12-16; C&AG's Report, Volume II, page 170; Volume I, page 23 Back

12   Qq 9-11; C&AG's Report, Volume II, page 178 Back

13   Qq 4, 83-85, 89-90, 92-93, 95-96, 98; C&AG's Report, Volume I, page 4; Volume II, page 63 Back