MoD still £2.6bn over budget, warn MPs

The Ministry of Defence (MoD) is still £2.6bn over budget for its biggest contracts to buy aircraft, submarines and armoured vehicles despite a cost-cutting exercise, MPs will disclose today.

Amid criticism over procurement spending, the MoD slashed its bill for its 20 largest contracts by £781m. But a critical report from the Commons Public Accounts Committee said at least half the alleged savings had been transferred to other military budgets, and warned that other sections of the armed forces might have to find savings as a result. And it pointed out that the contracts were still projected to cost £27bn, which is 11 per cent over their original budget.

Edward Leigh, the committee's Tory chairman, accused the MoD of "massaging figures", and raised doubts over its ability to achieve the projected savings as its record of handling major hardware projects was "pretty dire".

The committee, which criticised the Ministry's poor quality of forecasting the cost of defence contracts, found that between them the projects were running late by 433 months – 36 years – late.

Its report said the £781m savings in projected spending claimed by the MoD included £448m re-classified or transferred to other budgets, £91m in tax rebates and exemptions and just £242m in "real savings" from greater cost-effectiveness.

Referring to the £448m figure, the MPs warned: "The Department will have to forgo other ... activities which might otherwise have been financed from those budgets."

Mr Leigh said: "If the MoD is to keep the costs and delivery timetable of future large projects firmly under control, then it must learn from its mistakes in respect of some of the biggest current projects."

He said the Ministry would face a particular challenge in its planning for the £19bn successor to the UK's nuclear deterrent.

Nick Harvey, the Liberal Democrat defence spokesman, said: "The MoD is nearly £3bn over budget, yet still it will not hold anyone accountable for this shambles.

"Meanwhile, our troops continue to suffer from chronic equipment shortages and are rewarded for their bravery with dire housing back in Britain. Gordon Brown must get serious about this terrible waste of time and money."

Liam Fox, the shadow Defence Secretary, said: "These are horrendous overruns that impact upon our ability to run the frontline. Our troops should not be paying the price for bureaucratic incompetence and waste at the MoD."

Lord Drayson, minister for Defence Equipment and Support, insisted the MoD claimed "real savings" only on project costs.