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Ministry of Defence estate faces £8.5 billion funding gap

MoD Ministry of Defence armed forces army housing accommodation
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The National Audit Office (NAO) has said Britain’s military capability is at risk from an £8.5 billion funding gap in the Ministry of Defence’s estate budget

In its Delivering the Defence Estate report, published on Tuesday (15 November), the NAO points to 30 years of poor management of the MoD’s estate, ‘including its failure to align it with military need’.

‘The Department faces a huge challenge in maintaining its estate’, runs a key finding of the report, because, due to budget pressures, it had carried out only essential maintenance since 2009 with the result that there had ‘been a steady decline in the overall condition of the estate’. 

Now assets need to be replaced rather than repaired, adding to the overall costs, the report said. ‘Furthermore, poor accommodation for service families is affecting the morale and the recruitment and retention of service personnel.’

Amyas Morse, head of the National Audit Office, said: ‘The department has started to improve its management of the defence estate, however the strategy and current funding levels only allow for a partial reversal of the decline in the condition of the estate.

‘The department has not yet set out how it will fully address the significant challenges it faces sustaining the whole of the estate and resultant risks to military capability.’

The NAO said that even if the MoD’s plans are successful, a shortfall of £8.5 billion for upgrading existing assets up to 2030 will still exist.

The report also criticises ‘fundamental weaknesses in the Department’s contracting with a strategic business partner’.

It states: ‘The Department let a novel contract in 2014 to a private sector consortium, led by Capita, to become its strategic business partner running the organisation and helping it achieve savings which had already been removed from its budget. The Department failed to set contractual safeguards to ensure savings are achieved from operational improvements, which was the primary aim of the contract.’

The MoD’s ‘Footprint Strategy’, unveiled earlier this year, set out plans to help achieve the department’s target to reduce the size of its estate by 30 per cent, release land for new housing and use the receipts for reinvesting in the estate.

The department anticipates that more than 40 per cent of disposal proceeds will be generated by a small number of sites within London, but the NAO described these disposals as ‘uncertain’.

This is an important report and we are determined to deliver a better defence estate

The watchdog said that the MoD was exploring new finance models, including Private Finance 2 – the successor to the Private Finance Initiative – to fund the shortfall, but noted that this could be ‘more expensive and less flexible than direct government financing’.

An MoD spokesperson said: ‘This is an important report and we are determined to deliver a better defence estate. That is why we have outlined a long-term, military-led strategy, to invest £4 billion in training facilities […] and better accommodation to deliver more stability for military families.’

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