Delivering value for money and innovation in defence

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“The only way to ensure, in the long-term, the ability to project power, to protect our national security and to ensure that our troops have the equipment they need is to have a defence budget that is in balance. A strong, diverse economy and sound public finances are a prerequisite to being able to sustain the armed forces that our national security requires.”

Rt Hon Philip Hammond MP, Secretary of State for Defence, May 2012

The Ministry of Defence is implementing radical reform to control spending and put the defence budget on a sustainable footing. There is acceptance across the political spectrum that greater discipline is required in defence spending to effectively balance national security concerns with the reality of shrinking budgets. As with other public services such as the police, the Ministry of Defence is using spending pressures to transform the way services are structured and delivered.

Austerity has led to declining defence budgets across Europe and the NATO partners. Given the fiscal outlook across the developed nations this is unlikely to change in the near future. In Britain, over £4 billion of non-frontline savings are to be made over the Spending Review period. But to achieve value for money the Ministry of Defence must do more than adapt to reduced budgets. The National Audit Office and the Public Accounts Committee have previously called on the Ministry of Defence to improve governance and financial management. The continued squeeze on public finances means there is little room for costly processes that fail to deliver equipment and projects on time and on budget.

Progress has been made on improving financial performance and putting forward a realistic defence strategy that matches resources to the budget available. In May, the Secretary of State announced that the defence budget had been balanced for the first time in a decade. The Levene review, published in 2011 and accepted in full by the Government, clarified the responsibilities of senior leaders and put in place measures for a smaller but more strategically focussed head office. The Army 2020 vision will reduce the size of the regular army and strengthen the role of reservists based on operational needs. The Ministry of Defence has also begun to collaborate more closely with international partners and the private sector in the delivery of services. Different approaches are being trialled across the defence services, including proposals to introduce a government-owned contractor-operator (GOCO) model in Defence Equipment & Support (DE&S), strategic business partnering in the Defence Infrastructure Organisation and commercial partnering in the Defence Business Services (DBS).

The opportunity is to implement this vision and maintain defence capabilities. Clearly some risks have to avoided. The Ministry of Defence has set out a long term vision for transformation which will not be fully implemented until the early 2020s. In the past, the long lead times associated with defence programmes have led to spiralling costs and bureaucratic mismanagement. There is further uncertainty that the transformation programme will be thrown off course by the next Strategic Defence Spending Review that is expected to take place in 2015. Still, as the National Audit Office has identified, a new culture and behaviours would ensure the success of reform initiatives. Today’s conference will consider how the defence services can adapt to these challenges.