Ministers faced questions in the Commons over the future of UK naval shipbuilding, with MPs pressing on export claims, access for domestic yards, foreign suppliers and the impact of fraud on defence spending.
Opening the exchange, Labour MP Richard Quigley asked what steps the government was taking to support naval shipbuilding.
Defence Minister Luke Pollard said ministers had “stepped up our support for naval shipbuilding”, pointing to what he described as “the largest shipbuilding export in British history, with the Type 26 being sold to Norway”. He added that the government had invested in “strategically important infrastructure” and was driving naval programmes in UK shipyards, with a forthcoming shipbuilding and maritime technology action plan intended to set out longer-term ambitions.
Quigley welcomed the creation of a new MoD unit aimed at helping small defence companies access contracts, but raised concerns following reports that a £200 million contract had been awarded to Dutch firm Damen. He asked what assurances could be given to companies such as Wight Shipyard and Diverse Marine that they would have “a fair and credible route into competing for these major programmes”.
Pollard confirmed that “Serco has indeed awarded a contract to Damen as part of its provision of tugs for the UK military”, but stressed that ministers had been clear that more of the rising defence budget should be spent with British companies. He said the government would continue to support building naval assets in UK shipyards, citing the Type 26 and Type 31 frigates being built in Scotland and arguing this approach would expand as the Royal Navy moves towards a “hybrid Navy, through more platforms being built in shipyards right across the United Kingdom”.
Liberal Democrat MP Ian Roome shifted the focus to value for money, referencing a National Audit Office report which estimated that around £1.5 billion a year of defence spending is lost to fraud, with the MoD recovering only 48 pence for every pound spent on counter-fraud work. He asked what steps ministers would take to ensure more of that funding could be recovered for national defence.
Pollard responded that “any money lost to fraud is money that people have taken away from our national security and our national defence, and that is unacceptable”. He said the department was looking at how to “continuously improve our anti-fraud measures”, adding that as defence spending increases, “it is even more important that we spend the money wisely”.
From the NAO report yesterday, the ambiguous phrase, potential exposure to up to £1.5bn of fraud, has now magically turned into just plain old £1.5bn of fraud, which it most definitely doesn’t mean. We know that what sounds like a guesstimate is broadly drawn and could be anything from £1.1bn-£1.5bn (as stated in the report), but what is “potential exposure to”? Clearly some sort of risk value rather than actual losses. How were the numbers derived? Does it have any meaning in the real world?
I asked Google AI and it points out the the Australian NAO defines it to be “maximum estimated financial value or scope of transactions that could be vulnerable to fraud due to weaknesses in an entity’s internal controls, policies, or procedures.” That sounds like a reasonable definition. In other words, MOD hasn’t fully locked down between £1.1bn and £1.5bn worth of spend sufficiently to prove to auditors there hasn’t been any fraud.
That’s not even necessarily a bad thing. If the estimated cost of locking those transactions down exceedes the value of money lost due to fraud, allowing that amount to be controlled by whistleblowers and exposure after the fact rather than procedural controls on expenditure could well be a good choice. Quantification of the cost of inaction (due to excessive governance and overcontrol) is poorly understood by MOD, even if everyone here knows it exists.
Just let me invert the statistic and say it implies 97% of MOD spend is locked down sufficiently to prove to auditors that there is no fraud. Sounds a lot better that way round, I think.