Defence Secretary Gavin Williamson warned that currency fluctuations will have an adverse effect on the ability of the UK to purchase new equipment, despite previous claims from the Government that exchange rates would have ‘no impact’.
Mr Paul Sweeney, MP for Glasgow North East asked today during a defence debate in the House of Commons:
“The House learned from the defence debate on Thursday that one of the cruxes of the issue of defence budget pressures is the fact that the defence rate of inflation is considerably higher than the national rate. Year on year, it erodes the purchasing power of defence. However, the Ministry of Defence and the Treasury stopped measuring the defence inflation rate last year. As a part of the review, will the Secretary of State commit himself to reinstating measurement of defence inflation, and, in order to be truly fiscally neutral, will he ensure that the annual defence budget increases are pegged to the defence rate of inflation?”
Defence Secretary Gavin Williamson responded:
“That is a very important comment. Foreign exchange rates have had an adverse effect on our ability to buy equipment such as the F-35 fighter jet. We will always be happy to look at suggestions such as the one made by the hon. Gentleman, and I will certainly raise it with the Treasury, but I cannot guarantee the response.”
Claims over the last year from the MoD however had insisted there would be no impact, with various ministers echoing these claims via press releases to the media and in the House of Commons. In July last year, Harriet Baldwin said regarding a recent media piece on the F-35 programme:
“I want to reassure colleagues on the stories in The Times this week about the F-35 joint strike fighter. We strongly disagree with the conclusions that the journalists came to. We are confident that the programme is within its budget envelope, despite the fluctuation in the exchange rate.”
The risks to the affordability of the Ministry of Defence Equipment Plan are greater than at any point since reporting began in 2012, according to a report last year from the National Audit Office.
Spending on equipment and associated support in the 2016 Plan is projected to be £178 billion, an increase of 7%, compared to an increase of just 1.2% between 2013 and 2015. The Strategic Defence and Security Review added £24.4 billion of new commitments to the MoD budget, including the Mechanised Infantry Vehicle, the Poseidon Maritime Patrol Aircraft and an acceleration of purchases of the F-35 Joint Strike Fighter.
In order to meet the funding requirements proposed by the Review, the MoD must use the entirety of the £10.7 billion headroom previously set aside to meet emerging requirements in future years say the report. To further ensure the affordability of the Plan, the MoD must also find £5.8 billion of savings from existing projects in the next 10 years.