PMFORUM Breaking News

Reported by Miles Shepherd in the UK

The future of the Royal Navy's replacement aircraft carriers was under threat as cost escalation prompted calls to re-examine the complete programme. According to BBC News reports, a memorandum from the lead contractors suggests there will "be a fight for the programme's survival". The memo also discusses ways to cut costs, including the possibility of 400 to 500 redundancies. The Ministry of Defence said it was currently re-costing the programme and accounts would be published in July.

Current Press reports put the cost of the project at around £5 billion, up from an initial estimate of £3.9 billion however, earlier reports put the programe cost at around £9 billion with the ship building element forming about 40% of total costs. The remainder would be made up of weapon platform costs, mainly fighter bombers and helicopters. A memo written for the chief executives of the companies involved in the programme attributed the cost increase to "a combination of direct costs, inflation and accounting adjustments.

The UK Government announced (December 2008) a slowing of the project, to extend the work and match Government spending profiles. This is expected to delay entry to service by 2 years according to the Defence Secretary John Hutton. In a statement yesterday, a MoD spokesman said that they had made clear last year that the cost of the carriers was set to increase. "We acknowledged at the time that there would be a cost increase as a result. We are currently re-costing the programme. The MoD accounts published next month will present an initial estimate and the formal costing will be available until later in the year."

However, inter-service rivalries have contributed to the challenge to the programme with the Army Chief, General Sir Richard Dannatt claiming defence priorities required a radical rethink on spending. In a response by the head of the Royal Navy, Admiral Sir Jonathon Band warned that Britain would always need "higher end capabilities". The clash has been stimulated by changing nature of the perceived threat with Army extensively occupied in Afghanistan combating an irregular enemy while the Navy have been perceived to be engaged largely in Cold War type scenarios.

A separate report, published yesterday by the Institute for Public Policy Research (IPPR) an influential think tank also urged a rethink on defence procurement strategies, claiming that Britain cannot afford much of the defence equipment it plans to buy. The IPPR report, drawn up by a group of luminaries including Lord Ashdown, former Royal Marine Commando, and former NATO Secretary Lord Robertson, suggested slashing £24Bn off the defence equipment budget in order to restore affordability.

Any threat to the New Carrier programme brings with it major political implications since ship building contracts, due to get under way in this month, bring badly needed jobs to a number of parts of the UK. According to reports emerging in the last 24 hours, the future of the Appledore shipyard in Devon could be under threat and possible measures to reduce costs include "substantial redundancies" of the order of 400 to 500. A memo leaked to the BBC suggests that MoD could be prepared to fund the resulting redundancies. The shipbuilding work is spread across a number of yards in South West England and in Scotland where about 50% of the work is to be carried out in yards adjacent to Prime Minister Gordon Brown's constituency. A large proportion of the UK Government is made up of Scottish Members of Parliament or Scots sitting in English constituencies.

In addition to the direct labour force implications, other suppliers could be badly hit. For example, some 80,000 tonnes of steel worth £65m has been ordered from Corus, the beleaguered Anglo-Dutch steelmaker.

Overall the cost increase is seen as alarming, particularly at a time when there are intense pressures on the government to cut public spending.