Cost over-runs take bill for UK’s new aircraft carriers to £6.2bn

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By FT

Whatapp NewsTelegram News

Britain  will this week reveal another significant increase in the cost of building its two new aircraft carriers, declaring that total funding for the programme will rise by £800m to £6.2bn.

Philip Hammond , defence secretary, is expected to say that a new set of demands, including the need to build a sophisticated aircraft landing systemon the ships, has added to the financial burden of the Royal Navy’s flagship project.

The revised price tag for the 65,000-tonne carriers, which will not operate until the end of this decade, will alarm some opposition MPs. When the last Labour government gave the green light to build the ships in 2007, it set the projected cost at £3.5bn. That figure is now close to being ­doubled.

Two months ago, Labour’s  Margaret Hodge , the chairman of the Commons Public Accounts Committee, warned that the project was “subject to huge technical and commercial risks, with the potential for further uncontrolled growth in costs”.

The announcement of the new cost over-run comes amid growing debate in  Britain  about the management of major infrastructure projects as the government presses ahead with plans for the HS2 high-speed rail link. Within parts of the MoD, there have also been concerns that the cost of the carriers is crowding out other spending on defence equipment.

Mr Hammond  will seek to mitigate concerns over this cost increase by saying that the new £6.2bn figure represents a “realistic price”. He will also announce that he has renegotiated the contract to build the carriers on terms that have more benefit to taxpayers.
MoD officials say that, until now, some 90 per cent of any cost over-run on the project has been paid for by the taxpayer and only 10 per cent by industry.  Mr Hammond  believes this was a flawed arrangement that reduced the incentive for industry to ensure the carriers were delivered on time and at cost.

Mr Hammond  is expected to announce that any additional costs – above the new baseline of £6.2bn – will be split 50-50 between the government and contractors.  Mr Hammond  is also expected to say that the newly revised cost will not imperil the MoD’s equipment budget.

The MoD said last night: “No final decisions have been taken and the department will make an announcement in due course.”


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