Page last updated at 19:54 GMT, Monday, 29 June 2009 20:54 UK

Navy carriers '1bn over budget'

Artist's impression of new carrier
The carriers will be the Royal Navy's largest vessels

A £1bn cost over-run is threatening the future of the publicly-funded project to build Britain's biggest aircraft carriers, the BBC has learnt.

A memorandum from the lead contractors seen by the BBC 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.

Work on the two warships - HMS Queen Elizabeth and HMS Prince of Wales - had been delayed in December but was due to begin soon.

This massive inflation in costs will be widely seen as alarming
Robert Peston, BBC business editor

They were due to come into service in 2014 and 2016, as the biggest and most powerful warships the UK has ever built.

Much of the work is due to take place at Scottish shipyards on the Clyde, where 4,000 jobs are dependent on the project.

Costs to soar

The project's cost is now expected to rise from £3.9bn to around £5bn.

Armed Forces Minister Quentin Davis MP: 'We have to live within our annual budget'

The memo was written for the chief executives of the companies participating in the project and attributed the cost increase to "a combination of direct costs, inflation and accounting adjustments".

"The MOD [Ministry of Defence] will publish its annual report and accounts in July; these will show £1bn of QE Class cost growth and the project will come under severe pressure through the opposition and the media," the memo said.

"This is a very real fight for the programme's survival," it adds.

The memo also suggests 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.

HMS QUEEN ELIZABETH AND HMS PRINCE OF WALES
Displacement: 65,000 tonnes
Length: 280m (920ft)
Width (at flight-deck level): 70m (230ft)
Keel to masthead: 56m (184ft)
Nine decks (plus flight deck)
Speed: 25+ knots
Range: 8,000-10,000 miles
Aircraft: 36 F-35 Joint Strike Fighters and four Airborne Early Warning aircraft, plus EH 101 Merlin helicopters
Crew: 1,450 (including air crew)
Weapons: Phalanx close-in weapon systems; 30mm and mini-guns
Source: Ministry of Defence

The BBC's business editor Robert Peston said the increase in costs would be seen as alarming, especially at a time when there are intense pressures on the government to cut public spending.

He added that if the project was scrapped, the knock-on effects would be serious.

For example, some 80,000 tonnes of steel worth £65m has been ordered from Corus, the beleaguered Anglo-Dutch steelmaker.

A consortium of companies are involved in the project including BAE System, VT Group, Babcock and Thales.

BAE Systems said that the delay to the project announced earlier was always expected to lead to an increase in costs.

The work is split between various yards, including Portsmouth, Rosyth, and Hebburn.



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