Two of BAE Systems’ flagship projects have experienced a massive budget blowout over the past two years, leaving British taxpayers facing a £500 million bill, it emerged yesterday.

The House of Commons Defence Select Committee said yesterday that the cost of the Astute nuclear submarine and Type 45 destroyer projects had increased dramatically, which could have an impact on future procurement.

The overspend comes despite assurances from BAE Systems, which is building the Astute and Type 45 projects, that the days of massive cost overruns and delays to MoD projects were over. BAE was forced to write off £800 million in 2003 after delays to Astute and Nimrod, the coastal surveillance aircraft, became so severe that the contracts had to be renegotiated.

Mike Turner, BAE’s chief executive, said last year that all the company’s contracts had been brought back on time and on budget.

The select committee contradicted that yesterday, saying that Astute and Type 45 costs had continued to escalate. According to the committee, the four Astute submarines will now cost £3.79 billion against an initial budget of £2.58 billion, a 47 per cent increase.

The six Daring-class destroyers will cost £6.46 billion compared with an initial estimate of £5.47 billion, an increase of 18 per cent. The destroyers will enter service two years late and the submarines at least six years late.

A BAE spokesman said: “Astute and Type 45 will be delivered in line with the MoD’s requirements and will provide the Royal Navy with significant enhanced capabilities, the likes of which have not been available before.” Defence sources blamed worsening exchange rates and price rises from subcontractors for the cost increases.

The select committee also criticised delays on the Nimrod project, which has risen in cost from £2.8 billion to £3.5 billion and is running about six years behind schedule.

The MPs have asked the MoD to review Nimrod and consider whether an alternative to the BAE-built aircraft could be bought. The budget overruns could make the defence cuts predicted for later this year even more severe, with projects such as new £3.8 billion aircraft carriers and the last batch of Eurofighter fighter jets, both to be built by BAE, potentially under threat.

James Arbuthnot, the committee chairman, said: “We do not understand precisely where these extra costs are coming from and we are disappointed that the MoD has failed to limit the increases. We want more clarification on why these projects are getting more expensive.”

Howard Wheeldon, senior strategist with BGC Partners, said: “BAE must take great care not to give the Government more of an excuse to delay future programmes.”

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