UK’s new aircraft carriers: >£1 billion VAT issue?

It appears that the UK budget for two aircraft carriers has been grossly underestimated because of VAT.

I don’t quite understand this – it is the UK government (armed forces) that ordered these aircraft to operate. If VAT has not been budgeted for, then presumably the builder will charge VAT to the government (armed forces), and pay over the same VAT amount to same government (albeit the Treasury).

Is this not a simple matter of moving money from pocket to pocket? I don’t see any VAT loss for the UK government here. Please drop a comment below if you understand the hubbub better than I do.

“The cost of converting the carriers for the new aircraft would be up to £2 billion, rather than between £500 million and £800 million, in part because officials had thought that VAT would not apply.”

Via UK’s new aircraft carriers: >£1 billion VAT issue? | Value Added Tax Blog.

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