Select Committee on Defence Ninth Report


Report


Our scrutiny of the Main Estimates

1. The Main Supply Estimates 2006-07—by which the Government requests resources from Parliament to meet its expenditure plans for the financial year ahead—were laid before the House on 2 May 2006.[1] The House of Commons will be asked to agree them on 3 July.

2. The Main Estimates contain a resource-based Estimate for each department and, separately, for public service pension schemes. This Committee's interest has focused on the Ministry of Defence (MoD) Estimate[2] and the Estimate for Armed Forces retired pay, pensions etc, which covers both the Armed Forces Pension Scheme and the Armed Forces Compensation Scheme.[3]

3. The MoD provided the Committee, on publication of the Main Estimates, with a memorandum on each of these two Estimates. These are printed as Appendix 1 to this report.[4]

4. A Departmental Minute was received from the MoD on 22 May reporting a contingent liability for the underwriting of funding for the Armed Forces Memorial. This is printed as Appendix 2 to this report.[5]

5. We asked the MoD to answer some additional questions arising from the Estimates and their Estimates memoranda, and from the Departmental Minute. The MoD's response is printed as Appendix 3 to this report.[6]

6. The purpose of this report is to publish the evidence received from the MoD on the Main Estimates, as we believe that this should be made available to other Members of the House of Commons and to the wider public.

Ministry of Defence Requests for Resources

7. The MoD's Main Estimate requests resources of £33 billion, with a net cash requirement of £31.5 billion. The MoD's Estimate is split between three Requests for Resources (RfR):

By far the largest part of the resources requested falls within RfR1. The headline figures are set out in table 1 below. A breakdown by top-line budget is given in the Estimate.[8]

Table 1
£'000
2006-07
2005-06
2004-05
Provision
Provision
Forecast Outturn
Outturn
RfR1: Provision of defence capability 31,985,85634,664,525 34,250,78230,071,985
RfR2: Conflict prevention 47,3261,101,276 984,987938,181
RfR3: War Pensions and Allowances etc 1,029,9511,072,972 1,071,9991,109,521
Net resource requirement 33,063,13336,838,773 36,307,76832,119,687
Net cash requirement 31,495,93831,501,992 30,901,56830,419,930

Source: HC 1035, page 16

Cost of peace-keeping operations

8. The MoD's Estimate includes provision for conflict prevention of £47 million, of which £31 million is shown to be for Sub-Saharan Africa and £16 million for the rest of the world.[9] There is no provision in the Main Estimates for the costs of operations in Iraq and Afghanistan, nor for peace-keeping in the Balkans. Provision will be included in the Supplementary Estimates process, as in previous years.[10]

9. In our report on the Spring Supplementary Estimate 2005-06, we recommended that in future provision for commenced operations be made in the Main Estimates, if necessary with a large element for contingency.[11] The Government's response did not accept this recommendation, arguing that costs were difficult to forecast in fast moving operational circumstances and Supplementary Estimates were the first occasion when the Department can reach a reasonably firm conclusion. However, the Government has undertaken to seek provision for conflict prevention for commenced operations in the MoD's 2006-07 Winter Supplementary Estimate, rather than waiting until the Spring Supplementary Estimate as in the past.[12] We welcome this concession, but we remain unpersuaded that it is impossible to include at least indicative provision in the Main Estimates. We recommend that the Ministry of Defence reconsider whether provision for commenced operations might be included in the Main Estimates in future.

10. We also recommended that in future the MoD provide to this Committee regular, perhaps quarterly, updates on the cost of operations.[13] The Government's response did not respond positively to this recommendation, but it did accept our recommendation that more detailed information on the cost of operations should be published in the MoD's Annual Report and Accounts 2005-06.[14] These are expected to be published before the Summer Adjournment.[15]

11. Provision for the cost of peace-keeping operations in the Balkans is sought by the Foreign and Commonwealth Office (FCO) in the Main Estimates[16] and some of this will be transferred to MoD through a Supplementary Estimate later in the Financial Year.

12. In our report on the Spring Supplementary Estimate, we questioned why funding for Balkans operations was not sought directly by the MoD, and recommended that in future provision for these be set out in the MoD's Main Estimate.[17] The Government's response rejected this recommendation, on the grounds that the FCO had always been the lead department for administering the Global Conflict Prevention Pool, that managing the UK's peace-keeping activities as a whole was beneficial and that the current arrangement allowed flexibility to respond to a volatile international scene.[18] While we appreciate the value in managing peace-keeping activities centrally, we cannot see why this should preclude separation of the anticipated costs of operations in the Balkans by department in the Main Estimates. We recommend that the Government reconsider this.

13. The current arrangements mean that the provision for conflict prevention in the MoD's Main Estimate greatly underestimates the total expected cost of the MoD's conflict prevention activities.

Contingent liabilities

14. The MoD's Main Estimate lists the Department's contingent liabilities which, if they matured, would involve the voting of additional expenditure.[19] This list includes liability of £45 million in respect of the QinetiQ pension fund. The MoD's supplementary memorandum states that this liability was paid at the end of March 2006, after the completion of the Initial Public Offering of QinetiQ's shares, and the Main Estimates do not reflect the fact that the liability had been discharged. This will be corrected in the Winter Supplementary Estimates.[20]

Sale of assets

15. The MoD's Main Estimate anticipates sales of assets of a value of only £7.2 million in contrast to £537.9 million in the last Financial Year.[21] We asked the MoD to explain why the asset disposal strategy was so limited this year. Its response explains that the figure given is understated through oversight: it is expected that the disposal of Estates will bring in receipts in excess of £150 million. The figures will be put right at the Winter Supplementary Estimates.[22]

Accessibility of information

16. We acknowledge the efforts made by the MoD to follow the guidance issued by the House of Commons Scrutiny Unit on the production of Departmental Estimates Memoranda, and the speed with which the Department has responded to our request for further information. But the fact remains that the Department's Estimates memoranda are not easily understandable by the non-expert reader. We recommend that the MoD consider further, in consultation with this Committee and with the House of Commons Scrutiny Unit, how the information presented in its Estimates memoranda could be made more accessible, and expressed in plainer language.

Conclusion

17. We have identified no issues of sufficient concern to require a debate in the House before it is asked to agree to the Main Estimates.

18. We believe that it is essential to our future security that the MoD and our Armed Forces are properly funded, and we will be monitoring the progress of the Spending Review with very close interest. We will also be continuing to monitor the MoD's Estimates process. The Government should not take the House's acquiescence to its spending plans for granted.


1   Central Government Supply Estimates 2006-07, Main Supply Estimates, May 2006, HC 1035 Back

2   HC 1035, pp 295-318 Back

3   HC 1035, pp 319-328 Back

4   Ev 1 Back

5   Ev 6 Back

6   Ev 7 Back

7   A full description of what costs fall under each of the RfRs is given in the Main Estimates, HC 1035, p 297 Back

8   HC 1035, pp 299-302 Back

9   Ev 3, para 14 Back

10   Ibid. Back

11   Fourth Report from the Defence Committee, Costs of peace-keeping in Iraq and Afghanistan: Spring Supplementary Estimate 2005--06, HC 980, para 15 Back

12   Fifth Special Report from the Defence Committee, Session 2005-06, Costs of peace-keeping in Iraq and Afghanistan: Spring Supplementary Estimate 2005-06: Government Response to the Committee's Fourth Report of Session 2005-06, HC 1136, para 4 Back

13   HC 980, para 16 Back

14   HC 1136, paras 2 and 5 Back

15   Seventh Special Report from the Defence Committee, Ministry of Defence Annual Report and Accounts 2004-05: Government Response to the Committee's Sixth Report of Session 2005-06, HC 1293, Appendix 1, para 54 Back

16   The FCO's Main Estimate includes provision for £100 million for global peace-keeping: HC 1035, p 331 Back

17   HC 980, para 17 Back

18   HC 1136, paras 11-14 Back

19   HC 1035, pp 313-315 Back

20   Ev 9 (xii) Back

21   HC 1035, p 308 Back

22   Ev 8 (ix) Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 29 June 2006