APPENDIX 1
Memorandum from the Ministry of Defence
MAIN ESTIMATES 2006-07
SUMMARY OF
RESOURCES SOUGHT
IN THE
ESTIMATE
1. This Memorandum covers the Main Estimate
for the Ministry of Defence (MOD). The Department's spending plans
for 2006-07 are based upon the outcome of the Government's Spending
Review 2004, which was published in the Government's Expenditure
Plans 2005-06 to 2007-08 (Cm 6532). As announced by the Secretary
of State for Defence on 21 July 2004, the key features of the
settlement for Defence were:
— An increase in the Defence budget
of £3.7 billion, representing 1.4% average annual growth
in real terms over the period to 2007-08.
— A commitment to achieving £2.8
billion of efficiencies by 2007-08, all of which will be reinvested
in Defence. Details of these are recorded in Cm 6532.
2. The Ministry of Defence requests in Main
Estimates totals of:
| £ million |
| Net resources within Request for Resources 1
| 31,986 |
| Net resources within Request for Resources 2
| 47 |
| Net resources within Request for Resources 3
| 1,030 |
| Net Cash Requirement | 31,496
|
| |
DETAILED EXPLANATION
OF CHANGES
SINCE SR04
3. The transfers and other changes outlined in the Introduction
to the Estimate are analysed in this section of the memorandum.
4. The MoD has reorganised the two Navy Top Level Budget
Holders (TLBs) Commander-in-Chief Fleet and Second Sea Lord/Commander-in-Chief
Naval Home Command into a single TLB called Commander-in-Chief
Fleet TLB, as part of its rationalisation process. This is referred
to as "Commander in Chief Royal Navy Single TLB" in
the Estimate. Prior years' balances (2005-06 provision and 2004-05
Outturn) are shown against the two previous TLBs lines.
5. There have been a number of transfers between TLBs,
reflecting routine adjustments resulting from the Departmental
planning process. Further changes in the organisation's structure
will mean these will be updated in the Supplementary Estimates;
one of these changes is the impact of the transfer of assets to
the MOD's new single balance sheet owners. This is explained in
more detail in Para 17.
6. The table below shows how the Estimate is compiled,
taking the figures for 2006-07 published in Cm 6532, and identifying
subsequent changes. The figures for AME, non budget and cash release
of provisions are not published in Cm 6532. These are explained
further in the following paragraphs.
| All £ million1 | Direct R DEL
| Indirect R DEL | Total R DEL
| AME | Non budget Near cash
| Non budget Non cash | Total Net Resources
| Capital DEL | Capital AME
| Total Net Capital |
| 1 | 2
| 3 | 4 | 5
| 6 | 7 | 8
| 9 | 10 |
| GEP figures
Cm 6532 |
21,482.4 | 11,224.5
| 32,706.9 | 225.6
| 50.3 | -21.2 |
32,961.7 | 6,970.0 |
-7.0 | 6,963.0 |
| Accounting Treatment changes2 | -9.6
| -37.9 | -47.5 | -47.5
| -37.9 | 21.2 |
| -28.3 | | |
| Transfers in | 10.1 |
| 10.1 | | |
| | |
| |
| Transfers out | -222.6 |
| -222.6 | | |
| | |
| |
| Restructuring | 100.0 |
| 100.0 | | |
| | |
| |
| Urgent Operational Requirements |
| | | |
| | | -15.0 |
| |
| Flexibility | 50.0 | -50.0
| 0.0 | | |
| | |
| |
| Armed Forces Memorial | 1.5 |
| 1.5 | |
| | | |
| |
| Total | 21,411.8
| 11,136.6 | 32,548.4
| 178.1 | 12.4 |
0 | 32,738.9 | 6,926.7
| -7.0 | 6,919.7
|
| Less Non voted items in SR 04 |
| | | |
| | | |
| |
| Departmental Unallocated Provision |
| -470.0 | -470.0 |
| | | |
| | |
| Nuclear cash release | -258.4
| | -258.4 | |
| | |
| | |
| Royal Hospital Chelsea | -12.6
| -11.6 | -24.2 |
| | | | -0.7
| | |
| Fleet Arm Museum | -0.6 |
| -0.6 | | |
| | |
| |
| RFR1 Total | 21,140.2
| 10,655.0 | 31,795.2
| 178.1 | 12.4 |
0 | 31,985.7 | 6,926.0
| -7.0 | 6,919.0
|
| RFR2 Provision | 47.3
| | 47.3 |
| | | |
| | |
| RFR 3 Provision Previous |
| | | 1,026.0
| | | |
| | |
| War widows benefit | |
| | 4.0 | |
| | |
| |
| RFR3 Provision | |
| | 1,030.0
| | | |
| | |
| Estimate Total* | 21,187.5
| 10,665.0 | 31,842.5
| 1,208.1 | 12.4
| 0 | 33,063.0 |
6,926.0 | -7.0 |
6,919.0 |
* Minimal differences may occur due to roundings.
1 Definitions of the column headings are shown at Annex A.1
2 This line reflects the changes to the Treasury control regime, which affects provisions, accounting for Private Finance Initiative deals, and long term prepayments and debtors.
| | | |
| | | |
| | |
RFR 1 PROVISION OF
DEFENCE CAPABILITY:
EXPLANATION OF
CHANGES
Transfers in and Out
7. The Estimate includes a number of transfers to and
from other Government Departments. Some of these are follow-on
transfers from last year's Supplementary Estimates, and where
applicable it is expected that MOD's baseline will be adjusted
to reflect a permanent transfer in the next Spending Review.
TABLE SHOWING TRANSFERS IN TO MOD FROM OTHER GOVERNMENT
DEPARTMENTS IN RFR1
| Exporting Department | £'000
| Purpose |
| Department for Environment & Rural Affairs
| 4,863 | Contribution to National Meteorological Programme and Severe Weather Warning System
|
| Department of Transport | 3,903
| Contribution to National Meteorological Programme and Severe Weather Warning System
|
| Department for Work and Pensions | 1,345
| Postal Contract costs for the Veterans Agency. MoD is now responsible for meeting the cost from its budget
|
| Cabinet Office | 8 | Costs of the Treasury Solicitors European Division. Treasury Solicitors are introducing a levy based system. Treasury Solicitors have disaggregated their costs to Departments.
|
| Total | 10,119 |
|
| | |
TABLE SHOWING TRANSFERS OUT OF MOD TO OTHER GOVERNMENT
DEPARTMENTS IN RFR1
| Importing Department | £'000
| Purpose |
| Department for Trade and Industry | -215,000
| Transfer of responsibility for setting up of the Nuclear Decommissioning Agency. This was agreed in Spending Review 04. The transfer was effective from 1 April 2005, and was reflected in the Spring Supplementary Estimate 2005-06
|
| Cabinet Office | -7,500 |
MoD's Contribution to the running of the BBC Monitoring Service
|
| Department for Culture, Media and Sport |
-160 | The transfer of the Pattern Room Collection The Pattern Room is a collection of historic weapons and other items accumulated over the past centuries when the Army etc made its own weapons; these have now been transferred to the Royal Armouries. This was not treated as an MOG transfer: it was too small and only covers the cost of the staff transferring.
|
| Total | -222,660 |
|
| | |
Restructuring
8. Budget 2006 announced £100 million from the Reserve
in 2006-07 in order to help manage the cost of restructuring of
both the Armed Forces and Civilian elements of MOD.
Urgent Operational Requirement Changes
9. Some Urgent Operational Requirement (UOR) changes
bring forward items of capital equipment already in the programme.
In these cases, MOD accounts for the purchase against RFR2 funding
in the year of delivery, but takes a corresponding reduction in
the capital resource set aside for that purchase in the year that
it was originally planned to be delivered. There is a reduction
of £15 million in Capital DEL in the Estimate for equipment
delivered under UORs in previous years.
Flexibility
10. The Estimate includes a £50 million switch from
non-cash to near-cash agreed with the Treasury as a result of
MoD's progress against the SR04 reform agenda.
Armed Forces Memorial
11. This relates to a grant of £1.5 million for
the Armed Forces Memorial in Staffordshire, which will be funded
by the proceeds from the coin celebrating the 200th anniversary
of the Battle of Trafalgar.
Non Voted Items
12. Non voted items are those not voted in the Part II
table of the Estimates, but are included in the GEP figures. These
are:
— The Departmental Unallocated Provision. This is
a part of the DEL received as a result of the Spending Review
which Departments hold back to deal with unforeseen pressures
in accordance with the Consolidated Budgetary Guidance issued
by HMT.
— The cash release of Nuclear provisions created
in previous years which will be paid this year.
— The net consumption and cost of capital charge
for Royal Hospital Chelsea together with MOD's contribution to
Capital additions.
— The grant to the Fleet Air Arm Museum for its
running costs is regarded as a subsidy as over half its income
comes from private sources. Grants to the other Museums do not
meet the ONS definition and are voted.
Near Cash
13. The MOD's "near cash" budget (which is
a Treasury control) is the sum of the Direct RDEL and Capital
DEL (including non-voted items) for RfR1. For 2006-07 it is £28,081
million.
RFR2 Conflict Prevention
14. The Estimate includes Programmed Element of Conflict
Prevention of £47 million of which £31 million is for
Sub Saharan Africa and £16 million is for the rest of the
world. Costs arising from operations (which are borne by the Global
Conflict Prevention Pool of the Treasury Reserve) will be included
in the Supplementary Estimates process, as in previous years.
The Department will respond in due course to the Committee's recommendations
in its report "Costs of peace-keeping in Iraq and Afghanistan:
Spring Supplementary Estimates 2005-06".
RFR3 War Pension Benefit
15. RFR3 has increased by £4 million because of
an increase to the pension allowance payable to widows of servicemen
who died or left the service before 1 April 1973 and did not benefit
from the improvements made in the MOD's Armed Forces Pension Scheme
which was introduced on 1 April 1973. This increase was announced
in Parliament in March 2005 and laid before Parliament in June
2005.
Items that will change in Supplementary Estimates
16. The Treasury has agreed that MOD should retain a
proportion of the receipts (£250M) from the sale of shares
in QinetiQ, over financial years 2006-07 and 2007-08. These funds
will be drawn down in the Supplementary Estimates.
17. MOD has a fixed asset management project which is
part of the Defence Resource Management Programme to "simplify
and improve" financial processes across the Department. The
second stage of this is the centralisation of fixed asset management
under four single balance sheet owners (SBSOs) Defence Estates
(DE), Defence Logistics Organisation (DLO), Defence Procurement
Agency (DPA) and the Defence Communications Services Agency (DCSA),
which is part of the DLO. At this stage, the budgetary implications
have not been finalised, and the effect of these intra-Departmental
transfers on the Estimates will be shown in the Supplementary
Estimates.
The Department's Public Service Agreement
18. The Department's Public Service Agreement (PSA) for
2005-06 to 2007-08 was published in the White Paper "Spending
Review 2004: Public Service Agreements 2005-08" (Cm 6238,
July 2004). These are also published in the Government's Expenditure
Plans 2005-06 to 2007-08.
Departmental Expenditure Limit (DEL)
19. The following table shows the DEL from 2003-04 to 2006-07
for all RFRs
| 2003-04
Outturn £m
| 2004-05
Outturn £m | 2005-06
SSE £m
| 2006-07
Estimate £m |
| Resource DEL | 31,329.935 |
31,286.724 | 33,727.344 | 32,643.245
|
| Capital DEL | 6,073.300 |
6,754.293 | 6,798.278 | 6,926.660
|
| Depreciation1 | -6,304.863 |
-5,647.882 | -8,168.297 | -7,551.000
|
| Total DEL | 31,098.372
| 32,393.135 | 32.357.325
| 32,018.905 |
| | |
| |
1. Depreciation, which forms part of resource DEL is
excluded from total DEL, since capital DEL includes capital spending
and to include depreciation of those assets would lead to double
counting.
2. The figures are for voted and Non voted DEL. The Non
voted figure for 2006-07 is £331.294 net of depreciation.
DEL End Year Flexibility
20. End of Year Flexibility (EYF) will be assessed following
the publication of HM Treasury's Public Expenditure Outturn White
Paper (PEOWP) later this year.
Administration Costs Limit
21. The Department is not subject to an Administration
Costs Limit.
Provisions and Contingent Liabilities
22. Provisions for liabilities and charges have been
established under the criteria of FRS12 and are based on realistic
and prudent estimates of the expenditure required to settle future
legal or constructive obligations that exist at the balance sheet
date. Provisions are charged to the Operating Cost Statement (OCS)
unless they have been capitalised as part of the cost of the underlying
facility where the expenditure provides access to current and
future economic benefits. In such cases the capitalised provision
will be depreciated as a charge to the OCS over the remaining
estimated useful economic life of the underlying asset. All long
term provisions are discounted to current prices by use of HM
Treasury's Test Discount Rate, which is 2.8% for the financial
year 2006-07. The discount is unwound over the remaining life
of the provision and shown as an interest charge in the OCS.
23. MoD's provisions cover legal claims, civilian departure
costs, environmental costs restructuring and nuclear decommissioning
and restoration costs. Details of the contingent liabilities are
set out at Contingent Liabilities note in the Estimate.
Machinery of Government Changes
24. A Machinery of Government (MOG) change is made when
the responsibility for a service transfers from one Government
Department to another. The most recent one of these was in 2002-03
when the War Pensions Agency was transferred from Department of
Work and Pensions. There are no MOG changes in this Estimate.
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