Memorandum from the Ministry of Defence
on the Spring Supplementary Estimates 2005-06
SUMMARY OF
CHANGES SOUGHT
IN THE
ESTIMATE
1. The Ministry of Defence's Spring Supplementary
Estimate requests additional provision above Winter Supplementary
Estimates totals of:
Table 1
SUMMARY OF RESOURCE, CAPITAL AND CASH REQUIRED
| Net Resources Requested
| £ million |
| Request for Resources 1 | 716.331
|
| Request for Resources 2 | 1,055.736
|
| Request for Resources 3 | 4.000
|
| Total Resources | 1,776.067
|
| Capital Requested | £ million
|
| Request for Resources 1 | (70.000)
|
| Request for Resources 2329.997 |
|
| Total Capital | 259.997 |
| Net Cash Requirement | £ 1,889.814 million
|
| |
2. The most significant changes to the DELs for both
RfR1 and 2 arising from the Estimate for Resources are:
2.1 various transfers to and from other government departments
under RfR 1 which net to an outflow of £164.796 million and
an inflow under RfR 2 of £67.200 million;
2.2 to draw down the Department's Unallocated Provision
of £885.000 million to meet additional requirements for depreciation
and provisions;
2.3 to increase Non-Budget Expenditure by £267.606
million to reflect the impact of the revised Treasury discount
rate on provisions;
2.4 to reduce resource provision by £65.000 million
to reflect a technical agreement agreed in the 2004 Spending Review
relating to changes in the handling of cash release of provisions;
2.5 to transfer £54.971 million from RfR 1 to RfR
2 to cover cost of capital and depreciation charges associated
with fixed assets purchased under Urgent Operational Requirements
(UORs);
2.6 to increase RfR2 by £933.565 million to reflect
the costs of peace-keeping in Iraq and Afghanistan;
2.7 there are also Appropriations in Aid of £10.000
million and a small Grant in Aid of £0.175 million.
3. Under Annually Managed Expenditure (AME) the most
significant changes arise from:
3.1 a reduction in AME of £43.825 million to reflect
TLB forecasts, principally relating to the reduction of nuclear
provisions;
3.2 a reduction in AME of £107.683 million to reflect
the impact of the transfer of civil nuclear liability provisions
to the Department of Trade and Industry (DTI);
3.3 an increase in War Benefits Programme costs to cover
additional widows' payment expenditure of £4.000 million.
4. The change in the capital element of the DEL arises
from:
4.1 in recognition of a Capital DEL reduction of £15.000
million in RfR1, the advanced purchase of programmed equipment
as UORs, under RfR2 in 2004-05;
4.2 a reduction of capital provision by £55.000
million to reflect a technical agreement in the 2004 Spending
Review relating to changes in the handling of cash release of
provisions;
4.3 an increase in Capital Appropriations in Aid of £27.857
million relating to the redemption of preference shares held by
the MOD in QinetiQ;
4.4 an increase in RfR 2 Capital DEL of £329.997
million to reflect the costs of peace-keeping in Iraq and Afghanistan.
5. Detailed explanation of the changes
5.1 The Other Government Department transfers outlined
in the Introduction to the Estimate Memorandum are analysed in
the table below:
Table 2
SUMMARY OF TRANSFER TO/FROM OTHER GOVERNMENT DEPARTMENTS
| Detail | Giving/Receiving Dept
| RDEL
£ million | RfR
|
| Funding for centralised admin. Facilities |
Cabinet Office | 0.104 | RfR1
|
| Extension of the aircraft out of service date for Operations
| Foreign & Commonwealth Office | 2.100
| RfR1 |
| Start up cost for the Nuclear Decommissioning Agency
| Department of Trade & Industry | (167.000)
| RfR1 |
| Balkans Conflict Prevention Pool contribution
| Foreign & Commonwealth Office | 64.000
| RfR2 |
| Rest of the World Conflict Prevention Pool contribution
| Foreign & Commonwealth Office | 3.200
| RfR2 |
TOTAL | | (97.596)
| |
Request for Resources 1: Provision of Defence Capability:
| | | |
Draw down of Department Unallocated Provision—£885.000
million
5.2 The latest forecasts of Indirect Resource spend from
Top Level Budget Holders indicated that the Department would need
to draw down the Department Unallocated Provision of £885.000
million to ensure that sufficient resources were available for
the current year.
5.3 The draw down includes cover for the following redundancy
provisions which have not been disclosed on the face of the Spring
Supplementary Estimate. The terms of redundancies associated with
drawn down of forces in Northern Ireland have not yet been finalised.
The value of the provisions thus represents a judgement of the
possible cost. They are shown in the table below:
Table 3
NEW PROVISIONS RAISED—RESOURCE
| Provision Detail | £ million
| TLB |
| DARA and ABRO | 43.000 |
Centre |
| Northern Ireland—civilian | 56.383
| Centre and Defence Estates |
| Northern Ireland—military | 173.320
| Adjutant General |
| Total | 272.703 |
|
| | |
Cash Release of Provisions—£65.000 million RDEL
& £55.000 million CDEL
5.4 This reflects agreement in the Spending Review 2004
that certain increases in cash releases of provisions above previous
estimates would result in reductions in near cash RDEL and CDEL.
Transfer of IRDEL from RfR 1 to RfR 2—£54.971 million
5.5 The transfer of £54.971 million Resource from
RfR 1 to RfR 2 is to cover cost of capital and depreciation charges
associated with fixed assets purchased under Urgent Operational
Requirement arrangements. These are continuing non-cash charges
associated with holding these assets for as long as they are required.
The cash procurement and running costs of these equipments while
being used on operations are met from the Contingency Reserve.
5.6 The internal funding transfer, rather than asking
Treasury for a draw down on the reserve, was also adopted in 2004-05.
Resource Appropriations in Aid—£10.000 million
5.7 The Central TLB income forecast for the year is £10.000
million above the control totals issued at Main Estimates. The
£10.000 million adjustment has been made so that we retain
the resource at year end.
Grant In aid—£0.175 million change
5.8 Until now, it had been assumed that the insurance
risks of the Royal Hospital Chelsea (RHC) and National Army Museum
(NAM) would be underwritten by MoD. However, Charity Commission
guidance and Government Accounting rules make clear that MoD should
not be providing indemnity to independent bodies, even if they
receive the majority of their funding from Central Government.
Because of this, insurance brokers have been instructed by the
trustees of both organisations to test the market for appropriate
and cost effective insurance. These costs are £0.130 million
for the RHC and £0.045 million for the NAM. This is reflected
in the transfer from "other current" to "grants"
of £0.175 million.
Non Budget Expenditure—£267.606 million
5.9 The Treasury discount rate was reduced from 3.5%
to 2.2% effective 1 April 2005. The net impact on the non-budget
areas of the Department is a forecast increase in non-budget expenditure
of £267.606 million. This has been allocated across all TLBs.
QinetiQ Flotation
5.10 The estimate does not include any anticipated receipts
from the QinetiQ flotation in order that we do not compromise
our ability to gain best value from the flotation.
Annually Managed Expenditure—net reductions of £43.825
million and £107.683 million
5.11 The £43.825 million reduction relates to TLB
forecasts (Fleet, DLO, CJO and Centre)—principally for the
impact of the reduction in nuclear provisions.
5.12 The £107.683 million reduction relates to the
transfer of MoD civil nuclear liability provisions to the DTI,
as part of the start up costs for the newly established Nuclear
Decommissioning Authority. The AME reduction from the DPA has
been agreed with the DTI, who have incorporated these costs as
an addition in their Spring Supplementary Estimate.
CAPITAL
UORs—reduction of £15.000 million
5.12 The reduction in CDEL for 2005-06 reflects the advance
purchase of previously planned equipment purchases under the Urgent
Operational Requirements procedure in 2004-05, the costs at the
time being met by the Treasury Reserve. With the equipment already
purchased, the MoD's Capital DEL requirement this year is correspondingly
less.
Preference Share Redemption—£27.857 million
5.13 This relates to the preference share redemption
from QinetiQ, which HM Treasury have agreed is retained as CDEL.
Top Level Budget (TLB) Sub Head changes
5.14 The changes under these sub-headings reflect alterations
to TLB allocations of Resources and Capital funding as detailed
in the Estimate, and to bring the allocations into line with responsibility
transfers between TLBs and other adjustments to reflect the defence
outputs required since WSE. These comprise a large number of individual
charges, but reasons for some of the more significant allocations
are set out in the table below:
Table 4
MAJOR TLB RE-ALLOCATIONS
| TLB Sub Head | RDEL Direct £ million
| Capital £ million | Notes
|
| DLO | 13.900 |
| 1 |
| DPA | (80.000) | 80.000
| 2 |
| DPA | (13.900) |
| 1 |
| LAND | (1.500) |
| 3 |
| DLO | 1.500 |
| 3 |
Total | (80.000)
| 80.000 | |
| | |
|
Notes:
1. Transfer of £13.900 million RDEL Direct from
DPA to DLO reflecting a transfer of responsibility for equipment
coming into service.
2. Transfer from RDEL to CDEL of £80.000 million
to reflect accounting treatment for project post main gate expenditure
originally classified as RDEL (research).
3. Transfer of AS90 repair cost from LAND to DLO.
REQUEST FOR
RESOURCES 2: CONFLICT
PREVENTION
Peace-keeping Costs
5.15 This estimate covers forecast peace-keeping costs
for operations in Afghanistan and Iraq, based on our forecast
at AP8. This expenditure is funded from the Treasury Reserve.
The costs are as follows:
Table 5
SUMMARY OF RESOURCES REQUESTED FOR OPERATIONS IN IRAQ
AND AFGHANISTAN AT SPRING SUPPLEMENTARY ESTIMATES 2005-06
| Cost Type | Iraq—£ million 2004-05
| Iraq—£ million 2005-06 |
Afghanistan—£ million 2004-05
| Afghanistan—£ million 2005-06
|
| Cash Resource Costs | 732.300
| 784.877 | 48.900 | 148.688
|
| Capital Costs | 218.500 |
259.944 | 3.600 | 70.053
|
| Non-cash Resource | 23.900 |
53.215 | 0.300 | 1.756
|
Total | 974.700
| 1,098.036 | 52.800 | 220.497
|
| | |
| |
5.16 The Resource figures for Iraq and Afghanistan also
include in the £54.971 million of non-cash Resource transferred
from RfR1 to cover depreciation and cost of capital charges associated
with equipment purchased under Urgent Operational Requirements
arrangements.
5.17 The estimate includes cover for the planned operations
in Afghanistan, which may occur later this year.
Conflict Prevention Pool costs—£67.200 million
5.18 This element of RfR2 covers the Programme Conflict
Prevention Pool Programme Costs relating to MoD activities in
the Balkans and the rest of the world. All of this expenditure
is covered by PES transfers from the Foreign & Commonwealth
Office, as detailed in the transfer section.
REQUEST FOR
RESOURCES 3: WAR
PENSIONS AND
ALLOWANCES, ETC
AME—£4.000 million
5.19 At the Veterans Summit on 14 March 2005, the Minister
for Veterans announced an increase of £2 per week in the
War Widows Supplementary Pension . This benefits approximately
40,000 widows. This is paid to reflect the fact that these widows
did not benefit from the improvements made to the occupational
Armed Forces Pension Scheme introduced in 1973.
5.20 Whilst the increase was effective from 6 April 2005,
it could not be paid until the related legislative amendments
were made (laid before Parliament on 7 June 2005).
6. IMPACT ON
THE DEPARTMENT'S
PUBLIC SERVICE
AGREEMENT (PSA)
6.1 As at 30 September, when the latest report was compiled,
we are "On Course" to meet our SR2004 PSA targets for
Operations, Readiness, Manning and European Security. We are reporting
"Slippage" against our Procurement target and are "On
course with some slippage" against the Conflict Prevention
target. In addition we are "On Course" to meet both
our SR2002 PSA Value for Money and SR2004 Efficiency targets.
Further information is available on the MoD website.
7. NET ADDITIONAL
CASH REQUIREMENT—£1,889.814
MILLION
7.1 Cash projections from the MoD Treasury Management
Team indicate a possible cash outflow of circa £31.500 million.
This amount has been factored into the requirement above.
8. DEPARTMENTAL EXPENDITURE
LIMIT
8.1 The Supplementary Estimate will increase the MoD
Resource DEL to £33,727.344 million and the Capital DEL to
£6,798.278 million as set out in the table below:
Table 6
DEL CHANGES AT SPRING SUPPLEMENTARY ESTIMATES
| £ million
Change
| New DEL £ million Voted
Non-voted
|
| Total | |
| | |
| Resource | 770.794 | 33,330.552
| 396.792 | 33,727.344 |
| Capital | 259.997 | 6,797.534
| 0.744 | 6,798.278 |
| Depreciation* | 272.703 |
(8,168.297) | — | (8,168.297)
|
Total | 1,303.494
| 31,959.789 | 397.536 | 32,357.325
|
| | |
| |
*Depreciation, which forms part of Resource DEL, is excluded
from the total DEL since capital DEL includes capital spending
and to include depreciation of those assets would lead to double
counting.
The table below sets out the changes which the department
has made to its Departmental Expenditure Limits in the current
year.
Table 7
AUDIT TRAIL OF SUPPLEMENTARY ESTIMATE CHANGES SINCE MAIN
ESTIMATES: 2005-06
| Detail | Voted
£ million
| Non-Voted
£ million | Total DEL
£ million
|
| Resource | |
| |
1 April 2005 | 31,223.934
| 1,281.792 | 32,505.726 |
| Changes announced at the Winter Supplementary Estimate
| 450.824 | 0 | 450.824
|
| Changes announced at the Spring Supplementary Estimate (Including DUP)
| 1,655.794 | (885.000) |
770.794 |
Total Resource Departmental Expenditure Limit
| 33,330.552 | 396.792 | 33,727.344
|
| Capital | |
| |
1 April 2005 | 6,879.256
| 0.744 | 6,880.000 |
| Changes announced at the Winter Supplementary Estimate
| (341.719) | 0 | (341.719)
|
| Changes announced at the Spring Supplementary Estimate
| 259.997 | 0.744 | 259.997
|
Total Capital Departmental Expenditure Limit
| 6,797.534 | 0.744 | 6,798.278
|
Depreciation |
| | |
1 April 2005 | (7,556.000)
| 0 | (7,556.000) |
| Changes announced at the Winter Supplementary Estimate
| 0 | 0 | 0 |
| Changes announced at the Spring Supplementary Estimate (Including DUP)
| (612.297) | 0 | (612.797)
|
Total Depreciation | (8,168.297)
| 0 | (8,168.297) |
Total DEL | 31,959.789
| 397.536 | 32,357.325 |
| | |
|
*Depreciation, which forms part of Resource DEL, is excluded
from the total DEL since capital DEL includes capital spending
and to include depreciation of those assets would lead to double
counting.
14 February 2006
| 
