Memorandum from the Ministry of Defence
WINTER SUPPLEMENTARY ESTIMATES 2006-07
1. INTRODUCTION
1.1 This Memorandum covers the Winter Supplementary
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 2006-07 to 2007-08 (Cm 6822).
1.2 There is no requirement for a Winter
Supplementary Estimate for the Armed Forces Retired Pay, Pensions
vote.
2. SUMMARY OF
RESOURCES SOUGHT
IN THE
ESTIMATE
2.1 The Ministry of Defence's Winter Supplementary
Estimates seek additional funds of:
| Resource/Annually Managed Expenditure
| £ million |
| Provision of Defence Capability (RfR1) |
120.272 |
| Conflict Prevention (RfR2) | 1,040.000
|
| War Pensions and Allowances (RfR3) | 7.710
|
| Capital Expenditure | £ million
|
| Provision of Defence Capability (RfR1) |
72.000 |
| Conflict Prevention (RfR2) | 360.000
|
| Cash | £ million
|
| Near Cash in Resource DEL | 1,260.272
|
| Near Cash in Capital DEL | 432.000
|
| War Pensions and Allowances AME | 7.710
|
| Net Cash Requirement | 1,699.982
|
2.2 The most significant changes to the Defence Expenditure
Limits (DEL) for both RfR1 and 2 are:
— the take up of end year flexibility of £120
million Resource DEL Direct (near cash) and £72 million Capital
DEL, which includes our entitlement in 2006-07 to the proceeds
of the sale of QinetiQ last year;
— transfers in of £0.272 million from other
Government departments under RfR1; and
— to increase the RfR2 by £1,040 million Resource
DEL and £360 million Capital DEL to reflect the forecast
costs of peace-keeping in Iraq and Afghanistan.
In addition, there is a transfer from Resource DEL Indirect
(non-cash) to Resource DEL Direct (near cash) of £100 million,
mainly for fuel costs.
2.3 There is also a £7.2 million increase to the
RfR3 War Pensions Benefits Programme costs and £0.5 million
for Far Eastern Prisoner of War Pensions Benefits Programme Costs.
3. DETAILED EXPLANATION
OF CHANGES
3.1 The transfers and other changes outlined in the Introduction
to the Estimate are analysed in this section of the Memorandum.
3.2 The table below shows how the Winter Supplementary
Estimate is compiled, taking the figures for 2006-07 Main Estimates,
and identifying subsequent changes.
| £ million | Direct R DEL
| Indirect R DEL | Total R DEL
| AME | Non budget Near cash |
Total
Net
Resources | Capital DEL
| Capital AME | Total
Net
Capital
|
| [1] | 1 | 2 |
3 | 4 | 5 | 6
| 7 | 8 | 9 |
| RfR1 Total as at Main Estimates | 21,140.2
| 10,655.0 | 31,795.2 | 178.1
| 12.4 | 31,985.7 | 6,926.0
| -7.0 | 6,919.0 |
| Transfers in | 0.3 |
| 0.3 | | |
0.3 | | |
|
| Transfers out | 0.0 |
| 0.0 | | |
| | |
|
| EYF | 120.0 |
| 120.0 | | |
120.0 | 72.0 | |
72.0 |
| Flexibility | 100.0 | -100.0
| 0.0 | | |
| | |
|
RfR1 Total
as at WSE
| 21,360.5 | 10,555.0
| 31,915.5 | 178.1
| 12.4 | 32,106.0
| 6,998.0 | -7.0
| 6,991.0 |
| RFR2 Provision | 47.3 |
| 47.3 | | |
47.3 | | |
|
| 1,040.0 | |
1,040.0 | | |
1,040.0 | 360.0 |
| 360.0 |
RFR2 Provision
as at WSE
| 1,087.3 | 0.0 |
1,087.3 | |
| 1087.3 | 360.0
| | 360.0 |
| RFR3 Provision | |
| 0.0 | 1,030.0 |
| 1,030.0 | |
| |
| | |
| 7.7 | | 7.7 |
| | |
RFR3 Provision
as at WSE
| | | | 1,037.7
| | 1,037.7 |
| | |
| WSE Estimate Total[2] | 22,447.8
| 10,555.0 | 33,002.8
| 1,215.8 | 12.4
| 34,231.0 | 7,358.0
| -7.0 | 7,351.0
|
[1] Definitions of the column headings are shown at Annex
C.1
[2] Minimal differences may occur due to roundings.
4. RFR 1 PROVISION
OF DEFENCE
CAPABILITY—EXPLANATION
OF CHANGES
4.1 Transfers in
The Estimate includes two transfers from Other Government
Departments.
Table showing Transfers in to MoD from Other Government
Departments in RfR1
| Exporting Department | £ million
| Purpose |
| Cabinet Office | 0.072 |
Contribution for the expansion of the Parliamentary Counsel Office.
|
| Department for Trade and Industry | 0.200
| Contribution to the Principal Non-industrial Superannuation Scheme (PNISS) for individuals who transferred to the MoD from the UK Atomic Energy Authority.
|
| Total | 0.272
| |
| 4.2 Indirect Resource DEL to Direct Resource DEL Transfer—£100 million
| | |
4.2.1 HM Treasury have agreed the transfer of £100
million from non-cash to near-cash. Of this £80 million has
been allocated to Strike TLB to cover increased fuel costs and
£20 million to the DLO to cover increased logistical costs.
4.3 End Year Flexibility: £120 million RDEL and £72
million CDEL
4.3.1 The take up of our entire End Year Flexibility
(EYF) available at Winter Supplementary Estimates of £120
million Resource DEL Direct (near cash) and £72 million Capital
DEL, which includes our 2006-07 entitlement to the proceeds of
the sale of QinetiQ last year.
4.3.2 The £120 million Resource EYF has been allocated
to Defence Logistics Organisation (£60 million), Adjutant
General (£10 million), Central (£30 million), Defence
Estates (£10 million) and Fleet (£10 million). These
alterations reflect changes in allocations between TLBs to match
required defence outputs.
4.3.3 The £72 million Capital EYF has been allocated
to Defence Procurement Agency (£60 million) and Defence Logistics
Organisation (£12 million). Once more these alterations reflect
changes in allocations between TLBs to match required defence
outputs.
4.4 Top Level Budget (TLB) Sub Head Changes
4.4.1 The changes under these sub-headings reflect alterations
to TLB allocations of Resource and Capital funding to bring the
allocations into line with responsibility transfers between TLBs,
and other adjustments to reflect the defence outputs required
since Main Estimates. These comprise a number of individual changes,
and reasons for some of the more significant allocations are set
out in the table:
Table: Major TLB re-allocations
| TLB | RDEL Direct £ million
| Capital £ million | Notes
|
| FLEET | 5.079 | 0
| 1,4 |
| PTC | -69.861 | 0
| 2,4 |
| DPA | 72.752 | -2.866
| 3,4 |
| DLO | -67.738 | -7.134
| 3,4 |
| LAND | -7.052 | -10.637
| 4 |
| AG | -4.887 | 0
| 4 |
| GOCNI | 0.077 | -3.267
| 4 |
| STC | 1.460 | 0
| 4 |
| CTLB | -4.453 | -0.581
| 4 |
| DE | 127.775 | 24.485
| 2,4 |
| CJO | -53.152 | 0
| 4 |
| Total | 0 |
0 | |
Notes:
1. Transfer of RAF St Athan's training responsibilities and
costs to Fleet as part of the Defence Training Review.
2. Reallocation of RAF Single Living Accommodation and married
quarters' income to Defence Estates (DE) who are incurring the
costs.
3. Transfer of specialist advice costs for projects from DLO
to DPA.
4. Transfer of fixed assets to Single Balance Sheet Owners
(SBSOs).
4.5 Indirect Resource DEL
4.5.1 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. When the Main Estimate was prepared,
the budgetary implications had not been finalised, and the effect
of these transfers is shown in the Winter Supplementary Estimates.
There will be further adjustments in the Spring Supplementary
Estimates.
4.6 Operating and non-operating Appropriations-in-Aid (A-in-A)
4.6.1 The Appropriations in Aid forecasts have been reviewed
in August 2006 (Accounting Period 2005) and the changes to the
Estimate reflect the latest estimate of outturn for each Top Level
Budget Holder.
5. REQUEST FOR
RESOURCES 2: CONFLICT
PREVENTION
5.1 This estimate requests £860 million for the
costs of operations in Iraq and £540 million for operations
in Afghanistan. This reflects the latest estimate of outturn for
each Top Level Budget Holder, and is detailed in the table below.
The Department has not included a contingency in this Estimate,
which will be updated at Spring Supplementary Estimates if required.
The Department has not included an estimate for Indirect Resource
DEL for Conflict Prevention. As in previous years, it is expected
that this will be funded internally by a transfer from RfR1to
RfR2, which will be requested at Spring Supplementary Estimates.
| Cost Type |
Iraq— Actual
£ million
2005-06 |
Iraq—
Forecast
£ million
2006-07
| Afghanistan— Actual
£ million
2005-06
| Afghanistan— Forecast
£ million
2006-07
|
| Resource—Direct |
| | | |
| Personnel | 94 | 77
| 9 | 32 |
| Stock/Other Consumption | 219
| 191 | 57 | 103
|
| Infrastructure Costs | 82 |
106 | 11 | 73 |
| Equipment Support Costs | 220
| 189 | 24 | 81
|
| Other costs and services | 111
| 112 | 38 | 67
|
| Income Foregone | 10 | 5
| 8 | 4 |
| Total | 736 |
680 | 147 | 360
|
Capital |
| | | |
| Capital Additions | 160 |
180 | 51 | 180 |
| Total | 160 |
180 | 51 | 180
|
| Grand Total | 896
| 860 | 198 |
540 |
6. NON-VOTED
ITEMS
6.1 No changes have been made to the Non-Voted element
of the Estimate.
7. RFR3 WAR
PENSION BENEFIT
7.1 RfR3 has increased by £7.2 million for annually
managed expenditure for War Pensions Benefits Programme costs
and £0.5 million for Far Eastern Prisoner of War Pensions
Benefits Programme Costs. This reflects the latest forecasts received
from the Veterans Agency.
8. ADDITIONAL RESOURCES
THAT WILL
BE REQUESTED
IN SPRING
SUPPLEMENTARY ESTIMATES
8.1 The Department plans to request the following major
additional resources in the Spring Supplementary round:
— The Indirect Resource DEL claim for RfR2, which
will be funded from a transfer from RfR1 Indirect Resource DEL;
— The tax-free bonus to Personnel on designated
operational deployments; and
— The RfR2 Conflict prevention claim for operations
in the Balkans.
9. THE DEPARTMENTAL
EXPENDITURE LIMIT
(DEL)
9.1 The following table shows the DEL from 2003-04 to
2006-07 for all RfRs
|
2003-04
SSE £ million |
2004-05
SSE £ million |
2005-06
SSE £million |
2006-07
ME £ million |
2006-07
WSE £ million |
| Resource DEL |
32,315 | 32,831 |
33,727 | 32,643 | 33,803
|
| Capital DEL | 6,421 | 6,662
| 6,798 | 6,926 | 7,359
|
| Depreciation1 | -7,437 | -8,049
| -8,168 | -7,551 | -7,551
|
| Total DEL | 31,299
| 31,444 | 32,357
| 32,018 | 33,611
|
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 million net of depreciation.
10. ADMINISTRATION COSTS
LIMIT
10.1 The Department is not subject to an Administration
Costs Limit.
11. PROVISIONS AND
CONTINGENT LIABILITIES
11.1 There are no additional provisions for liabilities
and charges requested at Winter Supplementary Estimates. We acknowledge
that the contingent provision for QinetiQ, contained in the 2006-07
Main Estimates, is no longer extant following the sale of QinetiQ,
and this will be removed in the 2007-08 Main Estimates.
12. MACHINERY OF
GOVERNMENT CHANGES
12.1 There are no Machinery of Government changes in
this Estimate.
13. NET ADDITIONAL
CASH REQUIREMENT
13.1 The Net Cash impact for the Winter Supplementary
Estimate is an increased requirement of £1,700 million, of
which £1,692 million relates to DEL (£1,260 million
Resource DEL and £432 million Capital DEL) and £7.71
million relates to War Pensions and Allowances AME.
14. VOTES A
14.1 We will be laying a Supplementary Estimate for Votes
A alongside the Winter Supplementary Estimate; this will be published
as HC18. The reason for this amendment is to increase the maximum
numbers of personnel in the Royal Fleet Reserve Marine Other Ranks
category from 1,200 to 1,350. This potential increase in numbers
of Reservists is caused by higher than anticipated numbers of
Regulars leaving the Royal Marines and automatically entering
the Reserve this year. This increases the Tri-service Votes A
maxima by 0.04%. The MoD has proposed to the Armed Forces Pay
Review Body measures that aim to improve retention within the
Royal Marines.
Definition of terms
1. DIRECT RESOURCE
DEL
This is a control aggregate within the resource budget it
excludes the non-cash items such as depreciation, cost of capital
and movement in provisions, however, it does in the expenditure
that, in generally accepted accounting practice (GAAP) terms,
is financed by the release of provisions. Direct Resource DEL
is also known as "near cash in the resource budget".
2. INDIRECT RESOURCE
DEL
This covers items such as depreciation, cost of capital charges
and movement in provisions, and the notional auditors' fees for
the NAO. This is also known as non-cash.
3. TOTAL RESOURCE
DEL
This is the sum of Direct and Indirect Resource DEL.
4. ANNUALLY MANAGED
EXPENDITURE (AME)
Annually Managed Expenditure (AME) are Programmes that are
demand-led, such as war pensions, or exceptionally volatile in
a way that could not be controlled by the department and where
the programmes are so large that the department could not be expected
to absorb the effects of volatility in their programme, such as
cash release of nuclear provisions.
5. NON-BUDGET
Items of expenditure which are included in the Estimate,
but are outside of DEL and AME. This is a Parliamentary control
but not a Treasury control.
6. TOTAL NET
RESOURCES
This is the net of items 1 to 5.
7. CAPITAL DEL
This is for new investment, including Capital additions,
disposals, and the capital repayment of loans.
8. CAPITAL AME
Includes the capital element of the loan repayments for self-financing
public corporations, such as QinetiQ.
9. TOTAL NET
CAPITAL
This is the sum of the above capital items.
10. TOTAL NEAR
CASH
This is the total accrued expenditure spend and is the sum
of Direct RDEL and Capital DEL.
20 November 2006
| 
