Report
Background
1. The Spring Supplementary Estimates for the Financial
Year 2006-07 were laid before the House of Commons on 20 February
2007.[1] The Ministry of
Defence (MoD) is seeking a net increase in resources of £682.274
millionin cash terms a net increase of £550.331 million.
Table 1 provides a breakdown of the requested increase in expenditure.
Table 1: Changes in Resource and Capital Expenditure
| £ million
|
Resource Expenditure
| |
Provision of Defence Capability (RfR1)
| 243.074 |
Conflict Prevention (RfR2)
| 340.200 |
War Pensions and Allowances (RfR3)
| 10.000 |
Total Net Request for Resources
| 593.274 |
Capital Expenditure
| |
Conflict Prevention (RfR2)
| 89.000 |
Total Change |
682.274 |
Source: Ministry of Defence[2]
2. The requested increase in Request for Resources
(RfR) 1 (Provision of Defence Capability) of £243.074 million
is explained in the Department's Estimates Memorandum.[3]
It includes £150 million of 'direct' (or 'near cash') resource
expenditure to meet additional fuel and utilities costs in the
Fleet command (£41 million), additional funding this year
for a re-profiling of the Defence Logistics Organisation's 10-year
Future Defence Supply Chain initiative (£14 million), and
to accommodate several mostly small changes in the levels of Top
Level Budget (TLB) holders' planned expenditure. It also includes
a £58 million increase in 'indirect' resource expenditure,
again spread across several TLBs to reflect their latest forecast
outturns, and £42 million to accommodate the depreciation
and cost-of-capital costs of Urgent Operational Requirements (UORs)
for Iraq and Afghanistan (see paragraph 10 and 14 below).[4]
On top of that, several TLBs' expenditure projections have also
been increased by £115 million (resources) and £109
million (capital), but without changing the Estimates because
these expenditure increases are covered by similar increases in
off-setting receipts.[5]
3. The requested increase in RfR2 (Conflict Prevention)
of £429.200 million is to fund the additional costs of conducting
operations in Iraq, Afghanistan, the Balkans and elsewhere.[6]
It is on this element of the Supplementary Estimate that this
report focuses. In our view,
the term "conflict prevention" is confusing, as it appears
to cover military operations of all kinds, from war-fighting to
peace-keeping operations.
Approval of expenditure on operations
4. The MoD does not make provision for the additional
cost of operations in the Main Estimates, on the ground that the
unpredictable nature of operations makes it difficult to forecast
their cost with accuracy at the beginning of the financial year.[7]
This year, it presented estimated costs of the operations in Iraq
and Afghanistan in the Winter Supplementary Estimates, presented
to the House in November, instead of waiting for the Spring Supplementary
Estimates as in the past. It warned, however, that certain cost
elements were not included, and would be requested in the Spring
Supplementary Estimates. Our report on the Winter Supplementary
Estimate commended the MoD for bringing forward the presentation
of estimates on the costs of operations in Iraq and Afghanistan,
but restated our view that there should be provision for the cost
of commenced operations in the Main Estimates.[8]
While we
accept that it is difficult for the MoD to provide accurate estimates
of the costs of operations at the beginning of the financial year,
we cannot see how this can be a sufficient reason for making no
forecast at all. We recommend that the MoD reflect the forecast
costs of operations in Iraq and Afghanistan in its Main Estimates
for 2007-08. The MoD could usefully include in its Estimates
Memorandum (which we would intend to publish) an account of its
planning assumptions for the costs of these operations.
5. Estimates for the cost of operations in the Balkans
and peace-keeping operations in the rest of the world are included
in the Main Estimates for the Foreign and Commonwealth Office
(FCO), and are transferred to the MoD in the Spring Supplementary
Estimates. We have repeatedly recommended that provision for operations
in the Balkans should in future be set out in the MoD's Main Estimates.[9]
The Government's response to our report on the Winter Supplementary
Estimate stated that the Government would reconsider this in the
preparation of Main Estimates for 2007-08.[10]
The withdrawal of most of the UK's Forces in the Balkans, announced
on 1 March 2007,[11]
will reduce the financial significance of this element of the
MoD's estimates. Nevertheless, we
remain of the opinion that provision for all
operations should be made in the MoD's Main Estimates, rather
than left to Supplementary Estimates.
Estimated costs of operations
in Iraq
6. At
the Winter Supplementary Estimates, the MoD estimated that the
cost of operations in Iraq in 2006-07 would be £860 million.
The estimated cost has now risen to £1,002 million.
7. At the Winter Supplementary Estimate, the MoD
warned that the estimated cost did not include any contingency,
and that it would be updated at the Spring Supplementary Estimates
if required. It noted too that the estimate did not include the
costs of the new operational bonus, announced in October 2006,
nor indirect resource costs (notional or 'non cash' costs such
as stock write-offs, increased provisions being made for likely
future costs, depreciation and cost of capital charges). Our report
on the Winter Supplementary Estimate concluded that the actual
additional costs of operations were likely to exceed the amounts
requested in the Winter Supplementary Estimate.[12]
8. While it
was expected that the Spring Supplementary Estimate would request
additional funding for operations in Iraq, the scale of the increase
is surprising. If the indirect costs and
the operational bonuses are discounted, the forecast resource
costs have increased from £680 million at the Winter Supplementary
Estimates to £757 million (£785 million total direct
resource costs, less £28 million for the Iraq share of the
operational bonus). The cost
of operations in Iraq in the current year appears to be over 10%
higher than the MoD was expecting last November.
9. Table 2 breaks down the estimated costs of operations
in Iraq for the current year, and compares them with the outturn
for the two previous years.
Table 2: Cost of operations in Iraq
Cost Type |
Iraq Outturn 2004-05 £ m |
Iraq Outturn 2005-06 £ m |
Iraq Forecast 2006-07 £ m as at Winter Supplementary Estimate |
Iraq Forecast 2006-07 £ m now |
Increase / decrease since Winter Supplementary Estimate
|
Resource - Direct
| | | |
| |
Military Personnel |
116 | 80
| 55 | 111*
| + 56 |
Civilian Personnel |
14 | 14
| 22 | 15
| - 7 |
Stock / other consumption
| 156 | 219
| 191 | 212
| + 21 |
Infrastructure costs |
88 | 82
| 106 | 89
| - 17 |
Equipment support costs
| 198 | 220
| 189 | 214
| + 25 |
Other costs and services
| 110 | 111
| 112 | 139
| +27 |
Net income foregone |
2 | 10
| 5 | 5
| - |
Total Direct Resource
| 684 | 736
| 680 | 785
| + 105 |
Indirect Resource |
63 | 62
| - | 22
| + 22 |
Total Resource |
747 | 798
| 680 | 807
| + 127 |
Capital |
| | | |
|
Capital Additions | 163
| 160 | 180
| 195 | + 15
|
Total Capital |
163 | 160
| 180 | 195
| + 15 |
Grand Total |
910 | 958
| 860 | 1,002
| + 142 |
Source: Ministry of Defence[13]
* includes £28 million cost of operational
bonus
10. It appears from this breakdown that the change
in the forecast costs for the current year since the Winter Supplementary
Estimate is attributable to:
- a £56 million increase
in the military personnel costs, only part of which (£28
million) is explained by the cost of the operational bonus. The
MoD's supplementary memorandum states that the change in forecast
expenditure is not due to changes in force levels, which will
be reflected in costs next year.[14]
- the inclusion of indirect resource costs, principally
£22 million for the depreciation and cost-of-capital costs
of UORs, the funds for which are transferred from RfR 1.
- increases in the forecast cost of stock and other
consumption, equipment support costs, and other costs and services.
- a £15 million increase in capital additions,
but a £17 million reduction in resource infrastructure running
costs. The MoD's supplementary memorandum states that the reduction
in infrastructure costs is because the building work on consolidating
the UK base operations in Basra is taking longer than expected
owing to the need to ensure the facilities incorporate adequate
physical protection against the threat of attack by indirect fire.[15]
11. It
is striking that the cost of operations in Iraq in 2006-07 is
now expected to exceed the outturn cost in 2005-06 by £44
million. This may seem
surprising, given that there has already been a significant drawdown
in the UK's Forces theremost relevantly, a reduction from
8,500 to 7,200 at the end of May 2006.[16]
We note that in 2005-06 the outturn was significantly less than
the voted provision, and it may be that the actual costs this
year will be lower than anticipated. We
call on the MoD to explain in its response to this report why
it expects the costs of operations in Iraq to be greater this
year than last.
Estimated costs of operations
in Afghanistan
12. At
the Winter Supplementary Estimates, the MoD estimated that the
cost of operations in Afghanistan in 2006-07 would be £540
million. The estimated cost has now risen to £770 million.
13. Table 3 breaks down the estimated additional
costs of operations in Afghanistan for the current year, and compares
them with the outturn for the two previous years.
Table 3: Cost of operations in Afghanistan
Cost Type |
Afghanistan Outturn 2004-05 £ m |
Afghanistan Outturn 2005-06 £ m |
Afghanistan Forecast 2006-07 £ m as at Winter Supplementary Estimate |
Afghanistan Forecast 2006-07 £ m now |
Increase / decrease since Winter Supplementary Estimate |
Resource - Direct
| | | |
| |
Military Personnel | 15
| 8 | 25
| 51* | + 26
|
Civilian Personnel |
1 | 2
| 7 | 3
| - 4 |
Stock / other consumption
| 10 | 57
| 103 | 140
| + 37 |
Infrastructure costs |
7 | 10
| 73 | 99
| + 26 |
Equipment support costs |
7 | 24
| 81 | 122
| + 41 |
Other costs and services
| 20 | 38
| 67 | 77
| + 10 |
Net income foregone |
(2) | 8
| 4 | 4
| - |
Total Direct Resource
| 58 | 147
| 360 | 496
| + 136 |
Indirect Resource | -
| 1 | -
| 20 | + 20
|
Total Resource |
58 | 148
| 360 | 516
| + 156 |
Capital |
| | | |
|
Capital Additions | 9
| 51 | 180
| 254 | + 74
|
Total Capital |
9 | 51
| 180 | 254
| + 74 |
Grand Total | 67
| 199 | 540
| 770 | + 230
|
Source: Ministry of Defence[17]
* includes £22 million cost of operational
bonus
14. It appears from this breakdown that the change
in the forecast costs for the current year since the Winter Supplementary
Estimate is attributable to:
- a £26 million increase
in the military personnel costs, most of which (£22 million)
is explained by the cost of the operational bonus. The MoD's supplementary
memorandum states that the change in forecast expenditure is not
due to changes in force levels, which will be reflected in costs
next year.[18]
- the inclusion of indirect resource costs for
UORs' depreciation and cost of capital.
- A £37 million increase in the forecast cost
of stock and other consumption. The MoD's supplementary memorandum
states that this is primarily due to increased ammunition and
catering costs, and reflects the tempo of operations in Helmand
Province.[19]
- a £41 million increase in equipment support
costs, and a £10 million increase in other costs and services.
The MoD's supplementary memorandum states that the increase in
equipment support cost is due to the increased number of approved
UORs and repair of equipment.[20]
- an increase of £74 million in capital additions,
and an increase of £26 million in resource infrastructure
costs. The MoD's supplementary memorandum states that the increase
in infrastructure costs is due to additional planned building
activity, for example the construction of a new runway at Camp
Bastion.[21]
15. If the indirect costs and the cost of the operational
bonus are discounted, the forecast resource costs have increased
from £360 million at the Winter Supplementary Estimates to
£474 million (£496 million total direct resource costs,
less £22 million for the Afghanistan share of the operational
bonus). The
cost of operations in Afghanistan in the current year appears
to be almost a third higher than the MoD was expecting last November.
Estimated costs of operations
in the Balkans
16. The
Spring Supplementary Estimate shows that the expected cost of
operations in the Balkans in 2006-07 is £53 million.
17. Table 4 breaks down the estimated costs of operations
in the Balkans for the current year, and compares them with the
outturn for the two previous years.
Table 4: Cost of operations in the Balkans
Cost Type |
Balkans Outturn 2004-05 £ m |
Balkans Outturn 2005-06 £ m |
Balkans Forecast 2006-07 £ m |
Resource - Direct
| | | |
Military Personnel |
16 | 12
| 12* |
Civilian Personnel |
8 | 5
| 5 |
Stock / other consumption
| 8 | 9
| 13 |
Infrastructure costs |
16 | 13
| 12 |
Equipment support costs
| 4 | 8
| 6 |
Other costs and services
| 32 | 12
| 14 |
Net income foregone |
(9) | 2
| (9) |
Total Direct Resource
| 75 | 61
| 53 |
Indirect Resource |
10 | 2
| 0 |
Total Resource |
85 | 63
| 53 |
Capital |
| | |
Capital Additions | 3
| - | -
|
Net Book Value of fixed asset disposals
| (1) | -
| - |
Total Capital |
2 | -
| - |
Grand Total |
87 | 63
| 53 |
Source: Ministry of Defence[22]
* includes £3 million cost of operational
bonus
Estimated costs of operations
in other theatres
18. The Spring Supplementary Estimate also requests
£4.2 million for the MoD's Conflict Prevention work in other
theatres. As for the additional cost of operations in the Balkans,
this additional £4.2 million was included in the FCO's Main
Estimates and is now transferred to the MoD.[23]
We recommend
that the MoD clarify in its response to this report in which other
theatres it has been carrying out conflict prevention operations
during 2006-07.
Votes A
19. The Votes A for the financial year 2007-08 were
laid before the House on the same day as the Spring Supplementary
Estimates.[24] The Votes
A provide the mechanism by which Parliament exercises control
over the maximum number of personnel in the Armed Forces. Motions
to approve the maximum numbers for each Service, set out in the
Votes A, will be put to the House after the debate on the Spring
Supplementary Estimates.[25]
20. The Votes A for 2007-08 show a continuing reduction
in the maximum size of the Regular Armed Forces, reflecting the
gradual downsizing announced in the Government's 2004 Future
Capabilities White Paper.[26]
The reduction is most marked for the Royal Air Force, for which
the maximum is to reduce by 7.2%, from 52,110 to 48,360. The maximum
for the Royal Navy is to remain static at 34,070, but there is
to be a 2.4% increase in the Royal Marines from 7,980 to 8,170.
The Army maximum is to reduce by 0.9%, from 126,945 to 125,785,
though the maximum for Army officers is to increase by 145. These
changes are summarised in Table 5 below.
Table 5: Maximum number of the Regular Armed Forces
Service |
2005-06 |
2006-07 |
2007-08 |
Percentage change 2006-07 to 2007-08 |
Royal Navy | 36,200
|
34,070 | 34,070
| 0% |
Royal Marines |
7,980 | 7,980
| 8,170 | + 2.4%
|
Army* | 128,945
| 126,945 | 125,785
| - 0.9% |
Royal Air Force |
56,140 | 52,110
| 48,360 | - 7.2%
|
Total | 229,265
| 221,105 | 216,385
| - 2.1% |
Source: MoD Votes A 2007-08 and 2006-07[27]
* Includes figures for Commonwealth, Colonial,
etc. troops abroad and Gurkhas
21. The MoD's supplementary memorandum states that
the increase in the Royal Marines Officers maximum from 880 to
930 and Other Ranks maximum from 7,100 to 7,240 is largely as
a result of the creation of the Special Forces Support Group.
It states that the 0.9% increase in the maximum of Army Officers,
from 16,235 to 16,380 is required because mid-ranked Army Officers
are currently required in higher numbers than previously expected
to staff operational headquarters units.[28]
22. The MoD's supplementary memorandum emphasises
that the
Votes A represent the uppermost limits of personnel
retained for service in the Armed Forces. It neither predicts
actual strengths nor acts as a control over numbers employed in
the Services.[29]
We note that the Votes A maxima are considerably
higher than the total figures for the UK Regular Forces set out
in the MoD's Annual Report and Accounts,[30]
and that they contain a large element for contingency.
We recommend that the MoD clarify in its response to this report
what it sees as the purpose of the Votes A, and how the maxima
stated relate to the actual strengths of the Armed Forces.
Conclusion
23. The House of Commons will be
asked to approve the Spring Supplementary Estimates, and the Votes
A, on Monday 12 March. While we think it important to bring to
the House's attention the increasing cost of operations in Iraq
and Afghanistan, we believe it to be essential that these operations
be adequately funded. We therefore recommend that the House approve
the request for resources set out in the MoD's Spring Supplementary
Estimate.
1 HM Treasury, Central Government Supply Estimates
2006-07 Spring Supplementary Estimates, HC 293, February 2007 Back
2
Ev 1, table 1 Back
3
Ev 3-4, para 4 Back
4
Ev 4, para 4.3 Back
5
Ev 4, paras 4.7-4.9 Back
6
RfR2 covers the net additional costs of operations: the costs
that the MoD would have incurred regardless of the operation taking
place, such as wages and salaries, are recorded against RfR1:
see Ev 8, para 12 Back
7
Defence Committee, Fifth Special Report of Session 2006-07, 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, Appendix, para 4 Back
8
Defence Committee, Third Report of Session 2006-07, Costs of
Operations in Iraq and Afghanistan: Winter Supplementary Estimate
2006-07, HC 129, para 8 Back
9
For example, HC (2006-07) 129, para 11 Back
10
Defence Committee, Fourth Special Report of Session 2006-07, Costs
of operations in Iraq and Afghanistan: Winter Supplementary Estimate
2006-07: Government Response to the Committee's Third Report of
Session 2006-07, HC 317 Back
11
HC Deb, 1 March 2007, cols 1083-5 Back
12
HC (2006-07) 129, para 21 Back
13
Ev 5, table 6, and MoD Annual Report and Accounts 2005-06,
HC 1394, p 201 Back
14
Ev 10, para 3 Back
15
Ibid. Back
16
Ministry of Defence, Operations in Iraq: Key Facts & Figures Back
17
Ev 5, table 5, and HC (2005-06) 1394, p 201 Back
18
Ev 10, para 3 Back
19
Ev 9, para 3 Back
20
Ibid. Back
21
Ibid. Back
22
Ev 5, table 5, and HC (2005-06) 1394, p 201 Back
23
Ev 4, para 5.1 and Ev 5, table 5 Back
24
Ministry of Defence Votes A 2007-08, HC 280 Back
25
Under Standing Order No. 55 (1) and (3), the question on any outstanding
vote relating to numbers for defence services is put at the conclusion
of the Spring Estimates Day, without debate. Back
26
Delivering Security in a Changing World: Future Capabilities,
Cm 6269, July 2004, para 3.6 Back
27
HC (2006-07) 280 and HC (2005-06) 869 Back
28
Ev 10, para 4 Back
29
Ibid. Back
30
HC (2005-06) 1394, p 137, table 17 Back
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