1. Memorandum from the Ministry of Defence
MINISTRY OF DEFENCE SPRING SUPPLEMENTARY
ESTIMATE 2006-07 ESTIMATES MEMORANDUM
1. INTRODUCTION
1.1 This Memorandum covers the Spring 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). This Estimates
Memorandum should be read in conjunction with the Spring Supplementary
Estimate and the Department's Main Estimate and Winter Supplementary
Estimate.
1.2 The Introduction to the Estimate lists
the changes being made since the Winter Supplementary Estimate.
This is shown by Request for Resources (RfR[1]),
and the section number shown in brackets after the detail for
each change is a reference to the line(s) that are affected by
the change in Part II of the Estimate.
1.3 There is a separate Estimates Memorandum
for the Spring Supplementary Estimate for the Armed Forces Retired
Pay, Pensions vote.
2. SUMMARY OF
RESOURCES SOUGHT
IN THE
ESTIMATE
2.1 The Introduction to the Estimate shows
a net increase in resources of £593 million from £34,231
million at Winter Supplementary Estimates to £34,824 million.
There is an increase in RfR1 (Provision of Defence Capability)
resources of £243 million, which is primarily due to the
drawdown of part of the Departmental Unallocated Provision (DUP)
of Indirect Resource DEL (IRDEL). Further detail is provided at
Para 4. There is a net increase in RfR2 (Conflict Prevention)
resources of £340.2 million, which is additional funding
for Iraq, Afghanistan, the Balkans and Global Rest of the World
conflict prevention pools. Further detail is provided at Para
5. There is a net increase in RfR3 (War Pensions, allowances,
etc) resources of £10 million, to cover additional expenditure.
Further detail is provided at Para 7. Changes in capital relate
to RfR2, where additional funding is requested of £89 million
for operations in Iraq and Afghanistan. The changes are summarised
in the following tables:
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
|
2.2 The total change in the Estimate is £682 million
which gives an additional net cash requirement of £550 million.
The cash requirement is analysed in the following table and a
reconciliation between the changes in the Estimate and the net
cash requirement is shown in Part II of the Estimate, "Resource
to Cash Reconciliation".
Table 2
CHANGE IN CASH REQUIREMENT
| | £ million |
| Near Cash in Resource DEL | 450.530
|
| Cash in Capital DEL | 89.000
|
| Non Budget (Grants) | 0.801
|
| Near Cash in Annually Managed Expenditure (AME)
| 10.000 |
| Net Cash Requirement | 550.331
|
2.3 The most significant changes to the Defence Expenditure
Limits (DEL) are:
— net transfers in of £59.530 million from
other Government departments under RfR1 and RfR2 (see Table 4),
which includes funding for the Balkans and Global Rest of World
Conflict Prevention Pool (funded by transfers in from the Foreign
& Commonwealth Office);
— increase in RfR2 by £241 million Resource
DEL and £89 million Capital DEL to reflect the forecast costs
of peace-keeping in Iraq and Afghanistan;
— transfer of £150 million from Indirect Resource
DEL to Direct Resource DEL (See Para 4.2) and transfer £42
million of Indirect Resource DEL from RfR1 to RfR2 to cover the
cost of capital and depreciation costs (See Para 4.3);
— draw down of £250 million from the Department's
(Unvoted) Unallocated Resource Provision to cover the shortfall
in the provision as a result of the transfers above, and to reflect
the increased (Voted) Indirect Resource DEL forecast of outturn
for RfR1. This does not represent a substantive change in
business.
2.4 There are also additions to costs falling outside
of the DEL of £10 million to the RfR3 War Pensions Benefits
Programme costs; nuclear provision costs of £31.943 million;
and £0.801 million for Non Budget costs.
3. DETAILED EXPLANATION
OF CHANGES
3.1 Part I of the Estimate summarises the changes described
above and provides detail about the costs included in each RfR.
3.2 Part II of the Estimate shows the changes proposed
in the Estimate, by Top Level Budget Holder (TLB). This shows
the present net position (the position at Winter Supplementary
Estimates), the changes in the position, and the new net provision
(Spring Supplementary Estimates). Again this is set out by Request
for Resources. The transfers and other changes outlined in the
Introduction to the Estimate are analysed in this section of the
Memorandum.
3.3 The table below shows how the Spring Supplementary
Estimate is compiled, identifying changes since 2006-07 Winter
Supplementary Estimates.
Table 3
CHANGES TO RESOURCES AND CAPITAL AT SPRING SUPPLEMENTARY ESTIMATES
| £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 Provision at Winter Supplementary Estimates
| 21,360.5 | 10,555.0
| 31,915.5 | 178.1
| 12.4 | 32,106.0
| 6,998.0 | -7.0
| 6,991.0 |
| Transfers In | 3.1
| | 3.1 |
| | 3.1
| | | |
| Transfers Out | -0.7
| | -0.7 |
| | -0.7
| | | |
| Switch from Indirect to Direct R DEL
| 150.0 | -150.0
| 0.0 | |
| 0.0 |
| | |
| Switch Indirect R Del from RfR1 to RfR2
| | -42.0
| -42.0 |
| | -42.0
| | | |
| Departmental Unallocated Provision
| | 250.0
| 250.0 |
| | 250.0
| | | |
| AdditionalProvision |
| | | 31.9
| 0.8 | 32.7
| | | |
| RfR1 at Spring Supplementary Estimates
| 21,512.9 | 10,613.0
| 32,125.9 | 210.0
| 13.2 | 32,349.1
| 6,998.0 | -7.0
| 6,991.0 |
| RfR2 Provision at Winter Supplementary Estimates
| 1,087.3 | 0.0
| 1,087.3 |
| | 1,087.3
| 360.0 |
| 360.0 |
| AdditionalProvision |
241.0 | |
241.0 | |
| 241.0 |
89.0 | | 89.0
|
| Transfers In | 57.2
| | 57.2 |
| | 57.2
| | | |
| Switch Indirect R Del from RfR1 to RfR2
| | 42.0 |
42.0 | |
| 42.0 | |
| |
| RfR2 at Spring Supplementary Estimates
| 1,385.5 | 42.0
| 1,427.5 |
| | 1,427.5
| 449.0 |
| 449.0 |
| RfR3 Provision at Winter Supplementary Estimates
| | | | 1,037.7
| | 1,037.7
| | | |
| AdditionalProvision |
| | | 10.0
| | 10.0 |
| | |
| RfR3 at Spring Supplementary Estimates
| | | | 1,047.7
| | 1,047.7
| | | |
| Spring SupplementaryEstimates Total
| 22,898.4 | 10,655.0
| 33,553.4 | 1,257.7
| 13.2 | 34,824.3
| 7,447.0 | -7.0
| 7,440.0 |
[1] Definitions of the column headings are shown at Annex 1.
[2] Minimal differences may occur due to roundings.
4. RFR1 PROVISION
OF DEFENCE
CAPABILITY—EXPLANATION
OF CHANGES
Transfers In/Out
4.1 The Estimate includes three transfers in from Other
Government Departments and one transfer out, which are detailed
in Table 4.
Table 4
TRANSFERS BETWEEN MOD AND OTHER GOVERNMENT DEPARTMENTS
| |
RfR |
£ million |
Purpose |
| Transfers out | |
| |
| Cabinet Office | 1 | (0.750)
| For the expansion and capability of the Security and Intelligence Agencies.
|
| Transfers In | |
| |
| Department of Culture, Media and Sport |
1 | 3.080 | Contribution to the National Meteorological Programme and Severe Weather Warning Service.
|
| Foreign and Commonwealth Office | 2
| 4.200 | Contribution to the Global Rest of the World Conflict Prevention Pool costs.
|
| Foreign and Commonwealth Office | 2
| 53.000 | Contribution to the Balkans Conflict Prevention Pool costs.
|
| Total Net Transfers |
| 59.530 | |
Transfer from Indirect Resource DEL to Direct Resource DEL—£150
million
4.2 HM Treasury have agreed the transfer of £150
million from non-cash to near-cash. This has enabled the Department
to accommodate some minor provisions of TLBs planned programmes
that otherwise might have led to the Department reining back on
other elements of spend. This additional Resource DEL (some 0.7%
of Direct Resource DEL), has enabled the Department to maintain
its originally planned programme, despite changes at the margins
of a significant number of individual programmes. Examples of
how this additional near cash has been used are:
— Additional funding for the Defence Logistics Organisation
(DLO) to expedite early elements of the Future Defence Supply
Chain initiative (FDSCi) in-year and gain benefits. The FDSCi
aims to improve the use of working capital within the support
area through the use of high-specification logistics processes
which includes stock tracking, computerised stores depots (which
require less space) and depletion/deletion of under-utilised stock
lines. Fuel and utility price increases, and a range of other
minor pressures have required the Department to increase the budgets
of the Fleet and Centre TLBs in order to maintain their planned
programmes.
Transfer of Indirect Resource from RfR1 to RfR2—£42
million
4.3 As in previous years the Department has transferred
£42 million Indirect Resource DEL from RfR1 to RfR2 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 this equipment, while being used on operations,
are met from the Treasury's Reserve.
Draw Down of the Department Unallocated Provision—£250
million
4.4 Following the transfers described in paragraphs 4.2
and 4.3, the latest forecasts of Indirect Resource spend from
TLB Holders indicated that the Department would need to draw down
£250 million from the £470 million available in the
non-voted provision to ensure that sufficient resources were available
for the current year.
Increases in Non Budget Items
4.5 A review of Grants in Aid to the Royal Hospital Chelsea
and repayments to the National Loans Fund have resulted in an
increase in Non Budget Estimate of £0.8 million.
Increases in AME Items
4.6 There has been an increase in the provisions required
for a number of projects relating to the nuclear programme for
example, revised forecasts associated with storage of nuclear
submarines awaiting disposal.
Neutral Transfers
4.7 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 planned since
the start of the year, but which require funding adjustments to
deliver as the year progresses. These comprise a number of individual
changes; an example of this is the transfer of new-in-service
equipment from the Defence Procurement Agency (DPA) to the Defence
Logistics Organisation. These changes do not represent substantive
adjustments to our planned outputs.
4.8 The MoD fixed asset management project which is part
of the Defence Resource Management Programme has led to centralisation
of fixed asset management under four single balance sheet owners
(SBSOs) Defence Estates (DE), Defence Logistics Organisation,
Defence Procurement Agency and the Defence Communications Services
Agency (DCSA), which is part of the DLO. Some budget re-allocations
were made in the Winter Supplementary Estimates to reflect the
change of budgetary responsibility, and further adjustments have
been made in this Estimate.
4.9 The Operating and Non-Operating Appropriations in
Aid forecasts are subject to continual review, and the changes
to the Estimate reflect the latest estimate of outturn for each
TLB.
5. REQUEST FOR
RESOURCES 2
Conflict Prevention
5.1 The Spring Supplementary Estimate requests an additional
£142 million for peace-keeping operations in Iraq; £230
million for peace-keeping costs for operations in Afghanistan;
£53 million for Balkans Programme costs; and £4.2 million
for Other Global Pool Programme costs. This is summarised in Table
5 below, with a more detailed analysis is shown in Table 6. The
Department has not included a contingency in this Estimate.
Table 5
SUMMARY CONFLICT PREVENTION CLAIM AT 2006-07 SSE
| Operation |
Direct Resource DEL £ million |
Indirect Resource DEL £ million |
Capital DEL £ million |
Total SSE claim 2006-07 £ million |
| |
| Iraq | 105 |
21 | 15 | 142
|
| Afghanistan | 136 | 20
| 74 | 230 |
| Programme Expenditure | |
| | |
| Balkans | 53 | 0
| 0 | 53 |
| Global Pool | 4 | 0
| 0 | 4 |
| Total | 298 | 42
| 89 | 429 |
Operational Allowance
5.2 The Spring Supplementary Estimate now includes the
estimated costs of £59 million for the tax-free bonus to
military personnel on designated operational deployments, which
was announced by the Secretary of State for Defence on 10 October
2006. The forecast costs are included in Military Personnel
costs in Table 6.
Conflict Prevention Pool costs—£ 57.200 million
5.3 This element of RfR2 covers the Programme Costs relating
to MoD activities in the Balkans (£53 million) and the Global
Pool (£4.2 million). This expenditure is covered by budgetary
transfers from the Foreign and Commonwealth Office, as shown in
the transfer section, and the costs of the Balkans are shown in
detail in Table 6.
Transfer of Indirect Resource DEL from RfR1 to RfR2—£42
million
5.4 As noted in Para 4.3 the Department has transferred
£42 million Indirect Resource DEL from RfR1 to RfR2 to cover
cost of capital and depreciation charges.
5.5 The forecast cost of operations for 2006-07 is shown
in Table 6.
Table 6
THE FORECAST COST OF OPERATIONS IN 2006-07
| Cost Type |
Iraq £ million |
Afghanistan £ million |
Balkans £ million |
| Direct Resource DEL |
| | |
| Civilian Personnel | 15 |
3 | 5 |
| Military Personnel | 111 |
51 | 12 |
| Stock/Other Consumption | 212
| 140 | 13 |
| Infrastructure Costs | 89 |
99 | 12 |
| Equipment Support Costs | 214
| 122 | 6 |
| Other Costs and Services | 139
| 77 | 14 |
| Income Foregone | 10 | 6
| 2 |
| Income Generated | (5) |
(2) | (11) |
| Total Direct Resource DEL | 785
| 496 | 53 |
| Indirect Resource DEL | 22 |
20 | 0 |
| Total Resource DEL | 807
| 516 | 53 |
| Capital DEL | |
| |
| Capital Additions | 195 |
254 | 0 |
| Total Capital DEL | 195
| 254 | 0 |
| Total Cost | 1,002
| 770 | 53 |
5.6 The total conflict prevention claim for 2006-07 is
set out in Table 7. The Department will report outturn against
this in the Annual Report and Accounts.
Table 7
TOTAL CONFLICT PREVENTION CLAIM FOR 2006-07
| Operation |
Direct Resource DEL
£ million |
Indirect Resource DEL
£ million |
Capital
DEL
£ million |
Total Forecast 2006-07
£ million |
Total Outturn
2005-06
£ million |
| Iraq | 785 | 22
| 195 | 1,002 | 958
|
| Afghanistan | 496 | 20
| 254 | 770 | 199
|
| Programme Expenditure | |
| | |
|
| Balkans | 53 | 0
| 0 | 53 | 63 |
| Global Pool | 20 | 0
| 0 | 20 | 11 |
| African Pool | 31 | 0
| 0 | 31 | 36 |
| Total | 1,385 | 42
| 449 | 1,876 | 1,267
|
6. END YEAR
FLEXIBILITY
6.1 The Department took up its Direct DEL End Year Flexibility
(EYF) at Winter Supplementary Estimates.
7. RFR3 WAR
PENSION BENEFIT
7.1 RfR3 has increased by £10 million on Annually
Managed Expenditure (AME) for War Pensions Benefits Programme
costs to reflect the latest forecasts received from the Veterans
Agency.
8. THE DEPARTMENTAL
EXPENDITURE LIMIT
(DEL)
8.1 The following table shows the DEL from 2003-04 to
2006-07 for all RfRs. The Total DEL is calculated by adding Resource
DEL, Capital DEL and deducting depreciation, which forms part
of Resource DEL. Depreciation is excluded from Total DEL; including
this as well as Capital DEL would be double counting. The figures
are for voted and Non voted DEL; the Non voted figure for 2006-07
is £331.294 million net of depreciation, and this is shown
in more detail in the Notes to the Estimate.
Table 8
CHANGES TO MoD DIRECT EXPENDITURE LIMITS
| | 2003-04
SSE
£ million
| 2004-05
SSE
£ million
| 2005-06
SSE
£ million
| 2006-07
ME
£ million
| 2006-07
WSE
£ million
| 2006-07
SSE
£ million
|
| Resource DEL | 32,315 | 32,831
| 33,727 | 32,643 | 33,803
| 34,104 |
| Capital DEL | 6,421 | 6,662
| 6,798 | 6,926 | 7,359
| 7,448 |
| Depreciation | -7,437 | -8,049
| -8,168 | -7,551 | -7,551
| -7,401 |
| Total DEL | 31,299
| 31,444 | 32,357
| 32,018 | 33,611
| 34,151 |
9. ADMINISTRATION COSTS
LIMIT
9.1 The Department is not currently subject to an Administration
Costs Limit.
10. PROVISIONS AND
CONTINGENT LIABILITIES
10.1 There are increased provisions of £31 million
to cover the latest forecasts for nuclear provisions (AME).
11. MACHINERY OF
GOVERNMENT CHANGES
11.1 There are no Machinery of Government changes in
this Estimate.
12. NET ADDITIONAL
CASH REQUIREMENT
12.1 The Net Cash impact for the Spring Supplementary
Estimate is an increased requirement of £550 million, of
which £539 million relates to DEL (£450 million Resource
DEL and £89 million Capital DEL); £10 million relates
to War Pensions and Allowances AME; and £1 million relates
to Non Budget (Grants).
13. VOTES A
13.1 We will be laying the 2007-08 Votes A Annual Estimate
alongside this 2006-07 Spring Supplementary Estimate. This will
be published as HC280.
20 February 2007
ANNEX
A. DEFINITION OF TERMS
1. DIRECT RESOURCE
DEPARTMENTAL EXPENDITURE
LIMITS (RDEL)
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. Direct Resource DEL is also known
as `near cash in the resource budget'.
2. INDIRECT RESOURCE
DEL (IRDEL)
This covers items such as depreciation, cost of capital charges,
movement in provisions, and the notional auditors' fees for the
National Audit Office (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) includes Programmes that
are demand-led, such as War Pensions (RfR3) and exceptionally
volatile items that cannot be controlled by the Department. AME
also includes Programmes that are so large that the Department
could not be expected to absorb the effects of volatility within
them, 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 DEPARTMENTAL
EXPENDITURE LIMIT
(CDEL)
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.
11. REQUEST FOR
RESOURCES 1
Provision of Defence Capability, provides for expenditure
primarily to meet the Ministry of Defence's operational support
and logistics services costs and the costs of providing the equipment
capability required by defence policy.
12. REQUEST FOR
RESOURCES 2
Conflict Prevention provides primarily for the additional
costs of operations. These are the net additional costs incurred:
the costs that the Department would have incurred regardless of
the operation taking place, such as wages and salaries are recorded
against RfR1.
13. REQUEST FOR
RESOURCES 3
War Pensions and Allowances, etc. provides primarily for
the payments of pensions and allowances for disablement or death
arising out of war or service in the Armed Forces after 2 September
1939, and associated non-cash items.
B. LIST OF ABBREVIATIONS USED IN THE ESTIMATE
| AME | Annually Managed Expenditure
|
| DCSA | Defence Communications Services Agency
|
| DE | Defence Estates |
| DLO | Defence Logistics Organisation
|
| DPA | Defence Procurement Agency
|
| DUP | Departmental Unallocated Provision
|
| EYF | End Year Flexibility |
| FCO | Foreign and Commonwealth Office
|
| FDSCi | Future Defence Supply Chain initiative
|
| MoD | Ministry of Defence |
| NAO | National Audit Office |
| RfR | Request for Resources |
| SBSO | Single Balance Sheet Owner
|
| SSE | Spring Supplementary Estimates
|
| UK | United Kingdom |
| WSE | Winter Supplementary Estimates
|
| |
1
For detail on the different Requests for Resources, see Annex
1. Back
| 
