1 Report
Background
1. One of the important but often over-looked roles
of the House is to approve the Estimates providing money for government
three times each Financial Year. Financial oversight and the detailed
scrutiny that ought to accompany it must be of enormous importance
to any Parliament that claims to be doing its job properly. Yet
Committees of the House have in the past often expressed unhappiness
with how this oversight is carried out and scrutiny undertaken.[1]
Since it was set up for the very first time almost thirty years
ago, the Defence Committee has frequently turned its attention
to the Estimates. Our predecessor Committees have agreed regular
Reports covering one or more aspects of the financial provision
of the Ministry of Defence (MoD) in most Sessions of Parliament.
2. We have ourselves examined each Estimate from
the MoD since we were appointed following the last General Election.[2]
We are very conscious of our duty to provide the House with a
Report setting out our analysis of the figures and forecasts provided
by the department we scrutinise. However, we are also conscious
of how little time we have each Financial Year properly to consider
the Winter and Spring Supplementary Estimates and to prepare a
Report for the House, given the proximity of these Estimates being
laid to their being before the House for approval. This absurdly
compressed time-framein this instance some fifteen working
days between the laying of the Estimates and the date on which
the vote on the Estimates will take place in the Chamberis
not the fault of the MoD. We are grateful to the MoD for the speed
with which it has responded to the questions sent to it (which
answers form part of the evidence to this Report[3])
and for the co-operative spirit which informs its dealings with
us with regard to the scrutiny of its Estimates. We are also grateful
to the Committee Office Scrutiny Unit which has to assist all
those departmental committees asking for its assistance in analysing
their respective Estimates over this very short period of time.
3. Notwithstanding recent welcome extensions in
time, the time permitted
for any departmental select committee to examine its appropriate
Supplementary Estimate, from the date of laying until the date
of decision, even taking into account the support and co-operation
from which it might benefit, is still unreasonably short. This
is clearly unsatisfactory for those committees keen properly to
examine their departments' Estimates which can provide less thorough
scrutiny than would otherwise be the case; and still less satisfactory
for the House which enjoys less detailed consideration of that
scrutiny than would seem appropriate for the voting of very significant
sums of public money for use by the government of the day. This
has to change if Parliament is to be able to do its job effectively.
4. Once again the memorandum supplied by the MoD
for its Spring Supplementary Estimate is commendably clear and
thorough.[4] Although we
have raised a few points with the MoD prior to, and within, this
Report where we feel more information might have been provided
or some explanation for elements of the Estimate given, the
MoD should be commended for continuing to provide a clear and
informative Estimates memorandum.
Spring Supplementary Estimate:
an overview
5. The Spring Supplementary Estimates (SSE) for Financial
Year 2007-08 were laid before the House of Commons on 19 February
2008.[5] The
Ministry of Defence is seeking a net increase in resources and
capital of £2,192 millionin cash terms a net increase
of £894 million.[6]
This is the additional sum of money required by the MoD to fund
its activity over and above the sums already voted in the Main
and Winter Supplementary Estimates. Table 1 provides a breakdown of this requested increase in expenditure.
Table 1: Change in Resource and Capital Expenditure sought in the Spring Supplementary Estimate
Resource Expenditure
| |
Provision of Defence Capability (RfR1)
| 1,447.124 |
Operations and Peace Keeping (RfR2)
| 1,022.500 |
War Pensions and Allowances (RfR3)
| 3.00 |
Total Net Request for Resources
| 2,472.624
|
Capital Expenditure
| |
Net Provision of Defence Capability (RfR1)
| (669.000) |
Operations and Peace Keeping (RfR2)
| 388.000 |
Total Net Request for Capital
| (281.000)
|
TOTAL CHANGE IN CAPITAL AND RESOURCE
| 2,191.624 |
6. The requested resource increase of £1,447 million
in Request for Resources (RfR) 1 (Provision of Defence Capability)
is explained in the Department's Estimate memorandum.[7]
The increase is primarily due to 'non-cash' resource requirements
forecasted by Top Level Budget-holders (TLBs) for depreciation,
provisions for staff early release schemes and fixed asset value
impairments. The net reduction of £669 million in the estimated
capital figure comprises the £709 million balance of the
£959 million receipt from the sale of Chelsea Barracks not
already provided for in the Main Estimate, offset by a £40
million increase in the capital budget funded by the last tranche
of Qinetiq sale proceeds.[8]
This in turn offsets the resource increase so that overall RfR1
request is £778.124 million, as opposed to £243.074
million at this stage in the last Financial Year.[9]
7. The requested resource increase in RfR2 (Operations
and Peace Keeping) of £1,022 million is largely to fund the
additional costs of conducting operations in Iraq, Afghanistan,
the Balkans and elsewhere. There is an additional capital request
of £288 million, which means that the overall RfR2 request
is £1,410.5 million,[10]
as opposed to £429 million at this stage in the last Financial
Year.[11] RfR2 is the
area where our Reports on the Supplementary Estimates have focused
in the past, and this is, to some extent, where we will focus
in this Report. No forecast for these costs is given in the Main
Estimate at the beginning of each Financial Year, and it is only
by scrutinising the Winter and then the Spring Supplementary Estimates
that the year-on-year trajectory of additional costs for operations
can be gauged. In this Report we also comment on the response
which we have just received from the MoD to our last Estimates
Report, Cost of operations in Iraq and Afghanistan: Winter
Supplementary Estimate 2007-08.[12]
8. We have in the past taken issue with the MoD for
failing to supply with the Main Estimate any indication of what
magnitude of operational cost the Ministry expects the country
to have to shoulder during the Financial Year, and which it will
ask the House to vote at each of the Supplementary Estimates within
that Year. Clearly it is difficult for the MoD to give an exact
or near-exact estimate for operational costs up to 12 months in
advance. Nonetheless, some indication of the working assumptions
within the Ministry would be useful for the House to have at an
early stage during the Financial Year. We
are therefore pleased to note that the MoD in its response to
our Report on the Winter Supplementary Estimate has said that
it will, at the next Main Estimate, include a forecast for Urgent
Operational Requirement (UOR) costs within RfR2.
While this does not go as far as we might like in providing a
full estimate earlier in the Financial Year, since UOR costs form
a significant proportion of RfR2 costs as a whole (some 80% in
2006-07)[13], this will
be useful data and we are pleased that the MoD has decided to
give the House more information in this way.[14]
9. Likewise, the House is usually during any Financial
Year only given the opportunity to see what the costs for operations
in the Balkans are expected to be towards the end of that Year,
in the Spring Supplementary Estimates. In part, this is on account
of these costs being presented in first instance in the Estimates
of another department, namely the Foreign and Commonwealth Office
(FCO). In past Reports we
have asked the MoD to provide information about likely Balkan
costs within its own Estimate earlier in the Financial Year. We
are again pleased that the MoD has decided in its next Main Estimate
to set down its own assumption for what these operational costs
are likely to be in Financial Year 2008-09.
The MoD points out that this figure will necessarily be subject
to amendment within the process of formulating the subsequent
Winter and Spring Supplementary Estimates, something we accept
the inevitability of.[15]
Nonetheless, we again commend
the MoD for increasing the amount of information which this will
make available to the House at an early stage in the Financial
Year.
Operations and Peace Keeping:
Iraq and Afghanistan
10. The
most notable element of the Estimate is the significant increase
signalled in the expected additional costs of operations in Iraq
and Afghanistan in the current Financial Year,
as set out in RfR2. In
the Winter Supplementary Estimates, the MoD estimated the additional
costs of operations in Iraq and Afghanistan for 2007-08 as £955
million and £964 million respectively (excluding indirect
costs). The MoD now estimates that these costs will be £1,449
million for Iraq and £1,424 million for Afghanistan.[16]
A breakdown is given below in Table 2, showing the change in estimated
costs since this Financial Year's Winter Supplementary Estimate.
11. This is
an increase in estimated additional costs for this current year
of around 50% for both theatres. While
some increase in cost was expected, and indeed flagged up by MoD
in its memorandum for the Winter Supplementary Estimates,[17]
the proportion of increase is higher than anticipated. (The comparable
increase between the Winter and Spring Supplementary Estimates
for 2006-07 is also set out in Table 4.) It is worth noting that
with the inclusion of indirect resource costs given in last month's
Spring Supplementary Estimate (not available in the Winter Supplementary
Estimate) the total expected additional costs of operations in
2007-08 are increased still further: to £1,648 million for
Iraq and to £1,649 for Afghanistan (Table 2). These increases
in costs since the last Supplementary Estimates are mainly attributed
to increased operational tempo (in Afghanistan) and to UORs.[18]
12. These are clearly very significant increases,
not least with regard to operations in Iraq. While
we are aware that the drawdown of forces in Iraq will not immediately
lead to a comparable decline in costs, nonetheless, the magnitude
of the increase in the costs estimate there is surprising.
The capital cost estimate for Iraq, for example, has almost doubled,
while the estimates for stock/other consumption, equipment support
costs and other costs and services have all increased by over
50%.[19] It
is worthwhile stressing that these increases in estimated costs
for this Financial Year have occurred not since the MoD's Main
Estimate was laid on 30 April 2007 but since the Ministry's Winter
Supplementary Estimate was laid on 15 November. In other words,
with the exception of the indirect costs of these operations,
the higher cost estimate was presumably unforeseen only three
months ago. Where
in future Supplementary Estimates bring significant increases
in the cost of operations, the Estimates memorandum should make
clear to what extent the increase is the result of previous under-estimation
and where it is a genuine cost increase.
Table2: Operations in Iraq and Afghanistanchanges in anticipated additional costs since Winter Supplementary Estimates (from RfR2)
Cost Type
| Iraq Forecast £m 2007-08as at Winter Supp Est
| Iraq Forecast £m 2007-08now
| % change
| Afghanistan Forecast £m 2007-08as at Winter Supp Est
| Afghanistan Forecast £m 2007-08now
| % change
|
Resource-Direct
| | | |
| | |
Military personnel
| 95 | 93
| -2.1% | 62
| 79 | +27.4%
|
Civilian personnel
| 12 | 15
| +25% | 6
| 8 | +33.3%
|
Stock/other consumption
| 169 | 263
| +55.6% | 138
| 237 | +71.7%
|
Infrastructure costs
| 106 | 109
| +2.8% | 95
| 163 | +71.6%
|
Equipment support costs
| 234 | 357
| +52.6% | 185
| 220 | +18.9%
|
Other costs and services
| 108 | 162
| +50% | 103
| 162 | +57.3%
|
Income generated/ (foregone)
| 5 | 5
| 0% | (3)
| 8 | _
|
Total
| 729 | 1004
| +37.7% | 586
| 877 | +49.7%
|
Capital
| 226 | 445
| +96.9% | 378
| 547 | +44.7%
|
Capital Additions
| 226 | 445
| +96.9% | 378
| 547 | +44.7%
|
Total
| 955 | 1449
| +51.7% | 964
| 1424 | +47.7%
|
Indirect Resource costs
| N/A | 199
| _ | N/A
| 225 | _
|
Total
| N/A | 1648
| _ | N/A
| 1649 |
_ |
13. Also of particular note are infrastructure cost estimates
for Afghanistan, which have risen by almost 75%, and stock/other
consumption costs for Afghanistan which have risen by a similar
magnitude. Capital costs estimates for Afghanistan have also increased
by almost 50%.[20] In
its response to our Report on the Winter Supplementary Estimate,
the MoD said that at that point "80% of capital spending
[in] Afghanistan this year [was] the result of Urgent Operational
Requirements reflecting the level of operational activity in Helmand
Province. Recent high value equipment requirements include protects
patrol vehicles, electronic Counter Measures and communications
upgrades".[21] A
comparison between the estimated costs of operations for this
Financial Year and the outturn of actual costs for the last Financial
Year is set out in Table 3. This reveals that the only expected
cost reduction for Iraq this Year will be for military personnel.
Every other cost is static or has increased. Capital costs for
Iraq and Afghanistan have risen by 163% and 207% respectively
since 2006-07; and overall costs, once indirect resource costs
are added in, have risen by 72% and 122% respectively.
14. One area where the increase in operational costs
seems particularly large is with regard to indirect resource costs
for both theatresthese are now expected to be more than
eight times greater for Iraq in 2007-08 than they were in the
previous Financial Year, and just less than five times greater
this Year for Afghanistan than they were in the Year before. The
memorandum from the MoD is not as informative on this point as
it might be, stating simply that the total of £424 million
in indirect resources cost for FY07-08 (as opposed to £69
million for FY06-07) is to cover "the cost of capital, depreciations
and impairment charges associated with fixed assets purchased
under UOR arrangements".[22]
We expect the MoD to provide
us with a full explanation for the very significant increase in
the indirect resource cost of operations in response to this Report.
In addition, we suggest that the MoD states clearly its expectations
with regard to the size of the indirect resource costs of operations
in Iraq and Afghanistan in the next Financial Year, should operations
continue at their current tempo.
15. We have already acknowledged the difficulty that
the MoD faces in attempting to gauge what costs might spring from
operations over the course of any Financial Year. However, we
are concerned that the very difficulty of attempting to provide
robust forecasts for the cost of operations might discourage the
Ministry from trying its best to provide a thoroughly considered
forecast for the Supplementary Estimates, Winter and Spring, during
the Financial Year. Table 4 sets out the
differences in forecast from the last Financial Year with regard
to operations in Iraq and Afghanistan between the Winter and Spring
Supplementary Estimates.
16. This Table appears to show that the magnitude
of change between those two points then was substantially less
for Iraq in particular than it has been in this current Financial
Year. This seems to suggest either that the nature of operations
in the last few months has significantly thrown off course otherwise
robust forecasts provided with the Winter Supplementary Estimate,
or that the forecast provided in November last year was particularly
weak.
Table 3: Iraq and AfghanistanSSE forecast for 2007-08 compared to outturn 2006-07
Cost type
| Iraq outturn £m 2006-07
| Iraq Forecast £m 2007-08 (SSE)
| % change
| Afghanistan Outturn £m 2006-07
| Afghanistan Forecast £m 2007-08 (SSE)
| %
change
|
Resource Direct
| | | |
| | |
Military Personnel
| 100 |
93 | -7%
| 50 |
79 | +58%
|
Civilian Personnel
| 15 |
15 | _
| 4 |
8 | +100%
|
Stock/other consumption
| 218 |
263 | +20%
| 164 |
237 | +44%
|
Infrastructure costs
| 83 |
109 | +31%
| 101 |
163 | +61%
|
Equipment support costs
| 206 |
357 | +73%
| 112 |
220 | +96%
|
Other costs and services
| 137 |
162 | +18%
| 89 |
162 | +82%
|
Income generated/
(foregone)
| 5 |
5 | _
| (2) |
8 | _
|
Sub-total
| 764
| 1004
| +31%
| 518
| 877
| +69%
|
Indirect resource
| 23 |
199 | +765%
| 46 |
225 | +389%
|
Total
| 787
| 1203
| +52%
| 564
| 1102
| +95%
|
Capital |
169 | 445
| +163% |
178 | 547
| +207% |
TOTAL
| 956
| 1648
| +72%
| 742
| 1649
| +122%
|
Table 4: Comparison between changes in anticipated costs, WSE to SEE 200607 and WSE to SSE 2007-08
Cost type
| Iraq Forecast £m WSE 2006-07
| Iraq Forecast £m SSE 2006-07
| % change
| Afghanistan Forecast £m WSE 2006-07
| Afghanistan Forecast £m SSE
2006-07
| %change
|
Resource Direct
| | | |
| | |
Personnel
| 77 | 126
| +63.6% | 32
| 54 | +68.8%
|
Stock/other consumption
| 191 | 212
| +11% | 103
| 140 | +35.9%
|
Infrastructure costs
| 106 | 89
| -16% | 73
| 99 | +35.6%
|
Equipment support costs
| 189 | 214
| +13.2% | 81
| 122 | +38.3%
|
Other costs and services
| 112 | 139
| +24.1% | 67
| 77 | +14.9%
|
Income generated
| 5 | 5
| _ | 4
| 4 | _
|
Total Direct Resource
| 680 | 785
| +15.4% |
360 | 496
| +37.8% |
Capital
| | | |
| | |
Capital Additions
| 180 | 195
| +8.3% | 180
| 254 | +41.1%
|
OVERALL TOTAL
| 860 | 1,002
| +16.5% | 540
| 770 | +42.6%
|
Operations and Peace Keeping: the Balkans
17. The additional costs for operations in the Balkans are comparatively
slight. In the past, and for the last time this Financial Year,
the additional cost to the MoD of these operations, which are
signalled earlier in the Foreign and Commonwealth (FCO) Main Estimate,
only become visible in the MoD's Estimate by the time of the Spring
Supplementaries. Thus it is only towards the end of the Financial
Year that the MoD provides directly to the House its forecast
for the cost of operations in the Balkans.
18. In our Report
on the Winter Supplementary Estimate 2007-08, we asked the MoD
to consider placing in its next Main Estimate a forecast for its
operational costs in the Balkans for that Financial Year. We are
pleased that the MoD has agreed to include such a forecast, and
accept that the MoD may have to amend this forecast over the course
of the Financial Year in its Winter and Spring Supplementary Estimates.[23]
We remind the MoD that the opportunity for such amendment does
not, however, free the department from its responsibility in the
first instance to provide as robust a forecast as possible. The
House can only benefit from early sight of the MoD's firm assumptions
as to the cost of such operations.
19. In a supplementary memorandum to our Report on
the Winter Supplementary Estimate 2007-08, the MoD stated that
its then unpublished assumption for the cost of Balkan operations,
conceived at the time of its Main Estimate, had been in the region
of £20 million.[24]
It now stands, according to the figures in the Spring Supplementary
Estimate, at some £31 million.[25]
This 55% increase is significant, albeit the sums involved are
much smaller than for Iraq and Afghanistan. Current developments
in the Balkan region, in the aftermath of the declaration of independence
by Kosovo, may lead to further increases in this figure. In this
context of uncertainty, the agreement by the MoD to provide an
early forecast figure for this cost in the next Financial Year
is important and particularly welcome.
Conclusion
20. We
again stress the unsatisfactorily tight deadline to which all
departmental select committees are expected to work in their study
of the Supplementary Estimates.
There is surely a direct link between the capacity of committees
to dedicate time to analyse the Estimates and the likelihood of
departments improving the clarity and thoroughness of the information
they provide to the House, and to its committees, alongside their
Estimates. It is vital that the current situation improves. As
things currently stand, it is simply not possible to scrutinise
these important figures as fully as they deserve.
21. Nonetheless,
we recommend that the House of Commons approve the request for
resources set out in the MoD's Spring Supplementary Estimate.
The £2,192 million, in large part requested to meet the forecast
additional cost of operations in Iraq and Afghanistan during this
Financial Year, represents a significant sum of public money,
but we believe that the task our Armed Forces are carrying out
is one that requires significant resourceespecially in
terms of new equipment and force protection, both so essential
to their missions abroad.
1 See, for example, the Sixth Report from the Select
Committee on Procedure, Procedure for debate on the Government's
Expenditure Plans, HC 295 of Session 1998-99; and the First
Report from the Liaison Committee, Shifting the Balance,
HC 300 of Session 1999-2000 Back
2
These Reports can be found amongst those listed on pages 18 and
19 of this Report. Back
3
Ev 9 Back
4
Ev 1-8 Back
5
HM Treasury, Central Government Supply Estimates 2007-08 Spring
Supplementary Estimates, HC273, February 2008 Back
6
Ev 2, para 2.5 Back
7
Ev 1, para 2.1 Back
8
Ev 4, paras 4.3 and 4.6 Back
9
Defence Committee, Tenth Report of Session 2006-07, Cost of
military operations: Spring Supplementary Estimate 2006-07,
HC 379, p5, Table 1 Back
10
Ev 5, table 5 Back
11
HC (2006-07) 379, para 3 Back
12
Defence Committee, Second Report of Session 2007-08, Costs
of operations in Iraq and Afghanistan: Winter Supplementary Estimate,
2007-08, HC 138: the Government response can be found in this
Report at Ev 10-11 Back
13
Ev 10, response to recommendation 6 Back
14
Ev 9-10, response to recommendation 2 Back
15
Ev 10, response to recommendation 4 Back
16
Ev 5, table 6 (these costs do not include Indirect Resource DEL
costs which are not included in forecasts given at the time of
the Winter Supplementary Estimates) Back
17
HC (2007-8) 138, Ev 4, para 5.1 Back
18
Ev 5, para 5.1 Back
19
See Table 2 Back
20
ibid Back
21
Ev 10, response to recommendation 6 Back
22
Ev 4, para 4.4 Back
23
Ev 10, response to recommendation 4 Back
24
HC (2007-8) 138, Ev 8 Back
25
Ev 5, table 6 Back
|