Memorandum from the Ministry of Defence
1. INTRODUCTION
1.1 This memorandum covers the Spring Supplementary
Estimate for the Ministry of Defence (MoD). The Department's spending
plans for 2007-08 are based upon the outcome of the Government's
Spending Review 2004. This Estimates Memorandum should be read
in conjunction with the Winter Supplementary Estimate and the
Department's Main Estimate (2007-08).
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 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 Voted DEL resources of £2,473 million from
£35,569 million at Winter Supplementary Estimates to £38,042
million. There is an increase in RfR1 (Provision of Defence Capability)
resources of £1,447 million, which is primarily due to non-cash
resource requirements forecasted by TLBs for depreciation, provisions,
and impairments. This is funded from the Department's accumulated
End Year Flexibility (EYF) and the draw down of the Department's
Unallocated Provision (DUP). The MoD RfR1 Capital (CDEL) net credit
of £669 million comprises the £709 milion balance of
the receipt from the sale of Chelsea Barracks (credited to AME)
offset by £40 million of End Year Flexibility (added to CDEL).
2.2 The RfR2 (Operations and Peace Keeping)[2]
resources net request of £1,023 million is additional funding
for military operations in Iraq, Afghanistan and the Balkans and
comprises direct resource costs of £599 million and indirect
resources of £424 million. The RfR2 capital request of £388
million is mainly for Urgent Operational Requirements (UORs) in
Iraq and Afghanistan. Further details are provided at Paragraphs
4 and 5.
2.3 There is a small additional (outside
DEL) request for £3 million resource AME for War Pensions,
which reflects the current forecast of outturn.
2.4 The changes are summarised in the following
tables:
Table 1
CHANGES IN RESOURCE AND CAPITAL EXPENDITURE
| Resource Expenditure
| £ million |
| Provision of Defence Capability (RfR1) |
1,447.124 |
| Operations and Peace Keeping (RfR2) | 1,022.500
|
| War Pensions and Allowances (RfR3) | 3.000
|
| Total Net Request for Resources |
2,472.624 |
| Capital Expenditure | £ million
|
| Net Provision of Defence Capability (RfR1) |
(669.000) |
| Operations and Peace Keeping (RfR2) | 388.000
|
| Total Net Request for Capital | (281.000)
|
| £ million |
| Total Change in Capital and Resource
| 2,191.624 |
2.5 The total change in the Estimate is £2,191.624
million, which generates an additional net cash requirement of
£894.351 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 VOTED CASH REQUIREMENT
| £ million |
| Near Cash (Voted) in Resource DEL | 597.750
|
| Near Cash in Capital DEL | 428.000
|
| AME (Net receipt) | (706.000)
|
| Accruals to cash adjustments | 574.601
|
| Net Cash Requirement | 894.351
|
2.6 The most significant changes to the Defence Expenditure
Limits (DEL) at Spring Supplementary Estimates are:
— the take up of the Department's End Year Indirect
Resource Flexibility totalling £1,622 million to reflect
the Department's latest forecast of outturn of Indirect Resource
expenditure;
— an increase in RfR2 of £566 million Direct
Resource DEL and £381 million Capital DEL to reflect the
forecast costs of peace keeping operations in Iraq, Afghanistan
and Balkans;
— the transfer of £424 million Indirect Resource
DEL from RfR1 to RfR2 to cover depreciation, cost of capital and
impairment forecasts in relation to assets deployed on operations;
— net transfers in of £39.1 million from other
Government Departments under RfR1 and RfR2 (Table 4). The largest
are from the FCO for the Balkans operations and the Afghanistan
helicopter flight (both RfR2);
— the take up of Capital End Year Flexibility (EYF)
of £40 million resulting from the sale of QinetiQ in 2005-06,
as agreed with the Treasury;
— draw down of £200 million from the Department's
(Unvoted) Unallocated Resource Provision to reflect the increased
(Voted) Indirect Resource DEL forecast of outturn for RfR1;
— an increase in AME of £53 million to cover
MoD estates revaluation (RfR1) and the latest forecast of outturn
for War Pensions (RfR3); and
— an increase in Capital AME Non Operating Appropriations-in-Aid
of £709 million to recognise the balance of the sales proceeds
of Chelsea Barracks which was not provided for in the 2007-08
Main Estimates.
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 2007-08 Winter
Supplementary Estimates.
Table 3
SHOWING CHANGES TO VOTED RESOURCES AND CAPITAL AT SPRING
SUPPLEMENTARY ESTIMATES
[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 two transfers in from Other
Government Departments and one transfer out, which are detailed
in Table 4.
Table 4
SHOWING TRANSFERS BETWEEN MOD AND OTHER GOVERNMENT DEPARTMENTS
| Transfers Out | RfR
| £m | Purpose
|
| Department for Business, Enterprise and Regulatory Reform
| 1 | (0.750) | MoD share of the management costs of transferred nuclear liabilities.
|
| Transfers In | |
| |
| Foreign and Commonwealth Office | 2
| 1.500 | Contribution to the Global Rest of the World Conflict Prevention pool costs
|
| Foreign and Commonwealth Office | 2
| 31.000 | Contribution to the Balkans Conflict Prevention pool costs.
|
| Foreign and Commonwealth Office | 2
| 7.350 | Capital contribution to the Afghanistan Command and Communications helicopter flight
|
| Total Net Transfers In |
| 39.100 | |
End Year Flexibility: £1,622 million IRDEL; £40 million
CDEL
4.2 The latest forecasts of Indirect Resource spend indicates
that the Department needs to utilise its Indirect Resource End
Year Flexibility. The increased requirement relates to a range
of depreciation provisions and impairment costs.
4.3 The Department has drawn down the £40 million
CDEL available following the sale of its interests in QinetiQ
in 2005-06. The staged draw down of the QinetiQ receipt was agreed
with Treasury in the 2004 Spending Review.
Transfer of Indirect Resource from RfR1 to RfR2—£424
million
4.4 The Department requests the transfer of £424
million Indirect Resource DEL from RfR1 to RfR2 to cover cost
of capital, depreciation and impairment charges associated with
fixed assets purchased under Urgent Operational Requirement arrangements.
These are continuing non-cash charges associated with holding
these assets and are charged to RfR2 for as long as they are deployed
on operations.
Draw Down of the Department Unallocated provision—£200
million
4.5 The latest Department's forecast of its IRDEL requirement,
and taking into account the transfer to RfR2 at para 4.4, indicates
a need to draw down £200 million, from its unallocated provision.
Other Changes
Chelsea Receipt
4.6 £250 million of the £959 million receipt
from the sale of Chelsea was included in Main Estimates. The balance
of £709 million will be credited to AME as a non-operational
Appropriation-in-Aid. £550 million has been included in the
Department's CDEL allocation from 2008-09 to 2010-11 in Spending
Review 2007 to be spent on service accommodation. The remaining
amount will be made available to the MoD in the next Spending
Review.
Non Budget Items
4.7 There are no changes to the Non Budget at the Spring
Supplementary Estimate.
AME Items
4.8 The RfR1 Resource AME increase of £50 million
reflects the Department's forecast of the final impact of the
2006-07 Quinquennial Review on fixed asset write offs.
Neutral Transfers
4.9 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 funding adjustments to align TLB provision with forecast
outturn without changes to defence outputs.
4.10 The Operating and Non-Operating Appropriations in
Aid changes to the Spring Supplementary Estimate reflect the latest
estimate of outturn for each TLB.
4.11 There are two Grants in Aid recognised in the Spring
Supplementary Estimates. The grant in aid of £53.5 million
to the Council of Reserve Forces and Cadets Associations is to
fund the 13 Regional Reserve Forces and Cadets Associations. The
grant in aid has been allocated within the existing provision
of Land TLB. The grant in aid of £8.3 million to the Marine
Society and Cadets Association aims to educate young people as
to the need and role of the Armed Forces and make them aware of
the career opportunities that the Services can offer. The grant
in aid has been allocated within the existing provision of Fleet
TLB.
5. REQUEST FOR
RESOURCES 2: OPERATIONS
AND PEACE
KEEPING
5.1 The Spring Supplementary Estimate requests an additional
£693 million for peace keeping operations in Iraq and £685
million for peace keeping operations in Afghanistan. This is summarised
in Table 5 below, with a more detailed analysis is shown in Table
6. The increase reflects the demands of operations concerned,
in particular the need for Urgent Operational Requirements.
Table 5
SUMMARY COST OF OPERATIONS AND PEACE KEEPING CLAIM AT 2007-08 SSE
5.2 The current estimate for operations in Iraq, Afghanistan
and the Balkans for the 2007-08 Spring Supplementary Estimates
is shown in Table 6.
Table 6
The ESTIMATED COST OF OPERATIONS IN AFGHANISTAN, IRAQ
AND THE BALKANS AT SSE 2007-08
5.3 The total conflict prevention request for 2007-08
Spring Supplementary Estimates is set out in Table 7.
Table 7
TOTAL CONFLICT PREVENTION REQUEST FOR 2007-08 SSE
6. RFR3 WAR
PENSION BENEFIT
(WPB)
6.1 Additional funding of £3 million is required
to cover outstanding Ghurkha claims for Far Eastern Prisoner of
War payments. This will increase the total WPB funding to £1,030
million.
7. THE DEPARTMENTAL
EXPENDITURE LIMIT
(DEL)
7.1 Table 8 shows the DEL from 2005-06 to 2007-08 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 DEL figure for 2007-08
is £83.832 million net of depreciation, and this is shown
in more detail in the Notes to the Spring Supplementary Estimate.
Table 8
CHANGES TO MOD DEPARTMENTAL EXPENDITURE LIMITS
8. ADMINISTRATION COSTS
LIMIT
8.1 The Department is not currently subject to an Administration
Costs Limit. The MoD will implement an Administration costs regime
in 2008-09.
9. PROVISIONS AND
CONTINGENT LIABILITIES
9.1 Non nuclear provisions have been increased at Spring
Supplementary Estimates to reflect planned redundancies in the
Central TLB and DE&S resulting from the Department's streamlining
strategy.
10. MACHINERY OF
GOVERNMENT CHANGES
10.1 There are no further Machinery of Government Changes.
11. IMPACT ON
PSA TARGETS
11.1 The changes in provision sought are not linked to
the overall achievement of the Department's PSA targets but rather
to enable delivery across the range of outputs in accordance with
our plans. A failure to grant the additional RfR2 allocation would
undermine the prosecution of operations in Iraq and Afghanistan
(PSA 1).
12. NET ADDITIONAL
CASH REQUIREMENT
12.1 The Net Cash impact for the Spring Supplementary
Estimate is an increased requirement of £894.351 million.
This is broken down in Table 2.
13. VOTES A
13.1 The Department will be laying the 2008-09 Votes
A Annual Estimate alongside this 2007-08 Spring Supplementary
Estimate. This will be published as HC 264.
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 eg Grants in Aid, Royal Hospital
Chelsea. 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
Request for Resources 2 provides primarily for the additional
costs of peace keeping and 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
|
| DE&S | Defence Equipment and Support
|
| DUP | Departmental Unallocated Provision
|
| EYF | End Year Flexibility |
| FCO | Foreign and Commonwealth Office
|
| MoD | Ministry of Defence |
| NAO | National Audit Office
|
| RfR | Request for Resources
|
| SSE | Spring Supplementary Estimates
|
| UK | United Kingdom |
| WSE | Winter Supplementary Estimates
|
1
For detail on the different Requests for Resources, see Annex
1. Back
2
Now re-named from Conflict Prevention to Operations and Peace
Keeping. Back
| 
