Select Committee on Defence Fifth Report

4  Comprehensive Spending Review

Comprehensive Spending Review settlement for defence


105. The Secretary of State for Defence announced the overall outcome of the Comprehensive Spending Review (CSR) settlement for defence in a Statement to the House on 25 July 2007. The Secretary of State for Defence told the House that:

106. The MoD placed a paper giving some more details on the CSR settlement for defence in the House of Commons Library. The details are set out in Table 8 below.Table 8: Details of the CSR settlement for defence
£m Baseline New Plans CSR07 annual average real growth
2007-08 2008-092009-10 2010-11
Resource DEL 32,61833,579 35,14236,679 1.3%
o/w depreciation and impairments 7,4437,416 7,9878,660
Capital DEL 7,4047,871 8,1878,871 3.4%
Total DEL 32,57934,034 35,34236,890 1.5%

The 1.5% average annual real terms increase is against our CSR baseline, excluding the costs of operations met from the Reserve and the time-limited Defence Modernisation Fund.

Total DEL comprises near cash Resource and Capital DEL, plus the cost of capital, which is a non-cash charge. This is consistent with Government Accounting.

Source: Ministry of Defence

107. The Secretary of State told the House that the MoD would be placing orders for two 65,000 tonne aircraft carriers which were expected to enter service in 2014 and 2016. According to this statement, the carrier programme "will sustain and create 10,000 jobs across the UK".[133] We welcome the announcement by the Secretary of State in July 2007 that the MoD will be placing orders for two aircraft carriers, a key programme which the Defence Committee has closely monitored.

108. In his Statement the Secretary of State also informed the House that:

  • "today we are also announcing a £1 billion partnering arrangement with Rolls-Royce for the in-service support of the nuclear steam raising plant that powers the Royal Navy's submarines over the next decade."
  • "we will make savings against the Department's overheads, including a 5 per cent year-on-year saving in our administrative overhead over the next three years and a 25 per cent reduction in our head office. These are additional to the £2.8 billion efficiencies delivered over the spending review 2004 period."
  • "a priority through the CSR period will be the continued investment in improving accommodation for our people and their families. We expect to spend some £550 million on this over the three-year period, including plans to upgrade over 18,000 barrack-type bed spaces." [134]


109. The 2007 Pre-Budget Report and Comprehensive Spending Review published in October 2007 provided further details on the CSR settlement for defence. The "increase in funding, together with value for money reforms generating annual net cash-releasing savings of £2.7 billion by 2010-11, enables the MoD to:

110. The Comprehensive Spending Review 2007 settlement for defence announced in July 2007 provides "an additional £7.7 billion for defence by 2011, and a 1.5 per cent average annual real terms increase". We welcome the increase in the MoD's budget for the next Spending Review period. However, the defence budget will be under substantial pressure in the period covered by the 2007 Spending Review, given that several funding commitments, such as the future carrier programme, a pay increase for the Armed Forces, and further investment in accommodation for Service personnel, have been announced. These will need to be met from the average annual 1.5% real terms increase and the cumulative efficiency savings which are referred to in paragraphs 108-109 above. In order to fully appreciate how significant these pressures are, we would like to see a clearer description of what resources from these 'savings/efficiencies' are available to meet these pressures and urge the MoD to seek ways of spelling this out more clearly in future reports.

Replacement of strategic nuclear deterrent

111. We asked how much would be spent on the replacement of the strategic nuclear deterrent in the CSR 2007 period. Mr Jeffrey said that the figures in the "existing baseline" are of "the order of £200 million, £300 million, £400 million in the three years of the spending review period". Mr Woolley added that "it is about a billion over the course of the CSR period". Mr Jeffrey told us that the funding of the replacement of the strategic nuclear deterrent "as the White Paper said… is provided separately within the defence budget".[136] We asked whether these costs would come out of the 1.5% overall increase. Mr Jeffrey said that they did.[137] We sought further clarification on how the cost of replacing the current strategic nuclear deterrent would affect the other elements in the defence budget. Mr Jeffrey told us that:

    What I said was that the undertaking in the White Paper about the cost being provided additionally and not impacting on conventional capability has been met, but obviously once the money has been provided it takes place within the defence budget.[138]

112. We note that the costs of replacing the current nuclear deterrent will amount to some £1 billion over the three years of the Comprehensive Spending Review 2007 period. The MoD told us that the undertaking in the White Paper, that these costs are "provided additionally" and will not impact upon conventional capability, has been met.

Planning round

113. We asked Mr Jeffrey what was to happen next given that the Comprehensive Spending Review settlement for defence had been announced. He said that:

He expected that there would need to be reductions in some areas.[140]

114. The planning round was expected to take "some months"[141] and the process would go into 2008.[142] Mr Jeffrey said that "as we get into the early part of next year [2008], we will need to be much clearer about the budget for the three years that begin on 1 April 2008".[143] He emphasised that the whole defence budget was being examined, not just the defence equipment aspects of it, but he acknowledged that the equipment programme was important. He said that:

    What we are doing is looking at the whole programme. We are identifying both areas where either it will be inevitable that we spend more or would like to spend more…. we are identifying, if there were to be cuts…. what might the options be for doing so. We will be putting these to ministers as early as we can.[144]

115. On the specific issue of the equipment programme, Mr Jeffrey told us that:

    our ministers would very much like a programme which is, if anything, more focused on the kinds of equipment requirements that come out of current operations like protected vehicles, helicopters et cetera. It would be extremely surprising if the process we are going through did not lead to a consideration of that.[145]

116. We asked whether the advice to ministers would specify which equipment programmes should be cut. Mr Jeffrey confirmed that they would "certainly be looking at the equipment programme" and said that "my guess is that we will have to make some quite difficult decisions".[146]

117. We note that the MoD is currently preparing advice to ministers about the defence budget for the three years 2008-09 to 2010-11. The MoD acknowledges that there are pressures in the defence programme and that there are likely to be cuts in some areas, including cuts to the equipment programme. We look to the MoD to be realistic about the number of equipment programmes, the number of platforms within equipment programmes, and the phasing of equipment programmes, that can be funded. We plan to monitor the progress and the outcome of the current planning round closely.

Defence inflation

118. Some commentators consider that defence inflation runs higher than the standard measure of inflation, particularly inflation relating to defence equipment. We asked the MoD what progress had been made in developing a price index for defence products and whether the MoD had estimates for defence inflation in each of the years of the CSR 2007. The MoD told us that earlier approaches to build a price index for defence products using information supplied to the Office of National Statistics' existing sample survey of producer prices had "failed to deliver a sufficiently robust measure". The MoD did not have estimates for defence inflation for the years of the CSR 2007. The MoD used the Gross Domestic Product Deflator, currently 2.7%, as the measure of overall inflation, "in line with all Government Departments".[147]

119. We asked Mr Jeffrey about the issue of defence inflation. He said that it was "certainly the case that some of what we buy increases in price by more than general inflation". He added that:

    The most recent example of that was fuel; we are spending a great deal more than we were even just a couple of years ago simply because the cost of fuel has increased. Also a lot of our staff costs, to the extent that pay settlements exceed general inflation, and we have to find that.[148]

120. On the specific issue of inflation relating to defence equipment, Mr Jeffrey considered this "more complex". He said that if the MoD were buying the same equipment year after year, then it would be possible to make "a reasonably, straightforward judgment about whether it was inflating more than general inflation". He said that the MoD was buying more and more complex equipment and that did "increase substantially in price but it is hard to just home in and say that the inflation rate for defence equipment is X compared with general inflation of Y". He added that it was certainly the case that "in some areas—some electronic components, for example, office equipment and that sort of thing" the costs had been going up probably less than general inflation. In other areas, there was "no doubt that some of the most advanced equipment is more expensive than its predecessors".[149]

121. Mr Woolley said that the MoD was working to see if it could come up with a robust index, but it was difficult on the equipment side because the MoD had "a mix of different types of contract".[150]

122. We asked whether the increase was a 1.5% real terms increase when commitments relating to defence estates and pensions, for example, were taken into account. Mr Jeffrey considered it "difficult to make these comparisons" but acknowledged that there were "undoubtedly pressures within the budget". He added that:

    It is certainly the case that the headline figures that emerged from the Spending Review incorporate and give real terms growth on the baseline that ministers announced at the time. On the other hand…. as one goes forward there are definitely pressures there [that] will have to be accommodated somehow.[151]

123. The Comprehensive Spending Review 2007 settlement for defence is reported as being a 1.5 per cent average annual real terms increase against the MoD Comprehensive Spending Review baseline. But this is based on the general rate of inflation and takes no account of the reportedly higher rate of inflation which applies to defence products, in particular advanced equipment projects. We look to the MoD to press ahead with its plans to develop a robust price index for defence products which will assist the MoD in both its financial planning and in its negotiations with the Treasury in future spending reviews. We consider that a robust price index for defence products is vital for allowing real comparisons to be made and to enable the Committee to undertake more effective scrutiny in this area.

Value for money reforms

124. The 2007 Pre-Budget Report and Comprehensive Spending Review states that the resources set out in the CSR will be accompanied by value for money reforms generating "annual net cash-releasing savings of £2.7 billion by 2010-11, building on savings of £2.8 billion during the 2004 Spending Review period".[152] The initiatives in the CSR 2007 period to deliver the value for money savings include:

  • "a 5 per cent year-on-year reduction in the MoD's administrative overhead, including a 25 per cent saving in MoD's Head Office. This will contribute towards generating annual new cash-releasing savings in Corporate Enabling Services of £369 million by 2010-11.
  • the continued simplification of single Service budgetary and headquarters structures, including the merger of Land Command and the Adjutant General's Command.
  • the merger of the Defence Logistics Organisation and the Defence Procurement Agency to form Defence Equipment and Support. This will contribute towards generating annual net cash-releasing savings of £253 million by 2010-11." [153]


125. The MoD has been set a target to deliver annual net cash-releasing savings of £2.7 billion by 2010-11.[154] We asked how the MoD planned to deliver these savings given that it was asked to deliver efficiency savings of £2.8 billion by 2007-08 as part of the 2004 Spending Review (paragraphs 70-74). Mr Woolley explained that the £2.7 billion savings are value for money savings rather than efficiency savings. He said that the planned savings are to come from "corporate enabling services", that is, administrative overheads.[155] The MoD was looking at areas such as finance, HR and IT. The MoD was "targeting those across the Ministry of Defence, not just in head office…. but also significantly in the defence equipment and support organisations".[156]

126. The MoD was also looking at ways to get better value for money out of the "logistics procurement process".[157] In the helicopter support area the "turnaround time for repair and maintenance for Apache helicopters" had reduced from 50 to 43 days. The MoD was looking to arrangements where it was "buying capability and availability rather than kit".[158]

127. We asked whether the new leaner processes and arrangements would make it more difficult for front line commanders to get the equipment they needed in the timescale required. Mr Woolley said that:

    we will look at the risks that those changes might bring and if we judge that the risks include that equipment might be slower to get to the front line then that would not be a change that we would implement.[159]

128. We note that the MoD has to achieve savings of £2.7 billion by 2010-11 and that it plans to achieve these savings by introducing leaner processes and new arrangements which deliver better value for money. Leaner processes and value for money improvements should generate savings which can be used elsewhere. However, the MoD must ensure that, in achieving these savings, the speed and quality of the support provided to the front line is not diminished.


129. On 23 October 2007, the MoD announced details of the programme to streamline its Head Office in London, the aim of which is to "simplify the MoD's organisation and work, ensuring the Ministry is focused on strategic tasks and better able to respond to priorities". The outcome of the exercise is expected to make the MoD "more agile and better able to respond to the needs of those on operations".[160] The 'streamlining' exercise is expected to deliver:

    At least £50m of ongoing savings which can be reinvested in operations will be released per year by reducing the Head Office staff by 25 per cent. This means the loss of around 1,000 civilian jobs and 300 military posts. The number of military posts being reduced will not require redundancy.[161]

130. The Secretary of State wrote to the Chairman of the Defence Committee on 23 October 2007 and enclosed a copy of the Streamlining a Department for the Future consultation document. He informed the Chairman that 23 October was the start of the six-week "formal consultation period with the Trades Unions and staff at all levels within the Ministry".[162]

131. We sought clarification on the savings expected from the 'streamlining' exercise. Mr Jeffrey said that the MoD's estimate was that in "two or three years hence", there would be savings of "more than £50 million a year". But there would be some earlier expenditure relating to early departures of some civil servants.[163]

132. The MoD is voted additional resources to cover the net additional cost of operations.[164] We asked why the MoD was planning to reinvest the annual savings delivered from the 'streamlining' exercise in operations. Mr Jeffrey said that the more the MoD succeeded in reducing administrative costs the more would be "available for the front line".[165] By front line, he was referring to "the department's ordinary budgeted costs which are close to the front line within the services".[166] He added that:

    The costs of operations will continue, subject to the point that the Committee is aware of, to be funded in the usual fashion. What I am not saying is that we are saving £50 million of head office costs and it is disappearing into the Treasury coffers. We are saving it within the context of a settlement that is now fixed; but we will have that much more money to spend on other things.[167]

133. We note the assurance given by the MoD that the £50 million annual savings that are expected to be delivered from the implementation of the 'streamlining' exercise of the MoD Head Office will not be returned to the Treasury and used to fund the costs of operations. We return to the issue of the costs of operations later in this part of the report (paragraphs 147-155).

134. The MoD expects to be more agile and better able to respond to the needs of those on operations as a result of the 'streamlining exercise. We asked how reducing head office staff by 25% would deliver these benefits. Mr Jeffrey said that the MoD was looking at what the MoD Head Office currently did and what needed "to be done at the centre of the department and what might not". Reviews were being undertaken to identify how processes could be simplified. He acknowledged that it was "not straightforward" and required "above all the involvement of staff themselves because they are the people who know best what they are engaged on".[168]

135. In its memorandum to our inquiry, the Public and Commercial Services Union (PCS) raised concerns about the 'streamlining' exercise:

  • "To date MoD has failed to tell staff and unions how these cuts are to be achieved, apart from a vague commitment to "reducing unnecessary process, cutting committees and over-briefing, removing duplication, and building a more strategic, focused Head Office"".
  • "MoD imposed the 30% target before making any attempt to assess the viability of such cuts, before examining the work undertaken by the business units involved, and before assessing the impact of the work done in London to support the frontline".

In its memorandum, PCS states that "the recently published MoD Civilian Attitude Survey indicates the collapse in trust and morale across MoD that should be of concern to those at the top of the department".[169]

136. We asked when staff and Trades Unions would be given more detailed information about the 'streamlining' exercise. Mr Jeffrey said that discussions were "taking place with the unions" and that the MoD was aiming to publish some "more detail on this before Christmas [2007]".[170] He had completed 14-15 sessions of groups of 20-30 Head Office staff to discuss the proposals. However he acknowledged that:

    The area where there is still a degree of uncertainty—and I am conscious of it—is around exactly how we will manage the process over the next few years for early departure and what the terms of that will be and how we will fill posts in the meantime.[171]

137. We asked how the MoD would minimise the risk of its best staff leaving as a result of the 'streamlining' exercise. Mr Jeffrey said that it was his objective to "avoid losing the people we most need". He added that the 'streamlining' exercise:

    Needs to be managed very carefully and our objective is to manage it in such a way that we retain the people who want to stay in the department and who we need and the skills we need, and we lose those who are happy to go and we are happy to see go.[172]

138. On the issue of staff morale, Mr Jeffrey did not think that it was "changing greatly at the moment", but did not have the figures to hand.[173] He assured us that he took the morale issue very seriously and recognised that the MoD needed to keep staff informed and could not take morale for granted.[174] Following the evidence session, the MoD provided us with details on staff morale. The MoD's civilian staff survey showed that dissatisfaction with the MoD as an employer had increased by about 5% over the last year. The number of staff giving a "clear positive response" had declined by a similar amount. The MoD recognised that the decline "may reflect the degree of turbulence in the organisation and concerns over pay".[175]

139. Evidence recently given to the Committee by Prospect suggests that reductions at MoD Head Office and elsewhere may "reduce the MoD's ability to cost and manage equipment programmes". It further expresses the anxiety that the way in which MoD administration costs are dealt with—which it attributes to a change brought in by the Treasury with the 2004 CSR—could affect the inter-changeability of civilian and military personnel and lead to the issues of the militarisation of civilian posts and rebadging.[176] We call on the MoD to address the concerns about the militarisation of civilian posts and the related issues that have been raised with us by Prospect in full in its response to this Report.

140. In terms of staff skills, the MoD had a substantial staff training programme and was "investing in more training than ever before to build skills". Mr Jeffrey said that what needed to emerge from the 'streamlining' exercise was an "organisation that is a bit smaller, that is generally more highly skilled and is just as committed as the people we have now".[177] We share the Permanent Under Secretary's concern that the MoD needs to be more highly skilled and look to the MoD to set out in its response to our report what steps it intends to take to achieve this.

141. We note that the MoD is to streamline its Head Office in London with the loss of around 1,000 civilian jobs. The aim of the 'streamlining' is to deliver savings of £50 million a year and also, we are told, to make the MoD more agile and better able to respond to the needs of those on operations. We remain to be convinced that improved agility and responsiveness will follow from the reduction in staff. We look to the MoD to keep staff fully informed as the 'streamlining' exercise is implemented and to provide adequate support for those civilian staff who are to lose their jobs.

142. We consider there to be a real risk that some of the MoD's best staff will leave and look to the MoD to identify ways to prevent this from happening. We are concerned to learn that civilian staff dissatisfaction with the MoD as an employer has increased over the last year. The MoD must monitor closely staff morale during the implementation of the 'streamlining' exercise and ensure that the Head Office continues to deliver the services which Government, Parliament, the Armed Forces and the public expect.

Defence Industrial Strategy

143. The Government's Defence Industrial Strategy (DIS) was published on 15 December 2005.[178] We have undertaken two inquiries into the DIS: our report The Defence Industrial Strategy[179] was published on 10 May 2006 and our report The Defence Industrial Strategy: update[180] was published on 30 January 2007. In our first report we congratulated Lord Drayson, Minister for Defence Procurement[181] and his team for producing the DIS to a tight timetable. In our second report we concluded that good progress had been made in implementing the DIS during 2006.

144. The 2007 Pre-Budget Report and Comprehensive Spending Review, published in October 2007, states that the DIS is "to be updated shortly".[182] On 7 November 2007, the MoD announced that Lord Drayson was to be replaced by Rt Hon Baroness Taylor of Bolton as the Minister for Defence Equipment and Support.[183] At our evidence session on 21 November 2007 for our inquiry into the UK/US Defence Trade Cooperation Treaty, we asked Baroness Taylor about the publication date for the updated version of the DIS. She told us that she had written to our Chairman "to say that as I have come into this position I want to review the whole situation, so we will not be publishing anything on 13th [December].[184] In her letter to the Chairman of 20 November 2007, Baroness Taylor wrote:

    I am determined that DIS v2.0 should offer the clarity on our future strategy that Industry is looking for and that it reflects a realistic view of our assumptions and plans. Although the original intention was for DIS v2.0 to be published in December I am convinced that it would be more appropriate for the strategy to be aligned to the ongoing planning round and am therefore in the process of reviewing the publication date to reflect this. Industry has indicated support for this approach.

    This course of action meets the commitment made by my predecessor to the Defence Committee to review the DIS in every spending round period. Once the DIS v2.0 has been published and presented to Parliament, I would welcome the opportunity to update the Committee on the direction and progress of our Defence Industrial Strategy and would expect the Committee to take evidence around that time. To facilitate this I will ensure that I keep you informed of the publication timetable so that a suitable session can be scheduled in line with the launch of DIS v2.0.[185]

145. Mr Jeffrey said that the timing of the publication of DIS 2.0 had been discussed regularly with industry, and both the MoD and industry felt that "it would be much better to publish a second version of this strategy when we have really gone through the programme in the way I described and are clear about its implications for equipment".[186] In terms of the timing, he said that publication would be "as early in the New Year as we are able to given that it ought to come after we have settled the programme and the budget".[187] We pressed further about the timing of the publication. Mr Jeffrey considered that "it will take us into the new year—I would guess not very far".[188] He acknowledged that it was important for the MoD and the new minister to take forward the work done to date on the DIS and "to keep this momentum up and to keep improving things because it is too important not to".[189]

146. We find it disappointing that the original timetable for the publication of a revised version of the Defence Industrial Strategy has slipped and is now not expected until early in 2008. We hope that this does not indicate that the impetus given by Lord Drayson, the former Minister for Defence Equipment and Support, is starting to wane. It is crucial that the MoD come to speedy decisions on the current planning round and the implications for the equipment programme so that the revised version of the Defence Industrial Strategy can be published and industry given the clarity it requires about future work. In its response to our report, we expect the MoD to inform us of the date when the revised version of the Defence Industrial Strategy is to be published

Cost of operations

147. The additional cost of operations, including the cost of Urgent Operational Requirements (UORs), has been met from the reserve. On 22 November 2007, Baroness Taylor informed Parliament that the Treasury had provided some £6.6 billion from the reserve to support the additional cost of operations, including some £2.3 billion for UORs.[190] Details of the cost of UORs in each of the last five financial years is provided in Table 9. Table 9: Spend on UORs in the last five financial years
Financial year Approval cost

£ million

2002-03 500
2003-04 180
2004-05 130
2005-06 260
2006-07 790
Total 1,860

Source: Ministry of Defence[191]

148. We have examined the UOR process in a number of our inquiries. In our report UK land operations in Iraq 2007, published on 3 December 2007, we welcomed the MoD's assessment that the UOR process was delivering much needed equipment to our Armed Forces in theatre. However, we were concerned that "equipment returning from operational theatres—whether it was procured through the routine acquisition process or as UORs—will require substantial expenditure to repair, refurbish, support and store, and it appears that no provision has been made for this in the MoD's budget."[192]

149. On 22 November 2007, Baroness Taylor announced a change in the funding of UORs. She acknowledged that when UK Armed Forces were deployed on operations, they faced challenges that "could not have been anticipated in the initial planning" and in those situations it was necessary to procure equipment quickly, utilising the UOR process, to counter those challenges.[193] However, she said that:

    much of the new equipment that we have developed because of problems in the theatre will be incorporated into mainstream planning. That is normal and right…. The new approach with the Treasury means that, in the three years of the Comprehensive Spending Review, the reserve will continue to pay all additional costs of operations up front and will pay outright for UORs up to a mutually agreed total. Beyond that, the MoD and the Treasury will split the cost 50:50, with the MoD having to repay its share two years later, by which time there could have been adjustments in the programme. The Treasury will give an extra £200 million in 2010-11 to ensure that the new arrangements are cost-neutral to defence.[194]

The Minister emphasised that the suggestion that the Treasury was "clawing back" more than the £2 billion already spent on UORs was not correct as the "only difference is the new arrangements for the future". [195]

150. We asked Mr Jeffrey about the new arrangement relating to the funding of UORs. He acknowledged that it was a different approach from the one that was taken before[196] and that the new arrangement "is a little complicated".[197] He said that:

    It involves principally an agreement between the two departments about what is a best estimate and what we would spend on UORs. There is, without equivocation, an expectation that that will be met from the reserve, as will any other additional costs on top of that within the year of spend. What is new is that there is an understanding that anything in excess of what we expected would be funded longer term fifty-fifty because there will be an opportunity over the succeeding few years for us to adjust the equipment programme. What one needs to bear in mind is that we are frequently deploying as UORs equipments that we might well have been planning to purchase later.[198]

151. We were concerned that the MoD might have to pay back some of the costs of UORs to the Treasury given that there had been an understanding that the Treasury would fund these. Mr Jeffrey told us that within the Comprehensive Spending Review 2007 settlement there "is provision in 2010-11 of £200 million which the Treasury has provided to fund us to meet anything of that sort and thereby to ensure that over the whole CSR period these new arrangements are cost neutral".[199]

152. We asked whether, when an existing equipment programme is accelerated as a UOR, the Treasury sought reimbursement from the defence budget for the costs advanced from the reserve. Mr Woolley said this had been the case for several years[200] and that there had been a number of UORs that "have been advanced from later in the equipment programme where we have agreed that we will repay the Treasury that cost in the year in which it was originally planned to procure them".[201]

153. Following our evidence session, the MoD provided us with further details of the new arrangements relating to the funding of UORs. The criteria for what qualifies as a UOR remain unchanged. The new funding arrangements are as follows:

  • "The MoD and the Treasury will agree a forecast of UOR expenditure for the following year (e.g. for 2008-09, decided in 2007-08).
  • The Reserve will continue to pay for all UORs when the procurement costs are incurred.
  • The Treasury will pay 100% of an agreed proportion of these costs; the MoD and the Treasury will share the costs of the remaining amount 50/50 and the MoD will repay the Reserve its 50% share two years later. For example, any costs incurred in 2008-09 will be repaid in 2010-11.
  • HM Treasury has added £200 million to the Defence Budget in 2010-11 to mitigate the effect of the repayments."[202]

154. The MoD acknowledges that the total estimate of expenditure is the "key determining variable and we have consequently gone to great lengths to analyse previous UOR spending data and likely future trends to ensure that it is robust". The MoD memorandum adds that:

    The Treasury has agreed that, if UOR spend falls below this estimate, the uncommitted portion of the £200M can be used for other defence priorities as MoD MoD Ministers decide. On the other hand, if MoD's share of the UOR spend rises above £200M, then there will be a charge to the defence budget. Variations will be reflected in re-setting the Estimate for the following year. [203]

155. We note that the 2007 Comprehensive Spending Review has set down a new funding arrangement for Urgent Operational Requirements (UORs). The arrangements appear far from straightforward and we will be interested to see how they work out in practice when they are implemented. We look to the MoD to ensure that the new arrangements do not, in any way, undermine the success of the UOR process seen to date.

132   HC Deb, 25 July 2007,Col 865 Back

133   HC Deb, 25 July 2007,Col 865-866 Back

134   Ibid, Col 866 Back

135   HM Treasury, Meeting the aspirations of the British people, 2007 Pre-Budget Report and Comprehensive Spending Review, Cm 7227, p 231 Back

136   Q 37 Back

137   Q 38 Back

138   Q 42 Back

139   Q 13 Back

140   Q 14 Back

141   Q 13 Back

142   Q 14 Back

143   Q 15 Back

144   Q 23 Back

145   Q 27 Back

146   Q 28 Back

147   Ev 25-26 Back

148   Q 29 Back

149   Q 32 Back

150   Q 33 Back

151   Q 36 Back

152   HM Treasury, Meeting the aspirations of the British people, 2007 Pre-Budget Report and Comprehensive Spending Review, Cm 7227, para D8.5 Back

153   Ibid Back

154   Ibid Back

155   Q 71 Back

156   Q 72 Back

157   Q 73 Back

158   Q 76 Back

159   Ibid Back

160   Ministry of Defence website, Defence News, 23 October 2007, "Streamlining the MoD's Head Office" Back

161   Ibid Back

162   Letter from the Secretary of State for Defence to the Chairman of the Defence Committee, 23 October 2007 Back

163   Q 43 Back

164   MoD, HC 697, para 282 Back

165   Q 44 Back

166   Q 45 Back

167   Q 47 Back

168   Q 48 Back

169   Ev 27-30 Back

170   Q 50 Back

171   Q 49 Back

172   Q 59 Back

173   Q 50 Back

174   Q 63 Back

175   Ev 31 Back

176   Memorandum from Prospect is available on the Defence Committee website: Back

177   Q 64 Back

178   Ministry of Defence, Defence Industrial Strategy, Cm 6697 Back

179   Defence Committee, Seventh Report of Session 2005-06, The Defence Industrial Strategy, HC 824 Back

180   Defence Committee, Sixth Report of Session 2006-07, The Defence Industrial Strategy; update, HC 177 Back

181   Subsequently renamed Minister for Defence Equipment and Support Back

182   HM Treasury, Meeting the aspirations of the British people, 2007 Pre-Budget Report and Comprehensive Spending Review, Cm 7227, para D8.6 Back

183   Ministry of Defence website, Defence News, 7 November 2007, "Lord Drayson to be replaced by Baroness Ann Taylor" Back

184   Defence Committee, Third Report of Session 2007-08, UK/US Defence Trade Cooperation Treaty, HC 107,Q 141 Back

185   Ev 31 Back

186   Q 19 Back

187   Q 20 Back

188   Q 22 Back

189   Q 101 Back

190   HL Deb, 22 November 2007, Col 996 Back

191   HL Deb, 14 December 2007, Col WA85 Back

192   Defence Committee, First Report of Session 2007-08, UK land operations in Iraq 2007, HC 110, para 72 Back

193   HL Deb, 22 November 2007, Col 996 Back

194   Ibid, Col 997 Back

195   Ibid Back

196   Q 113 Back

197   Q 116 Back

198   Q 114 Back

199   Q 115 Back

200   Q 120 Back

201   Q 121 Back

202   Ev 35 Back

203   Ibid Back

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