Select Committee on Defence Eleventh Report

Conclusions and recommendations

1.  We intend to continue this regular series of Reports on the Estimates throughout the rest of this Parliament, in the context of what the Liaison Committee has described as inadequate financial scrutiny by the House. We aim to improve the clarity, detail and timeousness of the financial information provided by the MoD to the House and to the country at large. We understand that sometimes this information will be most appropriately presented in memoranda rather than in the body of the Estimates themselves, and we commend the MoD for the way in which it has constructively engaged with us in discussions about the content of these memoranda. (Paragraph 4)

2.  We call on the MoD to explain the reasons for these changes. (Paragraph 6)

3.  The MoD ought to ensure consistency in the headings used, and should amend the ambit of RfR2 to make clear reference to military operations being undertaken, if not specifically citing Iraq and Afghanistan operations then at least recognising the true nature of some operations. Our suggestion would be to add "warfighting and other military operations" to the list. (Paragraph 8)

4.  The MoD has provided a figure of £16.875 million for the cost of Balkan operations in 2008-09 in this year's Main Estimates. This figure represents 75% of forecast costs (Paragraph 9)

5.  The MoD expects costs for Balkan operations to amount to some £22.5 million. Even if this turns out not to be an underestimate, the MoD will have to return to the House to seek further funds at the time of one or both Supplementary Estimates. It seems a little odd for the MoD therefore to claim only that it may have to do so. Unless the Balkans forecast cost is highly conjectural or overstated (neither of which it ought to be) then the MoD should state more openly that it expects to come back to the House later in the financial year for supplementary funds. (Paragraph 10)

6.  readers of the Estimates would be assisted if the Main Estimates separately identified Balkans costs (and Iraq and Afghanistan costs) and explicitly stated that the costs were 75% of the forecast full-year figure. (Paragraph 11)

7.  In response to our most recent Report on the Spring Supplementary Estimates, those for 2007-08, the Government in addition offered to include a forecast for the cost of operations in Iraq and Afghanistan in the memorandum accompanying this financial year's Main Estimate. The MoD's "initial estimate of operations is that there will be a net additional cost of at least £2Bn...[to be] split between Afghanistan and Iraq". Furthermore, the MoD has also given in this memorandum its current estimate for Urgent Operational Requirements (UOR) expenditure within that figure of £2Bn, amounting to some £1.065Bn. We call on the MoD to explain the implications of such UOR expenditure on its future capital and resource budgets. These are both very welcome developments for which the MoD must be commended. (Paragraph 14)

8.  Provisional forecasts for each theatre in the same table form as provided to us in the memoranda accompanying the Winter and Spring Supplementary Estimate could be made available each year in the memorandum accompanying the Main Estimate. The forecast overall figure for UORs could also be provisionally broken down in the same way as it is in the MoD's Annual Report and Accounts. In our Report on the Spring Supplementary Estimate we expressed a desire to see the "working assumptions" underlying the forecast figures for Iraq and Afghanistan as early as possible in each financial year. The information provided by the MoD this year with the Main Estimates, however welcome, fails to achieve this. (Paragraph 15)

9.  We acknowledge the difficulties the MoD faces in assessing and forecasting indirect resource costs, and commend the Ministry for working with the National Audit Office to ensure that future indirect resource cost forecasts will be more accurate. We do however find it hard to believe that a failure properly to cost the use of Hellfire missiles and the damage to, and loss of, equipment in theatre could lead to such a considerable underestimate of cost as occurred in 2006-07. (Paragraph 16)

10.  For the first time in the MoD Main Estimates, and in the memoranda accompanying them, we have forecasts for operational costs in Iraq and Afghanistan, an estimate of UOR costs, and a formal request for a stated proportion of expected Balkan operational costs. It remains to be seen how robust these figures will prove when it comes to the Supplementary Estimates and the final outturn for the financial year. (Paragraph 17)

11.  We are concerned about the robustness of forecasts and estimates we are offered during the financial yearly cycle. We continue to call for these forecasts and estimates because we believe the MoD can and ought to provide as early a sight as possible of what it believes operations are likely to cost in the financial year. Nonetheless, it has to be asked whether the MoD is doing enough to provide robust cost forecasts to the House, robust not just in terms of stating as accurately as possible expected costs, but is doing so in a timely fashion, using information that is up-to-date. (Paragraph 19)

12.  In the last financial year, the estimate for the full-year cost of operations in both Iraq and Afghanistan increased between the Winter (November 2007) and Spring (February 2008) Supplementary Estimates by approximately 50%. The cost of Balkan operations likewise shifted from a £20 million forecast in November to an expected cost of £31 million by February, again an increase of c50%. We cannot however agree with the MoD that the scale of this increase between two fixed points only a few months apart within a financial year is solely down to the inevitable volatility of military operations. (Paragraph 21)

13.  The Winter Supplementary Estimate forecast of costs, for both Iraq and Afghanistan, was effectively four months out-of-date when the House saw it; and five months out-of-date when it voted to approve the funds in question. The Spring Supplementary Estimate, laid in February, approved by the House in March, was based upon a marginally more timely forecast produced in the MoD at the end of November, some two-and-a-half months before laying, and three-and-a-half before the House voted to approve the funds in question. (Paragraph 23)

14.  Given how out-of-date both forecasts were when the House first saw them, the statement by the MoD in response to our supplementary questions appears questionable: "the forecast in the W[inter] S[upplementary ] E[stimate] represented the best estimate of the likely costs of Iraq and Afghanistan when the Estimate was submitted". This suggests that there was no available forecast between July and October that could better inform the figures to be laid before the House in November, or that the procedures involved are so cumbersome that any forecast in this period would have been too late to inform the Winter Supplementary Estimate. Either way, this is unsatisfactory. It is one thing to say that estimates vary because of the volatility of operations, and another to say that a late July decision to increase manpower in one theatre came too late to inform figures placed before the House in November, some three-and-a half months later. (Paragraph 24)

15.  According to the Government response to our Report on the 2007-08 Spring Supplementary Estimate and the answers to the questions we asked the MoD concerning that response, the drawdown of UK forces in Iraq was decided before the end of July 2007, although it was only announced to the House in October 2007. Thus the Winter Supplementary Estimate forecast of costs was based upon knowledge of the drawdown. We are further told that the higher Spring Supplementary Estimate figures (made public in February 2008) were based upon end of November 2007 forecasts, produced fewer than ten weeks after this announcement to the House. This increase in costs thus predates the assessments of the military situation in Iraq made in the first quarter of 2008 that led to the decision to postpone the drawdown. (Paragraph 25)

16.  No proper relation seems to exist between operational decisions, political announcements, and financial scrutiny. This simply cannot be satisfactory. It is essential that the House has available to it accurate and up to date forecasts before it is asked to vote on the defence Estimates. (Paragraph 26)

17.  It is essential that the MoD should provide late each calendar year the forecasts generated at that time which were subsequently used to inform the Spring Supplementary Estimate. This would allow any increase in funds likely to be sought formally from the House the following March to be flagged up well in advance. We also consider that the House should see at as early a stage as possible the forecasts generated in the summer upon which the Winter Supplementary Estimate is founded. (Paragraph 27)

18.  We recommend that the House of Commons approve the MoD's Main Estimate and have identified no issues which require a debate before it does so. But the House should continue to be aware that, because of the omission of the costs of military operations in Iraq and Afghanistan, the Main Estimates greatly underestimate the total expected cost of the MoD's activities in 2008-09. (Paragraph 28)

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