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)
| 
