Memorandum from the Ministry of Defence
on the Ministry of Defence Main Estimates 2008-09
1. INTRODUCTION
1.1 This Memorandum covers the Main Estimate
for the Ministry of Defence (MoD). The Department's spending plans
for 2008-09 derive from the outcome of the Government's 2007 Pre-Budget
Report and Comprehensive Spending Review (CSR 2007, CM 7227),
published in October 2007. As announced by the Secretary of State,
the key features of the settlement for Defence were:
— An increase in the Defence Budget
(RfR 1) to £34.1 billion in 2008-09, £35.4 billion in
2009-10 and £36.9 billion in 2010-11 in total DEL.
— A commitment to make savings against
the Department's overheads, including a 5% year-on-year saving
in its administrative overhead, which is now separately identified
in the budget for the first time. This includes a 25% reduction
in Head Office staff numbers.
— Continued investment in improving
accommodation for people and families, including plans to deliver
some 30,000 new or improved Single Living Accommodation bed-spaces
by 2013 and upgrading some 600 Service Family Accommodation properties
to the highest standard this financial year and a minimum of 800
in each year thereafter. The Department has a ring-fenced of £550
million to invest in accommodation over the next three years.
The Department has also announced a further £80 million to
be spent on improving accommodation, bringing the total investment
to at least £630 million over the next three years, as part
of over £3 billion planned to be spent on upgrading and improving
accommodation over the next decade.
— The establishment of a Stabilisation
Aid Fund (SAF) amounting to £73 million this year, designed
to support cross-Governmental reconstruction work in conflict
zones.
— The net additional costs of military
operations will continue to be met on top of the core defence
budget from the Treasury reserve.
1.2 This Estimates Memorandum should be
read in conjunction with the Department's Main Estimate. The Introduction
to the Estimate explains some of the changes that have taken place
since the 2007-08 Estimates, together with the total for each
of the Requests for Resources (RfR).[1]
There are no contingencies funded in this Estimate. Contingent
liabilities are reported as a separate table in the Estimate.
1.3 The Department is presenting a separate
Estimates Memorandum for the Armed Forces Retired Pay, Pensions
Vote Main Estimate.
2. RESOURCES
SOUGHT IN
THE ESTIMATE
2.1 Part I of the Estimate sets out the
new resource and cash requirements for the Department for the
year ending 31 March 2009. The resources requested are set out
in Tables 1-3 below.
Table 1
SUMMARY OF RESOURCE EXPENDITURE
| Resource Expenditure
| £ (million) |
| Provision of Defence Capability (RfR1) |
33,421.295 |
| Conflict Prevention (RfR2) | 89.566
|
| War Pensions and Allowances (RfR3) | 1,015.090
|
| Total Net Request for Resources |
34,525.951 |
Table 2
SUMMARY OF CAPITAL EXPENDITURE
| Capital Expenditure | £ (million)
|
| Provision of Defence Capability (RfR1)
| 7,872.064 |
Table 3
SUMMARY OF NET CASH REQUIREMENT
| Net Cash Requirement | £ (million)
|
| Near Cash in Resource DEL | 22,626.830
|
| Near Cash in Capital DEL | 7,870.045
|
| Near Cash in AME | 1,015.152
|
| Accruals to cash adjustments | 993.650
|
| Non Budget (Resource + Capital) | 30.371
|
| Net Cash Requirement | 32,536.048
|
2.2 The difference between the net request for resources
and the net cash requirement arises from a range of technical
accounting adjustments, set out in detail in Part II of the Estimate
("Resource to Cash Reconciliation").
3. COMPOSITION OF
THE MAIN
ESTIMATES
3.1 A number of transfers, and other changes, have taken
place since the 2007 CSR, and are set out in detail in the Introduction
to the Estimate.
3.2 The principal organisational changes include:
— The amalgamation in 2008-09 of the two Royal Air
Force Top Level Budget Holders (TLBs)—Commander-in-Chief
Strike and Personnel and Training Command—into a single
TLB: Air Command. The 2006-07 outturn is shown against the two
previous TLB lines.
— The amalgamation in 2008-09 of the Adjutant General
and Commander-in-Chief Land Command TLBs, into a new single TLB:
Land Command. The 2006-07 outturn is shown against the two previous
TLB lines.
— Machinery of Government Changes relating to a
Contribution in Lieu of Rates (CILOR) for MoD Estate in Gibraltar
formerly undertaken by HM Revenue and Customs implemented in the
Department's 2007-08 Winter Supplementary Estimates; and a transfer
of budgetary responsibility for the Defence Export Services Organisation
(DESO) to the estimates for the Department for Business Enterprise
and Regulatory Reform (DBERR), UK Trade and Investment (UKTI),
and Foreign and Commonwealth Office (FCO) effective from 1 April
2008.
3.3 A number of changes have occurred under Request for
Resources 1 (RFR1—Provision of Defence Capability):
— Accounting changes for cash release of
non nuclear provisions which now score against Direct Resource
DEL, which brings the Department into line with other Government
Departments (and in line with the existing treatment of the cash
release of nuclear provisions). Non-Departmental Public Bodies
(NDPBs) are now reported on a net basis, which means that grants
have been moved from DEL to Non Budget (See Annex 1).
— Transfers to and from Other Government Departments
are shown in Tables 4 and 5 respectively; these include some transfers
where funding has been agreed for more than one year, and are
a continuation of transfers made in last year's Supplementary
Estimates.
— The Department is required to repay the capital
element of a 1997-98 loan from the National Loans Fund for the
refurbishment of MOD housing stock.
Table 4
TRANSFERS TO MoD FROM OTHER GOVERNMENT DEPARTMENTS IN
RfR1/RfR2
| Exporting Department | RfR
| £ (million) | Purpose
|
| Security & Intelligence Agencies | 1
| 42.500 | Contribution for MoD support services provided to GCHQ.
|
| Cabinet Office | 1 | 0.275
| To move to an invoice charging basis for the provision of land registry services to MOD.
|
| Foreign & Commonwealth Office | 2
| 16.875 | Funding for Balkans Peace Keeping and Operations.
|
| Department for International Development |
2 | 27.691 | Contribution to the Global Pools Programmed Expenditure.
|
| Total | | 87.341
| |
Table 5
TRANSFERS FROM MoD TO OTHER GOVERNMENT DEPARTMENTS IN
RfR1/2
| Importing Department | RfR
| £ (million) | Purpose
|
| Department for Business Enterprise and Regulatory Reform
| 1 | -0.950 | MoD share of the management costs of transferred nuclear liabilities.
|
| Department for Culture,Media & Sports |
1 | -0.152 | Contribution to Pattern Room (Leeds Armoury) running costs.
|
| Cabinet Office | 1 | -2.000
| For the expansion and capability of the Security and Intelligence Agencies.
|
| FCO | 2 | -28.000
| Stabilisation Aid Fund activities undertaken by FCO.
|
| Total | | -31.102
| |
3.4 Changes under RFR1 include "non-voted" items.
These are items that form part of the Department's budget but
are not voted by Parliament. These are set out in Table 6 below:
4. REQUEST FOR
RESOURCES 2 (RFR2)
4.1 Joint Pools:
The Department holds joint funding pools with the Department
for International Development (DfID) and the FCO. These are designed
to deliver improved UK and international support in conflict prevention
by addressing long term structural causes of conflict, managing
regional and national tension and violence, and supporting post-conflict
reconstruction. The funds were formerly split between Sub-Saharan
Africa and the Rest of the World Programme Pools, but have now
been combined to form a single Programme Pool, funded at Main
Estimates by a transfer from DfID of £27.691 million. Many
former programme elements for Iraq and Afghanistan are now incorporated
in the Stabilisation Aid Fund (SAF—see below).
4.2 Balkans Funding:
For the first time, the Department is requesting funding
for operations in the Balkans at Main Estimates as we advised
the HCDC in last year's Spring Supplementary Estimates Memorandum.
This has been funded by a transfer from FCO, following agreement
with them earlier this year, based on 75% of forecast costs. Further
funds may be requested in the Supplementary round, depending on
any changes to forecasts later in 2008-09.
4.3 Stabilisation Aid Funding (SAF):
This is a newly established ring-fenced fund to resource
stabilisation and reconstruction effort in "hot" conflict
zones for activities eligible as Official Development Assistance
(ODA). 3% of the Fund is intended to be to support the continuation
of contractually committed programmes in Iraq and Afghanistan,
previously funded from the Global Conflict Programme Pool; and
to begin to support new projects. The fund is profiled £73/£73/£123
million over the three years of the CSR. We have transferred £28
million of this fund to FCO at Main Estimates. Further transfers,
if required, will be agreed at Winter and Spring Supplementary
Estimates. In areas where the MoD is delivering effect, such as
Quick Impact projects in Iraq and Afghanistan aimed at improving
local infrastructure, for example school, roads and power supplies,
funding will be channelled directly by the Department into theatre.
4.4 Operations in Iraq and Afghanistan:
It is not possible to provide a final estimate of the net
additional cost of operations (which are funded from the Treasury
Reserve) at the start of the financial year. Nevertheless, we
recognised the Committee's continuing concern, as expressed in
its 2007-08 Report on Operational costs in Afghanistan and Iraq
Spring Supplementary Estimate (HC400), to have early visibility
of prospective expenditure. Our initial estimate of operations
is that there will be a net additional cost of at least £2
billion, as announced by the Chancellor of the Exchequer, in his
Budget speech. This will be split between Afghanistan and Iraq.
This may increase, and if necessary we will seek additional provision
in Supplementary Estimates as usual. Our current estimate for
Urgent Operational Requirements (UOR) expenditure within this
figure is £1,065 million.
4.5 Detailed Requests for Resources to cover costs arising
from operations in Afghanistan and Iraq will be made in Supplementary
Estimates, as this offers the first opportunity to present robust
estimates against a backdrop of fast moving operations.
4.6 New Urgent Operational Requirement (UOR) Funding arrangements
The 2007 Comprehensive Spending Review established a new
funding arrangement for UORs. This will be based on a forecast
of UOR expenditure agreed with the Treasury—for 2007-08
£1,065 million. The Reserve will continue to pay for all
UORs when the procurement costs are incurred, but 50% of any excess
above the agreed figure will be deducted from the Defence Budget
two years on.
The criteria for what qualifies as a UOR remain unchanged.
Support to current operations remains the MoD's highest priority,
and the revised funding arrangement will not affect the speed
and agility of the UOR process. The MOD remains committed to ensuring
that the UOR process continues to deliver theatre-specific, battle-winning
capabilities to the Armed Forces at the front line.
5. REQUEST FOR
RESOURCES 3 (RFR3)
5.1 The Department is seeking £1,015 million for
War Pensions & Benefits, all of which is Annually Managed
Expenditure (AME). This has decreased by £15 million since
last year's Spring Supplementary Estimate, and will continue to
decline, because the scheme was closed to new claimants from 5
April 2005 with the introduction of the Armed Forces Compensation
Scheme. Costs for the new scheme are accounted for under the separate
vote for the Armed Forces Pension Scheme Estimate.
6. SUMMARY ESTIMATES
COMPOSITION
6.1 Table 7 summarises the composition of the Estimate,
including changes since the CSR07 Settlement, but excluding AME
and Non-Budget expenditure.
Table 6
DETAIL OF CHANGES TO THE ESTIMATE SINCE PUBLICATION OF
Cm (7227)
| All £m | DirectR DEL
| IndirectR DEL | TotalR DEL
| Resource AME | Non-Budget
| Total Net Resource | Capital DEL
| Capital Non-Budget | TotalNet Capital
|
| [1] | 1 | 2
| 3 | 4 | 5
| 7 | 8 | 9
| 10 |
| CSR figuresCm 7277(DEL ONLY) |
22,892.0 | 10,710.0
| 33,602.0 | -130.2
| 13.0 | 33,484.8
| 7,871.0 | 2.0
| 7,873.0 |
| Transfers in | 42.8 |
| 42.8 | | |
42.8 | | | 0.0
|
| Transfers out | -3.1 |
| -3.1 | | |
-3.1 | 0.0 | |
0.0 |
| Stabilisation Fund re-allocation to RfR2 |
-73.0 | | -73.0 |
| | -73.0 |
| | 0.0 |
| MOG Changes | -19.6 |
| -19.6 | | |
-19.6 | | | 0.0
|
| Museums Accounting Changes | -15.4
| | -15.4 | |
15.4 | 0.0 | |
| |
| Total | 22,823.7
| 10,710.0 | 33,533.7
| -130.2 | 28.4 |
33,431.9 | 7,871.0 |
2.0 | 7,873.0 |
| Less Non-voted items
|
| Non Nuclear Cash Release | 240.0
| -240.0 | 0.0 |
| | 0.0 | |
| 0.0 |
| Nuclear Cash Release | 46.5 |
| 46.5 | -45.4 |
| 1.1 | |
| 0.0 |
| NDPB Costs | | 9.5
| 9.5 | | |
9.5 | 0.9 | | 0.9
|
| RfR1 Total | 22,537.2
| 10,940.5 | 33,477.7
| -84.8 | 28.4 |
33,421.3 | 7,870.1 |
2.0 | 7,872.1 |
| Stabilisation Fund | 73.0 |
| 73.0 | |
| 73.0 | | |
|
| Transfers In | 44.6 |
| 44.6 | | |
44.6 | | |
|
| Transfers Out | -28.0 |
| -28.0 | | |
-28.0 | | |
|
| RfR2 Provision | 89.6
| | 89.6 |
| | 89.6 |
| | 0.0 |
| RfR3 Provision |
| | 0.0 | 1,015.1
| | 1,015.1 |
| | 0.0
|
| Total RfRs | 22,626.8
| 10,940.5 | 33,567.3
| 930.3 | 28.4 |
34,526.0 | 7,870.1 |
2.0 | 7,872.1 |
7. SUPPLEMENTARY ESTIMATES
7.1 We expect that funding will be sought in Supplementary
Estimates for:
— End of Year following publication of HM Treasury's
Public Expenditure Outturn White Paper (PEOWP).
— operations in Afghanistan and Iraq, and further
funding for the Balkans (under RfR2).
8. THE DEPARTMENT'S
PUBLIC SERVICE
AGREEMENTS & STRATEGIC
OBJECTIVES
8.1 As set out in the 2007 Pre-Budget Report and Comprehensive
Spending Review (Cm 7227), the Ministry of Defence will contribute
over the CSR07 period to the delivery of the cross-Governmental
Public Service Agreements to reduce the impact of conflict and
to reduce the risk to the UK and its interests overseas from international
terrorism. These are underpinned by the three Departmental Strategic
Objectives to achieve success in the military tasks we undertake
at home and abroad, be ready to respond to the tasks that might
arise, and build for the future. The Department formally reports
performance against its targets to Parliament in the Autumn and
Spring Performance Reports, and in the Annual Report and Accounts,
and these reports are also published on the Department's website
(www.mod.uk).
9. DEPARTMENTAL EXPENDITURE
LIMIT (DEL)
9.1 Table 8 shows the DEL from 2005-06 to 2008-09 for
all RfRs. The figures are for Voted DEL. Further detail of this
is shown in the Notes to the Estimate.
Table 7
THE VOTED DEPARTMENTAL EXPENDITURE LIMIT FOR 2005-06 to
2008-09
DEL | Restated[2]
2005-06
Outturn £m
| 2006-07
Outturn £m | 2007-08
Main
Estimate £m
| 2007-08
Spring Supplementary Estimate £m*
| 2008-09
Main
Estimate £m
|
Resource DEL | 33,428.555
| 33,453.021 | 32,548.165 |
36,857.168 | 33,567.283 |
| Capital DEL | 6,410.232 | 7,184.245
| 7,547.626 | 8,119.626 | 7,870.045
|
| Depreciation | -6,932.505 |
-5,828.509 | -6,618.451 | -8,218.325
| -7,408.960 |
| Total DEL | 32,906.282
| 34,808.757 | 33,477.340
| 36,758.469 | 34,028.368
|
*Includes RfR2 provision for operations in Iraq & Afghanistan.
10. DEL END YEAR
FLEXIBILITY
10.1 The requirement for End of Year Flexibility (EYF)
will be assessed following the publication of the Treasury's Provisional
Expenditure Outturn White Paper (PEOWP) later this year.
11. ADMINISTRATION COSTS
LIMIT
11.1 An Administration Cost Limit Budget has been introduced
this year, and is identified as a separate sub head in the Estimate.
Since CSR07, the Department's baseline has increased from £2,261
million to £2,294 million, with no overall impact on the
settlement.
12. PROVISIONS AND
CONTINGENT LIABILITIES
12.1 Provisions for liabilities and charges are based
on realistic and prudent estimates of the expenditure required
to settle future legal or constructive obligations. Provisions
are generally charged to the Operating Cost Statement (OCS). We
have included £175 million for provisions in DEL and £31
million in AME for nuclear provisions and some pension payments
for personnel employed overseas (who are not part of either the
UK Civil Service or the Armed Forces).
12.2 MoD's provisions cover legal claims, civilian early
departure costs, environmental costs, restructuring and nuclear
decommissioning and restoration costs. Details of the Department's
Contingent Liabilities are set out in a separate table in the
published Main Estimate.
13. MACHINERY OF
GOVERNMENT CHANGES
13.1 A Machinery of Government (MOG) change is made when
the responsibility for a service transfers from one Government
Department to another. The most recent MOG was the transfer of
responsibility for the Defence Export Services Organisation (DESO)
) to the estimates for the Department for Business Enterprise
and Regulatory Reform (DBERR), UK Trade and Investment (UKTI),
and Foreign and Commonwealth Office (FCO) effective from 1 April
2008.
22 April 2008
A: DEFINITION OF
TERMS
1. Direct Resource Departmental Expenditure Limits (RDEL)
This is a control on current expenditure which covers, for
example, pay, purchase of goods and services, net of receipts,
within the resource budget. It excludes 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 Departmental Expenditure Limit (IRDEL)
This control 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. Administration Costs Limit
Administration cost controls, which form separate control
limits on an income basis within DEL, cover departments' current
expenditure on staff, accommodation and other services used in
the administration of central government and the direct delivery
of services. The primary aim of administration costs control is
to promote economical and efficient administration and service
delivery in central government. This is largely achieved by containing
gross administrative costs.
4. Total Resource DEL
This is the sum of Direct and Indirect Resource DEL.
5. 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.
6. Non-Budget
Items of expenditure which are included in the Estimate,
but are outside of DEL and AME. This is a Parliamentary control
but not a Treasury control.
7. Total Net Resource
This is the net of items 1 to 6.
8. Capital Departmental Expenditure Limit (CDEL)
This is for new investment, including Capital additions,
disposals, and the capital repayment of loans.
9. Capital Annually Managed Expenditure
Includes the capital element of the loan repayments for self-financing
public corporations, such as QinetiQ.
10. Capital Non-Budget
Items of expenditure which are included in the Estimate,
but are outside of DEL and AME. This is a Parliamentary control
but not a Treasury control.
11. Total Net Capital
This is the sum of the above capital items.
12. Total Near Cash
This is the total accrued expenditure spend and is the sum
of Direct RDEL and Capital DEL.
13. 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.
14. Request for Resources 2
Conflict Prevention provides primarily for the additional
costs of 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.
15. 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.
16. CSR 2007
Comprehensive Spending Review 2007 (Cm 7227).
17. Total DEL
This is the sum of Resource DEL and Capital DEL less the
costs of depreciation. This is used as depreciation is included
as part of Resource DEL and, since Capital DEL includes capital
spending, the inclusion of depreciation would lead to double counting.
B: LIST OF
ABBREVIATIONS USED
IN THE
ESTIMATE
| AME | Annually Managed Expenditure
|
| CSR | Comprehensive Spending Review
|
| DCSA | Defence Communications Services Agency
|
| DE | Defence Estates |
| DE&S | Defence Equipment and Support
|
| DEL | Departmental Expenditure Limits
|
| DUP | Departmental Unallocated Provision
|
| EYF | End Year Flexibility
|
| FCO | Foreign and Commonwealth Office
|
| GEP | Government's Expenditure Plans
|
| HMT | Her Majesty's Treasury
|
| MoD | Ministry of Defence |
| MOG | Machinery of Government
|
| NAO | National Audit Office
|
| NLF | National Loans Fund |
| OCS | Operating Cost Statement
|
| ONS | Office of National Statistics
|
| PEOWP | Provisional Expenditure Outturn White Paper
|
| RfR | Request for Resources
|
| RDEL | Resource Departmental Expenditure Limit
|
| RHC | Royal Hospital Chelsea
|
| SAF | Stabilisation Aid Fund
|
| SE | Supplementary Estimates
|
| TLB | Top Level Budget holder
|
| UK | United Kingdom |
| UOR | Urgent Operational Requirement
|
| |
1
For detail on the different Requests for Resources, See Definition
of Terms Back
2
These figures have been restated to reflect the change in accounting
boundaries. Back
| 
