Second Further memorandum from the Ministry
of Defence
GOVERNMENT RESPONSE
TO THE
HOUSE OF
COMMONS DEFENCE
COMMITTEE REPORT
ON OPERATIONAL
COSTS IN
IRAQ AND
AFGHANISTAN: SPRING
SUPPLEMENTARY ESTIMATES
2007-08 (HC 400)
The Government welcomes the Committee's report
on the Ministry of Defence Cost of operations in Iraq and Afghanistan:
Spring Supplementary Estimates 2007-08, published on 10 March
2008, as HC140. The Estimate sought Parliamentary approval for
further funding for operations in Afghanistan and Iraq; draw down
of the Department's End Year Indirect Resource and Capital Flexibility
entitlements (carry over of under spends from earlier years);
draw down of the Department's Unallocated Resource provision;
inter Department Government budgetary transfers; and recognition
of proceeds from the sale of of Chelsea Barracks. The Government's
response to the conclusions and recommendations, which were contained
in the Committee's report is set out below. This should be read
in conjunction with our recently submitted 2008-09 Main Estimates
memorandum.
1. The time permitted for any departmental
select committee to examine its appropriate Supplementary Estimate,
from the date of laying until the date of decision, even taking
into account the support and co-operation from which it might
benefit, is still unreasonably short. This is clearly unsatisfactory
for those committees keen properly to examine their departments'
Estimates which can provide less thorough scrutiny than would
otherwise be the case; and still less satisfactory for the House
which enjoys less detailed consideration of that scrutiny than
would seem appropriate for the voting of very significant sums
of public money for use by the government of the day. This has
to change if Parliament is to be able to do its job effectively.
(Paragraph 3).
The Government's position is that a minimum
of 14 days should elapse between the laying of Supplementary Estimates
and the related parliamentary debates and votes. This was increased
from "eight clear days" in 2004 as part of a package
of changes to the Estimates process. Production of the Supplementary
Estimates is already subject to an extremely tight timetable throughout
and a greater gap than this would not be practical. The Main Estimates
are not of course subject to such constraints and are usually
presented two months or more before the parliamentary consideration,
which for this year is planned for 7 July. The Treasury-led Alignment
Project, which is looking at the various public spending controls
(primarily budgets, Estimates and accounts), aims to simplify
the process by greatly reducing the differences between the various
controls. This will itself help committees in the scrutiny of
departmental spending plans.
2. The MoD should be commended for continuing
to provide a clear and informative Estimates memorandum. (Paragraph
4).
The Department is fully committed to improving
the content and quality of its Estimates memorandum.
3. The Ministry of Defence is seeking a net
increase in resources and capital of £2,192 million—in
cash terms a net increase of £894 million. This is the additional
sum of money required by the MoD to fund its activity over and
above the sums already voted in the Main and Winter Supplementary
Estimates. (Paragraph 5).
Noted. The detailed composition was set out
in our memorandum. We will report our outturn against our total
annual request for resources in the Department's 2007-08 Annual
Report and Accounts.
4. We are therefore pleased to note that
the MoD in its response to our Report on the Winter Supplementary
Estimate has said that it will, at the next Main Estimate, include
a forecast for Urgent Operational Requirement (UOR) costs within
RfR2. (Paragraph 8).
As the Department stated in its government response
to the 2007-08 Winter Supplementary Estimates (response to paragraph
2—further memorandum from the MoD) our 2008-09 Main Estimates
Memorandum includes a central estimate of Urgent Operational Requirements.
5. In past Reports we have asked the MoD
to provide information about likely Balkan costs within its own
Estimate earlier in the Financial Year. We are again pleased that
the MoD has decided in its next Main Estimate to set down its
own assumption for what these operational costs are likely to
be in Financial Year 2008-09. (Paragraph 9).
For the first time, the Department has requested
funding for operations in the Balkans in its 2008-09 Main Estimates.
This is based on 75% of forecast costs. Further funds are likely
to be requested in the Supplementary round.
6. We again commend the MoD for increasing
the amount of information which this will make available to the
House at an early stage in the Financial Year. (Paragraph 9).
The Department is fully committed to providing
as much information as it can to the House, at the earliest opportunity.
7. The most notable element of the Estimate
is the significant increase signalled in the expected additional
costs of operations in Iraq and Afghanistan in the current Financial
Year. (Paragraph 10).
8. In the Winter Supplementary Estimates,
the MoD estimated the additional costs of operations in Iraq and
Afghanistan for 2007-08 as £955 million and £964 million
respectively (excluding indirect costs). The MoD now estimates
that these costs will be £1,449 million for Iraq and £1,424
million for Afghanistan. (Paragraph 10).
9. This is an increase in estimated additional
costs for this current year of around 50% for both theatres. (Paragraph
11).
Set out below in tables 1 and 2 is the explanation
for the changes between the 2007-08 Spring Supplementary Estimates
and the 2006-07 outturn for Iraq and Afghanistan.
Table 1
EXPLANATION FOR 2007-08 SPRING SUPPLEMENTARY
ESTIMATE RESOURCE REQUEST AND 2006-07 OUTTURN IN IRAQ
| Cost Type | 2006-07 Outturn
| 2007-08 SSE Request | Explanation
|
| Direct Resource | |
| |
| Military personnel | 100 |
93 | Manpower reductions. |
| Civilian personnel | 15 |
15 | No Change. |
| Stock/Other consumption | 218
| 263 | Increases in fuel prices.
|
| Infrastructure costs | 83 |
109 | Enhancement to security perimeter walling. Adaptation of Central Operating Base for winter weather, which was not originally envisaged.
|
| Equipment support costs | 206
| 357 | Purchase and support of Urgent Operational Requirements (UORs).
|
| Other costs and services | 137
| 162 | Increased training and operational welfare package costs. Support costs associated with provision of equipment to the Iraqi security services.
|
| Income generated/foregone | 5
| 5 | No Change. |
| Total Direct Resource | 764
| 1,004 | Over 80% of the increase is due to additional UORs the majority of which are for force protection. The remainder is the building of hardened accommodation in the Central Operating Base to protect against mortar attack.
|
| Capital Additions | 169
| 445 | Increased UOR expenditure, mainly for force protection.
|
| Total Resources | 933
| 1,449 | |
Table 2
EXPLANATION FOR 2007-08 SPRING SUPPLEMENTARY ESTIMATE
RESOURCE REQUEST AND 2006-07 OUTTURN IN AFGHANISTAN
| Cost Type | 2006-07 Outturn
| 2007-08 SSE Request | Explanation
|
| Direct Resource | |
| |
| Military personnel | 50 |
79 | Increase in Service manpower in excess of 1,500 personnel.
|
| Civilian personnel | 4 |
8 | Overtime/and locally employed (contracted) staff costs.
|
| Stock/Other consumption | 164
| 237 | Increased operational activity in the Helmand Province resulting in increased use of ammunition, and technical and engineering stores.
|
| Infrastructure costs | 101 |
163 | Increase in forward operating bases.
|
| Equipment support costs | 112
| 220 | Purchase and support of Urgent Operational Requirements (UORs). Reconstitution of airframes and vehicles.
|
| Other costs and services | 89
| 162 | Increase in support contract costs combined with a backlog of invoices. Increases to the operational welfare package.
|
| Income generated/foregone | (2)
| 8 | Loss of part of the Brunei receipt because the Gurkhas are now in Afghanistan. This is partially offset by income generated in theatre from other nations.
|
| Total Direct Resource | 518
| 877 | |
| Capital Additions | 178
| 547 | Increased UOR expenditure, mainly for force protection.
|
| Total Resources | 696
| 1,424 | |
10. While we are aware that the drawdown of forces in
Iraq will not immediately lead to a comparable decline in costs,
nonetheless, the magnitude of the increase in the costs estimate
there is surprising. (Paragraph 12).
Much of the cost increase relates to increased capital spending
(mainly Urgent Operational Requirements), to ensure that our forces
in southern Iraq have the best protection against the continuing
threats they face, particularly from rocket and mortar attacks
and improvised explosive devices. We are investing in additional
protection for infrastructure at the Contingency Operating Base
in Basra (accommodation programme) and for our vehicle fleet.
In addition, the Iraq-related costs requested in the Winter
Supplementary Estimate were based on earlier assumptions about
the draw-down of our forces in southern Iraq as announced to the
House of Commons by the Prime Minister on 8 October 2007. As the
Defence Secretary explained to Parliament in his statement of
1 April, the military assessment of changes in conditions on the
ground in Basra over the first quarter of 2008 was that force
level reductions were unlikely to be possible at the rate previously
envisaged, on the ground in Basra. Our Spring Supplementary Estimate
request for Iraq takes account of adjustments to projected force
levels in 2008.
11. It is worthwhile stressing that these increases in
estimated costs for this Financial Year have occurred not since
the MoD's Main Estimate was laid on 30 April 2007 but since the
Ministry's Winter Supplementary Estimate was laid on 15 November.
In other words, with the exception of the indirect costs of these
operations, the higher cost estimate was presumably unforeseen
only three months ago. Where in future Supplementary Estimates
bring significant increases in the cost of operations, the Estimates
memorandum should make clear to what extent the increase is the
result of previous under-estimation and where it is a genuine
cost increase. (Paragraph 12).
The Department has consistently explained that operational
costs are difficult to forecast and sensitive to changes in operational
policy and the operational context. There is always likely to
be a variation between the forecasts used to inform Winter Supplementary
Estimates and those to inform Spring Supplementary Estimates.
For example, the increased cost of operations in Afghanistan at
Spring Supplementary Estimates reflects a more offensive campaign
than envisaged at Winter Supplementary Estimates. Additionally,
operations in Afghanistan are now bring conducted further afield
from the base camps, which has led to increased logistical costs
because of the stretched supply line. A further example is that
the increased capital spend in Iraq is a direct consequence of
higher aggressive enemy action, particularly from mortar attacks
and road side bombings. This has necessitated increased buildings
protection and vehicle protection (UOR). The Department will,
however, endeavour to provide more detailed explanations for the
variation between estimates at Winter and Spring Supplementaries
in future memoranda.
12. We expect the MoD to provide us with a full explanation
for the very significant increase in the indirect resource cost
of operations in response to this Report. In addition, we suggest
that the MoD states clearly its expectations with regard to the
size of the indirect resource costs of operations in Iraq and
Afghanistan in the next Financial Year, should operations continue
at their current tempo. (Paragraph14).
Last year the Department exceeded the resources voted to
cover the costs of operations, and, therefore, received a qualification
on its accounts in this respect from the Comptroller and Auditor
General. As noted in our 2006-07 Annual Report & Accounts,
the excess expenditure was entirely against the provision for
non-cash costs (reflecting the use of more Hellfire missiles in
Afghanistan than had been forecast at the time the Department
submitted Supplementary Estimates and increased depreciation charges
for some military equipment damaged or destroyed on operations).The
Department undertook to identify any appropriate lessons in time
to inform the production of the Winter and Spring Supplementary
Estimates for 2007-08.
The work undertaken concluded that the indirect costs of
operations had not been fully reported in 2006-07, and the increased
request this year reflects a fuller, and more robust, forecast,
based on a methodology discussed with the National Audit Office.
There is inevitably a high degree of difficulty in forecasting
indirect costs—for example, for equipment damaged or destroyed
on operations and the number of missiles fired, which are driven
by operational tempo. For this reason our Estimate includes a
degree of contingency to protect the Department against a further
qualification to its accounts this year. The Committee has previously
stated that it would accept some contingency in the Department's
estimates.
13. We are concerned that the very difficulty of attempting
to provide robust forecasts for the cost of operations might discourage
the Ministry from trying its best to provide a thoroughly considered
forecast for the Supplementary Estimates, Winter and Spring, during
the Financial Year. (Paragraph 15).
The Department has always sought to provide realistic and
robust estimates provisions and welcomes the Committee's recognition
that the unpredictability of military operations makes this very
difficult. A large part of our operations costs relates to Urgent
Operational Requirements. Enhancements to the existing reporting
system to enable more effective monitoring of UOR expenditure
are now in place, and a specialist working group has been set
up this year, which will enable the Department to track costs
more robustly. We will continue to improve our reporting systems.
14. In our Report on the Winter Supplementary Estimate
2007-08, we asked the MoD to consider placing in its next Main
Estimate a forecast for its operational costs in the Balkans for
that Financial Year. We are pleased that the MoD has agreed to
include such a forecast, and accept that the MoD may have to amend
this forecast over the course of the Financial Year in its Winter
and Spring Supplementary Estimates. We remind the MoD that the
opportunity for such amendment does not, however, free the department
from its responsibility in the first instance to provide as robust
a forecast as possible. The House can only benefit from early
sight of the MoD's firm assumptions as to the cost of such operations.
(Paragraph 18).
As our response to point 5 states, for the first time, the
Department has requested funding for operations in the Balkans
in its 2008-09 Main Estimates. The Department takes its responsibilities
to Parliament very seriously, and is fully committed to providing
realistic and robust estimates provisions. The Committee recognises
that the unpredictability of military operations makes this very
difficult, which is why further funds may be requested in the
Supplementary round, depending on any changes to forecasts later
in 2008-09.
15. We again stress the unsatisfactorily tight deadline
to which all departmental select committees are expected to work
in their study of the Supplementary Estimates. (Paragraph 20).
16. As things currently stand, it is simply not possible
to scrutinise these important figures as fully as they deserve.
(Paragraph 20).
See comment on first recommendation.
17. We recommend that the House of Commons approve the
request for resources set out in the MoD's Spring Supplementary
Estimate. The £2,192 million, in large part requested to
meet the forecast additional cost of operations in Iraq and Afghanistan
during this Financial Year, represents a significant sum of public
money, but we believe that the task our Armed Forces are carrying
out is one that requires significant resource—especially
in terms of new equipment and force protection, both so essential
to their missions abroad. (Paragraph 21).
The Department welcomes the Committee's continued support
for our Armed Forces.
9 May 2008
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