Defence CommitteeFurther written evidence from the Ministry of Defence
2013–14 MOD AND ARMED FORCES PENSIONS MAIN
ESTIMATES AND ESTIMATES
RESPONSE TO DEFENCE COMMITTEE QUESTIONS
Set out below are the MOD responses to questions raised by the Select Committee arising from the 2013–14 Main Estimates (ME) for the Armed Forces Pensions Scheme and the MOD.
Armed Forces Pension & Compensation Scheme
1. Paragraph 4.2, could the Committee have the £488M split between the amount due to the increased discount rate and the increase in the AFCS liability and more detail on why the AFCS liability has increased due to the Boyce Review.
The £488.3 Million is split as follows:
Change in discount rates (£288.3 Million):
This is the effect of the reduction in the real discount rate from 2.8% to 2.35%. A reduction in the discount rate increases the net present value of the long term liability and consequently increases the annual Current Service Cost charge against the Estimate. The Current Service cost charge represents the additional liability accruing each year in respect of current serving members. This is calculated by multiplying current SCAPE contributions receivable by a factor supplied by the Government Actuary’s Department. The reduction in the discount rate meant that this factor increased from 1.04 to 1.21 in respect of Officers and from 1.11 to 1.29 in respect of Other Ranks.
Increase in the AFCS long term liability (£200 Million):
When the previous 2013–14 budget was calculated the impact of the legislative changes to the scheme rules (AFCS Boyce Review) on the long term liability of the AFCS was a best estimate. Now that the scheme has operated under the new rules for two years the impact on the long term liability can be more accurately estimated. The legislative changes under the Boyce Review resulted in more favourable compensation lump sum awards and Guaranteed Income Payments (GIPs). The Scheme is still comparatively new and we are still seeing annual increases in the liability due to increasing claim numbers. The higher average value of awards has increased the estimated value of this annual increase.
2. Could the MoD tell the Committee why ”War Pensions” were not moved to the AFPCS vote.
When responsibility for War Pensions transferred from the then Department for Social Security to MOD in 2002, HM Treasury’s ruling was that it should fall within MOD’s main estimate (Vote 1), although at that stage it was as a separate Request for Resources (RfR). The rationale for this was that War Pensions are not part of an occupational compensation scheme (as the Armed Forces’ Pension and Compensation Scheme is), but a social security benefit, and are reflected as such in the National Accounts.
Ministry Of Defence:
3. Paragraph 1.3. Have the contingent liabilities changed from last year’s Main Estimates? Please provide the Committee with a list of any new contingent liabilities and any liabilities that have fallen out since last year.
The only additional contingent liability in the 2013–14 Main Estimates is item no 35: “complaints upheld against the MOD and indemnifying the contractor (employed to assist with the sale of Spectrum) against damages awarded in respect of complaints upheld relating to the sale”. No contingent liabilities have fallen out since last year.
There are also revisions to the following listed items in the Main Estimates contingent liabilities table. Item 2 has decreased from £18 Million to £17 Million; item 25 has increased from £14 Million to £17 Million; item 28 has decreased from £29 Million to £5 Million; and item 28 has decreased from £27 Million to £9 Million.
4. Paragraph 3.2, table 3—Service personnel costs, are there no Armed Forces personnel doing administration jobs?
No service personnel costs are scored against the Administration Control Regime (ACR) in the current Spending Review period, as agreed with Treasury.
5. Paragraph 3.2, table 3—depreciation and impairments, TLBs. Please provide a detailed breakdown of the £8,966.5M figure.
The table below sets out details of the forecast non cash depreciation and impairments composition for the core MOD 2013–14 budget.
|
Cost Category |
£M |
|
Single Use Military Equipment Depreciation (SUME) (a) |
5,646 |
|
Property (Dwelling) Depreciation |
210 |
|
Property (Dwelling) Impairment |
70 |
|
Property (Non Dwelling) Depreciation |
489 |
|
Property (Non Dwelling) Impairment |
125 |
|
Plant & Machinery Depreciation |
302 |
|
Transport Depreciation |
613 |
|
SUME Transport Depreciation |
513 |
|
IT & Communications Equipment Depreciation |
536 |
|
Intangibles Amortisation |
463 |
|
Total |
8,967 |
6. Paragraph 3.4, table 7, what review arrangements does the MoD have for Arms Length Bodies.
Arms Length Bodies (ALBs) now fall within the MOD overall DEL. Top Level Budget Holders monitor and agree ALB forecasts of outturn each month. TLB holders are represented at ALB Board meetings.
The main ALBs accounts are consolidated in the MOD Group accounts and are audited by the NAO as are, in some cases, the separately published accounts of the organisations themselves—this provides further assurance.
The table below (which is included in the MOD Estimates Memoranda) sets out the 2013–14 funding for the ALBs, which is relatively small in the context of the overall MOD budget.
|
Organisation |
Direct Resource DEL £M |
Ring-Fenced Non Cash DEL £M |
Total RDEL £M |
CDEL £M |
|
Army Benevolent Fund (Self-funding) |
0.0 |
0.0 |
0.0 |
0.0 |
|
CRFCA |
115.0 |
2.2 |
117.2 |
2.2 |
|
Royal Hospital Chelsea |
11.6 |
13.4 |
25.0 |
0.0 |
|
National Army Museum |
5.6 |
1.9 |
7.5 |
0.0 |
|
RAF Museum |
8.3 |
0 |
8.3 |
0.0 |
|
National Museum of the Royal Navy |
3.3 |
0 |
3.3 |
0.5 |
|
Commonwealth War Graves Commission |
48.1 |
0 |
48.1 |
0.0 |
|
TOTAL |
191.9 |
17.5 |
209.4 |
2.7 |
7. Paragraph 4.2, why has the percentage of Afghanistan costs covered in the Estimates been reduced from 90% to 80% and why not cover 100%.
The provision of less than 100% at Main Estimates is standard Treasury practice, and the Estimate provides funding now for 80% of the forecast costs of operations this year, recognising that the costs are subject to change and that, given the drawdown, costs are more likely to fall than increase. There will be no impact on the frontline and this is purely an adjustment of the forecast. This does not change the principle that the full net additional costs of military operations are met by the HMT Special Reserve; and there is agreement that, should the Department require the full amount, any additional justified requirements will be funded at Supplementary Estimates.
8. Paragraph 4.2, will the Treasury fund the costs of operations in Afghanistan fully if they exceed the 100% estimate?
We have a firm agreement with the Treasury that all additional costs of operations in Afghanistan will be funded.
9. Paragraph 4.4.3, will the Afghan National Army Officer Academy continue to be funded by the Treasury through NACMO?
The precise source or sources of funding for the Afghan National Army Officer Academy is subject to negotiations in the current Spending Round, which is setting budgets for 2015–16.
10. Paragraph 4.3. Is the UK’s contribution to Mali being funded through the Conflict Pool? What level of expenditure is being spent on Mali?
The costs of the UK’s contribution to military operations in Mali are being met from the Deployed Military Activity Pool. The costs of the UK’s contribution to the EU Training Mission are being met from the Conflict Pool. We are currently compiling the costs for this operation and the costs for 2012–13 will be published in the MOD’s Annual Report and Accounts.
11. Paragraph 4.6. Does this mean that future operations will be funded from the DMAP rather than the Reserve?
The DMAP is one way of funding operations—usually in their early stages. The precise criteria for use of the DMAP are the subject of discussions with HM Treasury. The principle remains that the HM Treasury Reserve will continue to be available for funding the net additional costs of operational activities.
June 2013