Report
Introduction
1. The Winter Supplementary Estimates for the Financial
Year 2007-08 were laid before the House of Commons on 15 November
2007.[1] The Ministry of
Defence (MoD) is seeking a net increase in resources and capital
expenditure of £2,033.439 million—in cash terms a net
increase of £2,158.439 million.[2]
Table 1 provides a breakdown of the requested increase in expenditure.
Table 1: Changes in Resource and Capital Expenditure
| | £ million
|
| Resource Expenditure
| |
| Provision of Defence Capability (RfR1)
| 574.439 |
| Operations and Peacekeeping
| 1,315.000 |
| Total Net Request for Resources
| 1,889.439 |
| | |
| Capital Expenditure
| |
| Provision of Defence Capability (RfR1)
| - 460.000 |
| Operations and Peacekeeping (RfR2)
| 604.000 |
| Total Net Request for Capital
| 144.000 |
| | |
| Total Change |
2,033.439 |
Source: Ministry of Defence[3]
2. In our report on the Spring Supplementary Estimate
2006-07, we expressed our concern that use of the term "conflict
prevention" to describe Request for Resources 2 (RfR2) was
misleading, as it covered military operations of all kinds, from
war-fighting to peacekeeping operations.[4]
The Government agreed to take this into account as it reviewed
the layout of the Estimate.[5]
We commend
the MoD for renaming Request for Resources 2 "Operations
and Peacekeeping", which more accurately describes what it
covers.
3. Most of the additional funds requested in the
MoD's Winter Supplementary Estimate are to meet the additional
costs of operations in Iraq and Afghanistan, which the MoD estimates
to be £1,919 million—comprising £1,315 million
in resources and £604 million in capital—in the current
financial year.[6]
4. It is expected that the House of Commons will
be asked to approve the Winter Supplementary Estimates on Wednesday
5 December.
Approval of expenditure for operations in Iraq
and Afghanistan
5. The MoD does not make provision for the cost of
operations in the Main Estimates, on the ground that the unpredictable
nature of operations makes it difficult to forecast their cost
with accuracy at the beginning of the financial year. Until last
year, it waited until the Spring Supplementary Estimates in February
to present estimated costs of these operations: now, it presents
these costs at the Winter Supplementary Estimates.
6. We have repeatedly recommended that provision
for operations be made in the Main Estimates.[7]
Our report on the Main Estimates 2007-08 stated that:
We remain of the view—set out in previous reports—that
the MoD should include estimated costs of military operations
in its Main Estimates, rather than waiting for the Supplementary
Estimates. We acknowledge that these estimates would be subject
to change, but point out that the Estimates process is designed
to allow for changes in forecast expenditure over the year. Military
operations are not unique in being subject to uncertainty and
fast-moving circumstances. Under the present practice, the MoD
is incurring costs in the current financial year on military operations,
without parliamentary approval and without even providing Parliament
with an outline indication of the costs likely to be incurred.
This is entirely unacceptable and we cannot understand why the
MoD fails to see this. We recommend that—at least—the
MoD provide in its estimates memorandum for the Main Estimates
an account of its planning assumptions for the costs of military
operations in the financial year ahead.[8]
The Government's response stated:
We recognise the Committee's continuing concerns
regarding their recommendation that the Department seek inclusion
of the cost of operations in Iraq and Afghanistan in Defence Main
Estimates, or at least outline our plans in the Main Estimates
memoranda. We have reviewed this in response to the Committee's
previous recommendations. We also recognise that the Committee
does not agree with that conclusion. Ministers have made clear
to Parliament that the additional costs of military operations
are difficult to forecast at the start of the year, which is why
the MoD provides two updated estimates to Parliament in the Winter
and the Spring. The Department needs to ensure that the figures
presented to Parliament are taut and realistic against the background
of changing operational circumstances. The Winter Supplementary
Estimates are the first occasion when the Department can present
a reasonably firm estimate of likely operational costs.[9]
7. We
continue to believe that the estimated costs of military operations
should be presented in the Main Estimates. We are disappointed
that the Government has not been persuaded of this. We reiterate
our compromise suggestion that—at least—the MoD provide
in its estimates memorandum for the Main Estimates an account
of its planning assumptions for the costs of military operations
in the financial year ahead. Notwithstanding the uncertainty of
cost estimates at the beginning of the financial year, the MoD
must surely have planning assumptions. We can see no reason why
these should not be shared with Parliament. We expect the MoD
to respond fully to this recommendation in its response to this
Report.
Approval of the costs of Balkans operations
8. Provision for the cost of operations in the Balkans
is made in the Main Estimates presented by the Foreign and Commonwealth
Office (FCO). Some of this is transferred to the MoD in the Spring
Supplementary Estimates.
9. We have repeatedly recommended that provision
for Balkans operations be set out in the MoD's Main Estimate.[10]
In its response to our report on the Winter Supplementary Estimate
2006-07, the Government said that it would reconsider this in
the preparation of the Main Estimates 2007-08.[11]
Our report on the Main Estimates 2007-08 expressed disappointment
that this had not been done.[12]
The Government's response to our report on the Main Estimates
2007-08 stated that the MoD would consult with the other Government
Departments involved on the impact that making such a change would
have on current long-established collective conflict prevention
management arrangements.[13]
We repeat our earlier recommendation
that provision for operations in the Balkans should be set out
in the MoD's Main Estimate, and hope that this will be done in
the Main Estimates 2008-09.
10. In the meantime, it is still not clear to us
why the transfer to the MoD has to wait for the Spring Supplementary
Estimates, rather than appearing in this Winter Supplementary
Estimate, alongside the costs of operations in Iraq and Afghanistan.
Unless the MoD can present,
in the response to this report, a compelling reason for continuing
current practice, we shall expect provision for operations in
the Balkans to be made in the MoD's Winter Supplementary Estimate
2008-09—if not already made in the Main Estimates.
Estimated cost of operations in 2007-08
11. The
Winter Supplementary Estimate estimates the additional costs of
operations in Iraq and Afghanistan in 2007-08 as £1,315 million
in resources and £604 million in capital.[14]
These are the net additional costs incurred as a consequence
of the operations, not including the costs which would have been
incurred regardless, such as wages and salaries.[15]
The MoD's estimates memorandum breaks these costs down as shown
in Table 2 below.
Table 2: Estimated net additional costs of operations in Iraq and Afghanistan for 2007-08
| Operation
| Direct Resource DEL £m
| Capital DEL £m
| Total Estimate 2007-08 £m
| Total Outturn 2006-07 £m (includes IRDEL)
|
| Iraq
| 729 | 226
| 955 | 956
|
| Afghanistan
| 586 | 378
| 964 | 742
|
| Total
| 1,315 | 604
| 1,919 | 1,698
|
Source: Ministry of Defence[16]
Note: The 2006-07 outturn figures do not include
£4.6 million of receipts connected to Afghanistan operations
that were surrendered to the Exchequer, and therefore do not match
those in Table 5 which include such receipts.
The forecast net additional costs
of operations in 2007-08 are £955 million for Iraq and £964
million for Afghanistan.
12. The MoD's estimates memorandum provides a further
breakdown by cost type.[17]
Table 3 below compares the figures provided in the estimates memorandum
with the outturn figures for 2006-07, as stated in the MoD's Annual
Report and Accounts 2006-07. Table 3 does not include indirect
resource costs for 2006-07, as they are not yet forecast for 2007-08
(see paragraph 17 below).
Table 3: The cost of operations in Iraq and Afghanistan: comparison with 2006-07
| Cost Type
| Iraq
Actual
£ m
2006-07
| Iraq
Forecast
£ m
2007-08
| % change
| Afghanistan
Actual
£ m
2006-07
| Afghanistan
Forecast
£ m
2007-08
| % change
|
| Resource-Direct
| | | |
| | |
| Military personnel
| 100 | 95
| - 5 | 50
| 62 | + 24
|
| Civilian personnel
| 15 | 12
| - 20 | 4
| 6 | + 50
|
| Stock/other consumption
| 218 | 169
| - 22 | 164
| 138 | - 16
|
| Infrastructure costs
| 83 | 106
| + 28 | 101
| 95 | - 6
|
| Equipment support costs
| 206 | 234
| + 14 | 112
| 185 | + 65
|
| Other costs and services
| 137 | 108
| - 21 | 89
| 103 | + 16
|
| Income generated/(foregone)
| 5 | 5
| 0 | (2)
| (3) | - 50
|
| Total
| 764 | 729
| - 5 | 518
| 586 | + 13
|
| Capital
| | | |
| | |
| Capital Additions
| 169 | 226
| + 34 | 178
| 378 | + 112
|
| Total
| 169 | 226
| + 34 | 178
| 378 | + 112
|
| | |
| | | |
|
| Grand Total
| 933 | 955
| + 2 | 696
| 964 | + 39
|
Source: Ministry of Defence
Note: The grand total does not include indirect
resource costs
13. The
cost of operations in Afghanistan is forecast to increase by 39%
in the current year. Given the increase in UK Forces in Afghanistan
in the current year, and the continuing high operational tempo,
this is perhaps not very surprising. It is striking, however,
that three-quarters of the increase is attributable to capital
additions. We recommend that, in the response to this report,
the MoD provide more detail on the capital programmes involved.
14. It may seem
surprising that the cost of operations in Iraq is forecast to
increase in the current year by 2%, despite the drawdown in UK
Forces over the year. The increase is accounted for by large increases
in infrastructure costs, equipment support costs and capital additions.
In its supplementary memorandum, the MoD explains that:
The centralisation of MoD's operating base in Iraq
to Basra Airport has required substantial building/infrastructure
work resulting in higher costs. The increase in both Equipment
Support and Capital Additions is the result of higher levels of
Urgent Operational Requirements, mainly to meet force protection
requirements. This includes measures to provide greater protection
to the Warrior AFV [Armoured Fighting Vehicle] and the procurement
of Protected Patrol Vehicles to replace vehicles such as the SNATCH
Land Rover.[18]
The requirement to invest in facilities
at Basra Airport, and to improve force protection, appears to
explain the increase in the cost of operations in Iraq this year.
15. It is, however,
a little surprising that the military personnel costs for Iraq
are expected to fall by only 5% this year, despite the considerable
drawdown of UK Forces over the year. And it is striking that the
forecast military personnel costs for Iraq (£95 million)
considerably exceed those for Afghanistan (£62 million).
We asked the MoD why the military personnel
costs for Iraq continued to exceed those for Afghanistan. The
MoD's supplementary memorandum states:
At the beginning of the current year Iraq had appreciably
higher manpower levels than Afghanistan. However, by mid year
these had reduced to a point where both had similar levels. The
result is a higher annual forecast cost for Iraq.[19]
We find this surprising. According to the MoD's website,
UK Forces in Afghanistan are currently over 6,000 strong and will
increase to around 7,700 "over the course of the year".
It states that UK Forces in Iraq were 5,500 at the end of May
2007, are expected to be 4,500 by Christmas 2007 and will fall
to around 2,500 "from next Spring".[20]
We recommend
that, in the response to this report, the MoD explain in more
detail why military personnel costs for Iraq are expected to fall
by only 5% in the current year.
16. The MoD's Estimates memorandum states that the
MoD has not included a contingency in the Winter Supplementary
Estimate. It warns that "Because of the unknown volatility
of operations, in particular the need for Urgent Operational Requirements,
the Department may seek additional provision in the Spring Supplementary
Estimates".[21]
17. The Estimates memorandum also states that indirect
resource costs, or the "non-cash" costs of operations
(stock write-off, provisions, depreciation, cost of capital charges
etc), which are particularly hard to forecast, will be included
in the Spring Supplementary Estimate. This could be significant.
In 2006-07, the outturn indirect resource costs for Iraq and Afghanistan
operations were £65 million.[22]
18. The Spring Supplementary Estimate will also include
provision for peacekeeping and operations in the Balkans, by a
budgetary transfer from the FCO.[23]
The MoD's current estimate of the costs of Balkans operations
this year is £20 million, but it warns that the tempo of
operations there may change later in the year.[24]
19. It is likely
that the actual additional costs of military operations in 2007-08
will exceed the amounts requested in the Winter Supplementary
Estimate, and that the MoD will be required to ask for more money
for operations in the Spring Supplementary Estimates.
Outturn costs of operations in 2006-07
20. The outturn costs for operations in 2006-07 was
£1,797
million, of which £957
million was for operations in Iraq, £742
million for operations in Afghanistan, £56
million for operations in
the Balkans (Bosnia and Kosovo) and £42 million for conflict
prevention activity under the Global and African pools. The MoD's
Annual Report and Accounts 2006-07 breaks this down, as shown
in Table 4 below.
Table 4: Costs of operations 2006-07
| | 2006-07
| 2005-06
|
| Operation
| Net Resource Outturn
£000
| Capital Costs
£000
| Total
£000
| Restated Outturn
£000
|
| Peace Keeping Expenditure
| | | |
|
| Afghanistan
| 564,096 | 178,208
| 742,304 | 199,348
|
| Iraq |
786,715 | 169,447
| 956,162 | 957,598
|
| Programme Expenditure
| | | |
|
| Balkans
| 55,878 | 543
| 56,421 | 62,853
|
| Global pool
| 12,193 | -
| 12,193 | 16,937
|
| African pool
| 29,538 | -
| 29,538 | 30,355
|
| Total RfR2
| 1,448,420 | 348,198
| 1,796,618 | 1,267,091
|
| Total Estimate
| 1,427,526 | 449,000
| 1,876,526 | 1,431,273
|
| Difference - savings/(excess)
| (20,894) | 100,802
| 79,908 | 164,182
|
Source: Ministry of Defence[25]
Note: The 2006-07 outturn figures do not include
£4.6 million of receipts connected to Afghanistan and £0.5
million of receipts connected to the Balkans operations that were
surrendered to the Exchequer, and therefore do not match those
in Table 5 which includes such receipts.
21. The Annual Report and Accounts 2006-07 also provides
a more detailed breakdown, and compares cost outturn with the
sums allocated by the Department for different lines of expenditure,
as shown in Table 5 below.[26]
1. Table 5: Costs of operations in Iraq, Afghanistan and the Balkans 2006-07
| | Iraq
| Afghanistan
| Balkans
|
| | Total Departmental Allocation
2006-07
£000
| Total Outturn
2006-07
£000
| Total Outturn
2005-06
£000
| Total Departmental Allocation
2006-07
£000
| Total Outturn
2006-07
£000
| Total Outturn
2005-06
£000
| Total Departmental Allocation
2006-07
£000
| Total Outturn
2006-07
£000
| Total Outturn
2005-06
£000
|
| Operating Costs (by area)
| | | |
| | | |
| |
| Direct Costs
| | | |
| | | |
| |
| Service Manpower
| 111,000 | 99,779
| 80,237 | 51,000
| 49,487 | 7,575
| 12,000 | 11,006
| 11,509 |
| Civilian Manpower
| 15,000 | 14,733
| 14,213 | 3,000
| 4,340 | 1,627
| 5,000 | 5,310
| 4,949 |
| Infrastructure Costs
| 89,000 | 83,136
| 81,407 | 99,000
| 100,928 | 10,522
| 12,000 | 12,853
| 12,633 |
| Equipment Support
| 214,000 | 206,065
| 220,232 | 122,000
| 111,739 | 24,399
| 6,000 | 5,557
| 7,840 |
| Other |
139,000 | 137,273
| 111,186 | 77,000
| 89,215 | 37,595
| 14,000 | 13,997
| 11,824 |
| Income |
5,000 | 4,720
| 10,054 | 4,000
| (2,008) | 7,792
| (9,000) | (9,573)
| 2,369 |
| Stock Consumption
| 212,000 | 218,010
| 218,920 | 140,000
| 164,205 | 57,171
| 13,000 | 15,100
| 9,332 |
Indirect Costs
| | | |
| | | |
| |
| Stock Write-off
| - | 238
| 51 | -
| - | (2)
| - | -
| - |
| Provisions
| 2,000 | 5,547
| 1,560 | -
| 18 | -
| - | 720
| (437) |
| Depreciation & Amortisation (inc. UORs)
| 20,000 | 14,443
| 33,611 | 21,000
| 39,113 | 1,255
| - | 293
| 2,376 |
| Fixed Asset Write-off
| - | -
| 21,848 | -
| - | -
| - | -
| - |
| Cost of Capital
| - | 2,771
| 4,441 | (1,000)
| 2,500 | 183
| - | 147
| 284 |
| Total Operating Costs
| 807,000 | 786,715
| 797,760 | 516,000
| 559,537 | 148,117
| 53,000 | 55,390
| 62,679 |
| Capital Cost (by area)
| | | |
| | | |
| |
| Capital addition (inc. UORs & Recuperation)
| 195,000 | 169,447
| 159,838 | 254,000
| 178,208 | 51,231
| - | 543
| 174 |
| Net Book Value of Fixed Asset Disposals
| - | -
| - | -
| - | -
| - | -
| - |
| Total Capital
| 195,000 | 169,447
| 159,838 | 254,000
| 178,208 | 51,231
| - | 543
| 174 |
| Total by Operation
| 1,002,000 | 956,162
| 957,598 | 770,000
| 737,745 | 199,348
| 53,000 | 55,933
| 62,853 |
Source: Ministry of Defence
Note: The 2006-07 outturn figures include £4.6 million of
receipts connected to Afghanistan and £0.5 million of receipts
connected to the Balkans operations that were surrendered to the
Exchequer, and therefore do not match those in Table 4 (nor Table
2) which do not include such receipts.
22. As last year, we note that the
outturn for 2006-07 operations was less than the sums planned
by the Department: the MoD over-estimated the cost of its operations
and peacekeeping by £75 million (4%). This comprised an underspend
on capital costs of £101 million, offset by a resource overspend
of £26 million. The
overspending on the Department's resources budget allocations
for operations also meant that the MoD spent more than the provision
formally approved by Parliament on the 2006-07 Conflict Prevention
Estimate. The Request for Resources 2 Estimate was overspent by
£21 million, including £28 million for the 'Rest of
the World Peacekeeping' expenditure subhead which covers Iraq
and Afghanistan.[27]
This required the Comptroller and Auditor General (C&AG) to
qualify the MoD's Resource Accounts.[28]
23. The MoD explains, in the Annual Report and Accounts,
that the difference between the outturn and the Estimate, or 'Excess
Vote', was for the following reasons:
The excess in non-cash costs, such as depreciation
charges for military equipment and the firing of guided weapons,
missiles and bombs in Afghanistan were higher than forecasted
at the time the Estimates were prepared. This is the direct result
of the increased tempo of the operation in the Helmand Province
in the south of the country.
When the capital estimate was prepared, it was based
on UORs [Urgent Operational Requirements] that had been financially
approved. Not all UORs were subsequently delivered prior to the
end of the financial year resulting in an underspend against capital
costs.[29]
The C&AG's audit report gives some additional
information, including that the missiles in question were Hellfire
missiles.[30]
24. We
welcome the inclusion in the Annual Report and Accounts of an
explanation of the variation between voted provision and outturn
for 2006-07. Given the unpredictability of military operations,
it is understandable that there should be variation between the
Estimates and the outturn. However, we look to the MoD to ensure
that its estimates are as robust as possible and, in particular,
that the estimates on capital costs should be based on realistic
expectations of when Urgent Operational Requirements will be delivered.
Conclusion
25. We recommend that the House
of Commons approve the request for resources set out in the MoD's
Winter Supplementary Estimate. The £1,919 million requested
to meet the forecast cost of operations in Iraq and Afghanistan
in 2007-08 is a large amount of public money, but it is essential
that our Armed Forces are properly resourced to carry out the
task which they have been given. The sum requested includes investment
in new equipment and force protection, which has been welcomed
by all sides of the House.
1 HM Treasury, Central Government Supply Estimates
2007-08 Winter Supplementary Estimates, HC 29, November 2007 Back
2
HC (2007-08) 29, pp 240-241 Back
3
Ev 1, Table 1 Back
4
Defence Committee, Tenth Report of Session 2006-07, Cost of
military operations: Spring Supplementary Estimate 2006-07,
HC 379, para 3 Back
5
Defence Committee, Twelfth Special Report of Session 2006-07,
Cost of military operations: Spring Supplementary Estimate
2006-07: Government Response to the Committee's Tenth Report of
Session 2006-07, HC 558, Appendix , response to recommendation
1 Back
6
HC (2007-08) 29, p 243 Back
7
For example, Defence Committee, Fourth Report of Session 2005-06,
Costs of peacekeeping in Iraq and Afghanistan: Spring Supplementary
Estimate 2005-06, HC 980, para 15; Ninth Report of Session
2005-06, Ministry of Defence Main Estimates 2006-07, HC
1366, para 9 Back
8
Defence Committee, Twelfth Report of Session 2006-07, Ministry
of Defence Main Estimates 2007-08, HC 835, para 18 Back
9
Defence Committee, Fifteenth Special Report of Session 2006-07,
Ministry of Defence Main Estimates 2007-08: Government Response
to the Committee's Twelfth Report of Session 2006-07, HC 1026,
Appendix, para 5. Back
10
HC (2005-06) 980, para 17 Back
11
HC (2005-06) 1601, para 3 Back
12
HC (2006-07) 835, para 20 Back
13
HC (2006-07) 1026, para 6 Back
14
Ev 4, Table 5; Ministry of Defence, Ministry of Defence Annual
Report and Accounts 2006-07, HC 697,
p 238, para 2.2 Back
15
Ev 7, para 12 Back
16
Ev 5, Table 7 Back
17
Ev 4-5, Table 6 Back
18
Ev 9 Back
19
Ev 9 Back
20
Ministry of Defence Factsheets, Operations in Afghanistan:
British Forces and Operations in Iraq: Facts and Figures,
www.mod.uk Back
21
Ev 4, para 5.1 Back
22
HC (2006-07) 697, p 238, para 2.3 Back
23
Ev 5, para 8.1 Back
24
Ev 9 Back
25
HC (2006-07) 697, p 238, para 2.2 Back
26
HC (2006-07) 697, pp 238-239, para 2.3 Back
27
HC (2006-07) 697, p 236 Back
28
HC (2006-07) 697, pp 217-222 Back
29
HC (2006-07) 697, p 239, para 2.5 Back
30
HC (2006-07) 697, p 221, para 19 Back
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