Operations and Peace Keeping:
Iraq and Afghanistan
7. We
are fully aware of the volatility of operational costs for both
Iraq and Afghanistan and appreciate the MoD's efforts in providing
the House of Commons and ourselves with as accurate a forecast
of such costs as it can.
We also acknowledge that in the 2009-10 Main Estimate, published
in a couple of months' time, greater detail of forecast operational
costs for the new Financial Year will be provided than was possible
in the Main Estimate at the outset of this current Financial Year:
the MoD has previously assured us that the forthcoming Main Estimate
will include, for the first time, provision of Iraq and Afghanistan
operational costs.[13]
Given that
the MoD, when its Spring Supplementary Estimate goes before the
House of Commons for approval, will have sought over twice the
amount it set down as a likely minimum for operational costs at
the time of the last Main Estimate, we hope that the next forecast
in 2009-10 will prove more robust an assessment of operational
costs and closer to the eventual out-turn.
8. As the MoD Estimates memorandum points out with
regard to costs within RfR2, the major indirect cost increase
is for costs in anticipation of the drawdown in Iraq. Despite
lower than anticipated equipment depreciation, a sum of £455
million has been "prudently set aside" in this Estimate
as a contingency to cover "potential non-cash costs of depreciation,
write-offs and gifting of equipment and other capital assets"
in Iraq.[14] The prudent
setting aside of such significant extra resource in anticipation
of the drawdown was not considered at the time of the Winter Supplementary
Estimate: at that time, the figure for such depreciation and associated
costs was forecast to be only £170 million.[15]
Moreover, in response to a recommendation in our Report on the
Winter Supplementary Estimate, the MoD submitted to us just over
a week before the Spring Supplementary Estimate was laid a note
setting out its forecast of operational costs at that time. This
note, dated 4 February 2009, also did not include the large contingency
for the drawdown in Iraq, although it explained that some further
provision was expected to be included at the time of the Spring
Supplementary Estimate: presumably the scale of the contingency
had yet to be agreed.[16]
9. We are currently engaged in an inquiry into readiness
and recuperation. As part of that inquiry we are looking at the
likely costs of the recuperation of the Armed Forces following
the drawdown from Iraq. We are aware that the initial phase of
drawdown would be costly in terms of logistic support and in terms
of possible equipment losses. We
expect in response to this Report a note setting out in detail
what the very substantial contingency in the Spring Supplementary
Estimate for the Iraq drawdown is particularly intended or expected
to cover.
10. In the Government's response to our Report on
the Winter Supplementary Estimate (appended to this Report), the
MoD explains that remaining military tasks in Iraq will have been
completed by 31 May 2009 at the latest, and all but around 400
UK troops (of a current 4,100) will have been withdrawn by the
end of July.[17] We
would expect the response to this Report to set out the extent
to which the cost of the drawdown (as opposed to the cost of the
continued, albeit reduced, presence in Iraq) will continue into
Financial Year 2009-10, and what the magnitude of any continuing
cost of drawdown will be in that new Financial Year.
11. Aside from the additional £455 million cost
within RfR2 as a contingency for indirect resource costs in Iraq
arising from the drawdown, there are some other less substantial
but still significant changes in forecast costs for Iraq and Afghanistan
visible in the Spring Supplementary Estimate when compared to
the costs set out in the Winter Supplementary Estimate. The increase
is stock consumption costs, of 23.1% in Iraq and 37.5% in Afghanistan
since the forecast in the Winter Supplementary Estimate, represent
increased fuel and ammunition consumption, particularly in the
case of Afghanistan. Other increases, in infrastructure and equipment
support (26.1% and 7.2% in Iraq and 13.6% and 9.6% in Afghanistan
respectively), are due to "higher than expected equipment
repair costs, the inclusion of some recently approved urgent operational
requirements and sterling's adverse exchange rate variation".[18]
Life support equipment costs have risen for Afghanistan on account
of the construction of Camp Bastion and Gereshk.[19]
12. While personnel costs, military and civilian,
have remained more or less the same as forecast towards the end
of last calendar year for Iraq, there is a significant reduction
in military personnel costs for Afghanistan (of £33 million,
which represents a 31% cut) which more than offsets a 20% increase
(at £2 million) in civilian personnel costs in that theatre.[20]
The Estimate memorandum fails to explain this reduction in military
personnel costs. However, we noted the original significant increase
in military personnel costs for Afghanistan in our Report on the
Winter Supplementary Estimate, and the Government response to
that Report explains that the reduction in these costs in the
Spring Supplementary Estimates represents the rectification of
an over-forecast, identified following the restructuring of cost-gathering
responsibilities for operational allowances.[21]
Urgent Operational Requirements
13. The MoD's Estimate memorandum states that the
additional RfR2 Capital request of £65 million is mainly
for Urgent Operational Requirements (UORs) in Iraq and Afghanistan.
It further explains that examples of UORs which have been recently
ordered are: "force protection (e.g. tactical support vehicles
and protection for engineering plant); and specific modifications
to military equipment so that they can operate in the operational
environment (e.g adaptations to Merlin and Lynx helicopters, and
Tornado aircraft)".[22]
The memorandum also notes that the MoD has requested £45
million Indirect Resource DEL from the Treasury Reserve "to
cover costs of capital, depreciation and impairment charges associated
with fixed assets purchased under Urgent Operational Requirement
arrangements".[23]
14. The MoD in its Main Estimates memorandum said
that the agreed limit for UOR spend in 2008-09 was £1.065
billion.[24] In our Report
on the Main Estimates we asked the MoD to explain the implications
of such UOR expenditure on the Department's future capital and
resource budgets. The MoD explained that "the UOR expenditure
will be scored against peace keeping and operations (RfR2) and
claimed against the Treasury Reserve as usual". It added
that there will be "no impact on the Department's core (RfR1)
budget for 2008-09". If the figure of £1.065 billion
were exceeded, the Defence budget would "bear half the cost
of the excess in 2010-11 under the arrangements agreed in the
2007 Comprehensive Spending Review".[25]
15. In our Report on the Winter Supplementary Estimates
we noted that the MoD had already estimated a total spend of £1.063
billion for 2008-09 on UORs, only £2 million short of the
agreed limit for that Financial Year. We asked the MoD whether
that limit was going to be breached and for an explanation of
how any breach in that limit would impact upon the Department's
2010-11 budget. In its response,[26]
(appended to this Report) the
MoD points out that it now expects UOR expenditure to be no more
than £1.054 billion in this Financial Year, £9 million
less than expected at the time of the Winter Supplementary Estimate
and £11 million short of the limit agreed with the Treasury.
Consequently, the MoD does not "anticipate any impact on
the MoD's 2010-11 budget or equipment programme" from expenditure
on UORs in this Financial Year. We welcome this reassurance.
However, it is unclear to us how the new, additional, request
for £65 million capital resources, largely to cover the cost
of UORs, fits within this figure if UORs are now expected to cost
less than was the case at the time of the Winter Supplementary
Estimate. We would welcome
clarification from the MoD as to the exact make-up of the £1.054
billion UOR cost figure and how the forecast cost has reduced
at the same time that another £65 million is sought.
16. On account of the importance of UORs to the current
deployment of UK forces in Afghanistan, and the likely continuing
need for UORs as the deployment there persists, we
would welcome a categorical restatement that any cost in excess
of the limit agreed for UORs between the Department and the Treasury
will fall in part on the MoD in Financial Year 2010-11 and not
before, the Department bearing half of the excess cost. We would
also welcome some indication of expected UOR costs in 2009-10,
notification of the agreed UOR limit for that year, and an explanation
of how the cost of the Protected Mobility Package announced on
29 October 2008 falls within this year's and next year's UOR limit.
We remain concerned about the potential impact in the future of
UORs on the MoD's core budget and we will return to this subject
in an inquiry later this year.
Table 2: Operations in Iraq and Afghanistan—changes in anticipated additional costs since Winter Supplementary Estimates (from RfR2)
