Department met Osborne’s defence spending pledge through what appears to be creative (albeit permissible) accounting
THE MoD has only been able to meet its spending target through means of ‘creative accounting’, MPs have revealed.
In a report into the government’s commitment to spend 2% of GDP on defence until the end of the current parliament, the Defence Committee said the MoD’s previous and current defence budgets were ‘unclear’, and claimed that the ministry had to include £1bn worth of pension payments in order to hit the 2% target.
“While the government’s revised accounting strategy to achieve defence expenditure at 2% of GDP conforms to NATO guidelines, it incorporates items— such as more than £1bn in war pensions and MoD civilian pensions—not previously included in the defence budget,” stated the report.
“We believe that this ‘redefinition’ of defence expenditure undermines, to some extent, the credibility of the government’s assertion that the 2% figure represents a significant increase in defence expenditure,” continued the document, recommending the MoD provide its own calculation of what the defence expenditure would be without the pension inclusions.”
The committee said that the budget target would not have been fulfilled if UK accounting practices had not been ‘modified’, but conceded that the modifications fall in line with Nato guidelines.
Jon Thompson, now CEO of HMRC, served as permanent under secretary of the MoD from 2012 to April 2016, with primary responsibility for policy, finance and planning. He was also a member of the Defence Council and the Defence Board and co-chaired the Defence Strategy Group.
Thompson and former second permanent secretary of HMRC Edward Troup have taken over the reins at HMRC, serving as chief executive and executive chair respectively. Critics fear that the taxman’s double appointment could create tensions withing HMRC.
Commenting on the report, Dr Julian Lewis MP, chairman of the Defence Committee said: “It’s good news that we have managed to achieve the 2% promise for Defence Spending but if the MOD has only achieved this by including things like war pensions or intelligence gathering which previously came under other budgets, you wonder what effective, battle-winning spending increases have actually been made.”