MoD budget row centred on resource accounting

Serious differences between the
of Defence
and the
over resource accounting reforms have emerged at the heart of rows over spending
involving defence chiefs threatening to resign.

They resulted in repeated claims on the ground that that British troops in
Iraq and Afghanistan have been starved of resources, particularly adequately
armoured vehicles and helicopters, resulting in unnecessary loss of life from
roadside bombs. Prime Minister Gordon Brown, then chancellor, insisted all
demands for extra funding to meet in-theatre needs were met by the Treasury
while overall defence spending was also rapidly rising.

The breakdown in communications over the switch from historic appropriation
accounts was revealed in evidence from Brown to the
, in which he revealed that in 2002/2003 the MoD tried to ”
take advantage” of resource budgeting to switch more cash from capital assets to
current spending than anticipated by the Treasury.

At one point inquisitor Sir Lawrence Freedman put it to Brown that the MoD
had seized “enthusiastically” on the opportunity to turn non-cash into cash,
believing they were being encouraged to do so by the terms of resource
accounting budgeting, and then “the guillotine came down”.

Brown said the whole purpose of the change in accounting rules was to ensure
departmental assets were used more efficiently.

He said the MoD was offered an increase of 3.6% in its budget and decided the
process gave them more non-cash resources on top of that: “At one point it was
£800m, then it was £400 million, then it became £1.3bn that they wanted to
transfer into spending money.”

He said the Treasury felt it “very unlikely” that in a few months
efficiencies gained by the better use of assets were such that additional cash
spending could reach 9%, adding: “If we had allowed every department to do what
the MoD were doing, then we would have an extra cost of £12bn, which would be
the equivalent of raising income tax by three pence in the pound.”

Brown said he had to write to Premier Tony Blair because the issue was
threatening the cash expenditure of the government. The issue was resolved –
after the chiefs’ revolt – with the MoD allowed to have £500m that year and
£400m in each of the subsequent years.

Freedman said the MoD view was they tried to work within the rules as it saw
them, only to find the rules were changed.

Brown insisted that at the end of the day chief of staff Lord Walker had
signed a letter describing the settlement as tight but not the cause of
subsequent modernisation plans, which reduced the size of the infantry.

However Lord Walker himself earlier insisted to the inquiry there had been
under-funding and the chiefs “were not happy with any of it”.

Misunderstanding by defence chiefs reported at the time included their belief
that by scrapping half the Harrier jump-jet fleet they would reduce spending
when in fact writing off assets early increased current expenditure.

Criticism continues with the latest report of the Commons Defence Committee
accusing the MoD of wasting huge sums by continuing with unaffordable spending
commitments – £674m alone by delaying a contract building two super aircraft

Further reading:

accounting could threaten British defence capability

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