The Report of the Iraq Inquiry

14.  A department’s budget comprises Departmental Expenditure Limits (DEL) and

Annually Managed Expenditure (AME).

15.  In general, DEL covers running costs and all programmed expenditure. It is split into

Resource DEL (RDEL) (operating costs) and Capital DEL (CDEL) (new investment).

From 2002/03, when full Resource Accounting and Budgeting was introduced, RDEL

included ‘non‑cash’ costs. The introduction of Resource Accounting and Budgeting

is considered later in this Section.

16.  Non‑cash costs are costs which are not reflected by cash transactions, for example

depreciation and provisions for bad debts.14 They are included in budgets to ensure that

the budgets reflect the full economic cost of activities.

17.  AME relates to expenditure that is demand‑led (for example, for the MOD, the

payment of War Pensions) and therefore cannot be controlled by departments and

accommodated within a structured budget process.

18.  In the period covered by the Inquiry, the Treasury allowed departments to carry

forward unspent funds from one financial year to the next under the End‑Year Flexibility

(EYF) system. Unspent funds would otherwise have to be returned to the Treasury.

19.  The EYF system was replaced in 2011/12 by the Budget Exchange system.15

The roles of the Treasury and the Chancellor, and the

Ministerial Code

The Chancellor of the Exchequer has overall responsibility for the work of the Treasury

and is the Government’s Finance Minister.16

The Treasury is the UK’s economic and finance ministry, setting the direction of the UK’s

economic and fiscal policy. The finance ministry side of the department is responsible for

overall fiscal policy, including control of public expenditure and strategic oversight of the

UK tax system. The Treasury’s economic ministry role includes responsibility for growth,

infrastructure, productivity and oversight of the financial services sector. The Treasury is

also responsible for the UK’s overall macroeconomic strategy, including the setting of the

monetary policy framework.

In his statement to the Inquiry, Sir Nicholas Macpherson, Permanent Secretary at the

Treasury from 2005, stated that the Treasury had two principal roles in relation to Iraq:

• as an economics ministry, to help ensure the potential economic impacts of war

in Iraq were taken into account in economic forecasting and policy‑making, help

plan the economic reconstruction of Iraq, and provide economic expertise to

support the UK’s post‑conflict reconstruction efforts; and

14 Email Treasury [junior official] to Iraq Inquiry [junior official], 17 April 2014, ‘Further Queries Relating

to Resources’.

15 Treasury, 2011 Budget, 23 March 2011.

16 The Inquiry has drawn on a number of official sources to develop a statement of the responsibilities of

the Chancellor of the Exchequer.

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