13.1 | Resources

127. Mr Brown telephoned Mr Hoon on 27 November, to inform him that he would be

making an allocation of £1bn in his PBR for “Defence issues”.88 Mr Brown reassured

Mr Hoon that this was not an upper limit on expenditure, but rather a “purely nominal

figure: it was neither an upper or lower limit”. The usual process for securing funding

from the Reserve would stand.

128. Mr Brown announced to Parliament later that day that the Government had “set

aside to meet our international defence responsibilities a provision of £1 billion to be

drawn on if necessary”.89

129. Sir Nicholas Macpherson told the Inquiry that the decision to create a Special

Reserve was driven by a Treasury assessment that the existing Reserve would not be

sufficient to cover other Government contingencies while paying for the costs of Iraq.90

130. In late November, in the context of a submission to Mr Hoon on UORs, Mr McKane

reported that the Treasury had asked the MOD for an estimate of the cost of post‑conflict

deployments.91 Mr McKane advised Mr Hoon that, based on experience in the Balkans,

the cost might be in the region of £1bn for the first year, and £400m for the following

18 months.

131. Mr Hoon wrote to Mr Brown on 28 November to request an increase in the UOR

ceiling from £150m to £300m and to secure agreement that the MOD should begin to

capture all non‑UOR additional costs (the net additional costs of military operations –

NACMO), with a view to repayment from the Reserve in due course.92

132. Mr Brown replied on 9 December, agreeing to increase the ceiling for UORs to

£300m and that the MOD should begin to capture NACMO, but adding that those costs

should be contained within the UOR ceiling “until any [military] operation is initiated”.93

133. Mr Blair agreed on 9 December that the MOD should plan on the basis of a

possible decision to commit land forces, as early as 15 February 2003.94 A copy of

the letter recording Mr Blair’s decision was sent to Mr Bowman.

134. Mr Hoon wrote to Mr Brown on 13 December, warning him that Mr Blair’s decision

of 9 December would increase the rate at which the MOD incurred additional costs.95

Mr Hoon requested an additional £200m for UORs, and also asked that Mr Brown

88 Letter Davies to Finance Director, 28 November 2002, ‘Pre‑Budget Report’.

89 House of Commons, Official Report, 27 November 2002, columns 318‑46.

90 Statement, 15 January 2010, pages 2‑3.

91 Minute McKane to APS/Secretary of State [MOD], 27 November 2002, ‘Iraq Costs’.

92 Letter Hoon to Brown, 28 November 2002, ‘Iraq: Urgent Operational Requirements’.

93 Letter Brown to Hoon, 9 December 2002, ‘Iraq: Urgent Operational Requirements’.

94 Letter Rycroft to Watkins, 9 December 2002, ‘Iraq: Military Planning’.

95 Letter Hoon to Brown, 13 December 2002, ‘Iraq: Costs’.

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