The Report
of the Iraq Inquiry
421.
Mr Boateng
wrote to Mr Hoon the following day, saying that he was unable
to
agree any
transfer from non‑cash to cash within the MOD’s budget.
Mr Boateng stated
that, given
the very tight fiscal position, the Government could not afford an
unplanned
increase to
public sector net expenditure of the magnitude proposed by the
MOD.247
Copies of
the letter were sent to Mr Blair and
Mr Brown.
422.
Mr Hoon
replied to Mr Boateng on 3 September.248
Mr Hoon
argued that he
had agreed
the MOD’s 2002 Spending Review settlement on a RAB basis,
including
that the
MOD had unlimited flexibility to move funds between separate
resource
sub‑programmes
within its budget. The Treasury was now proposing “to move
the
goalposts”.
Mr Hoon challenged Mr Boateng’s description of the
transfers as resulting
from
“windfalls” and “transitional effects”.
423.
Mr Hoon
stated that while it was not possible to say precisely where cuts
would
fall, cuts
in training:
“… would
soon cut into long‑term military capacity and our ability to
continue to
sustain our
operations in Iraq …”
424.
Mr Boateng
and Mr Hoon met on 15 September to discuss the non‑cash to
cash
transfers.249
Mr Hoon
told Mr Boateng that the MOD needed to transfer £870m
from
non‑cash to
cash in 2003/04 (rather than the £490m the MOD had previously
estimated).
425.
The following
week, MOD officials told Treasury officials that their total
additional
cash
requirement for 2003/04 had grown from £870m to
£1,152m.
426.
On 26
September, in advance of a meeting with Mr Brown,
Mr Dodds produced
a note
summarising the exchanges between the Treasury and the MOD and
reflecting
on “how MOD
had got into this position”. On that question, he
concluded:
“MOD say
they believed that under … RAB, cash was not a control. It is an
open
question
whether this is stupidity or cunning.”
427.
Mr Brown
wrote to Mr Blair later that day, reporting the exchanges
between
the MOD and
the Treasury on the MOD’s “legitimate questions” and highlighting
his
particular
concern over the MOD’s most recent requests:
“Until a
fortnight ago, Paul Boateng was discussing with Geoff Hoon whether
it
was
acceptable for up to £490 million of non‑cash … to be redeployed as
cash
spending …
“However, it
has now become clear that we are dealing with an issue
of
a
completely different scale, which is being driven by a complete
lack of
247
Letter
Boateng to Hoon, 20 August 2003, ‘Implementation of the SR2002
Settlement’.
248
Letter Hoon
to Boateng, 3 September 2003, ‘Implementation of the SR2002
Settlement’.
249
Paper
Treasury, 26 September 2003, ‘Summary of Issues for Meeting with
Chancellor – 3pm Friday
26 September’.
512