13.1  |  Resources

budgetary control within the MOD. MOD’s unforeseen requirement for

£1,152 million of extra cash represents a very serious failure. This is not a RAB

problem, it is a basic control problem.

“Given the gross loss of control by MOD, I must disallow immediately any flexibility

for MOD to move resources between non‑cash and cash … I must … also impose

on MOD a fixed cash control total to ensure that it remains within the SR2002

settlement.

“… I require an urgent externally led review of MOD’s financial control arrangements,

and assurance that the MOD will immediately focus on cost control …”250

428.  Mr Brown wrote that he was “anxious” that these changes would not affect the

special arrangements that the Treasury had agreed with the MOD to fund operations

in Iraq, and committed himself to ensuring that that funding continued.

429.  Mr Boateng wrote to Mr Hoon the same day, reiterating Mr Brown’s argument.251

430.  Mr Brown told the Inquiry that he acted to impose additional controls on the MOD

because:

“The purpose of resource accounting was to make sure that the assets of different

departments were used more efficiently. So there had to be proof that the assets

were being used more efficiently for that to be able to release cash …

“If we had allowed every department to do what the Ministry of Defence were doing,

then we would have an extra cost of £12 billion …”

“I wrote to the Prime Minister about this because it was obviously an issue about the

cash expenditure of the Government.”252

431.  Mr Hoon replied to Mr Boateng on 29 September.253 He rejected the charge that

the MOD had lost control of its budget and argued that the emergence earlier that month

of additional costs was due to a lack of defined Treasury controls rather than a lack of

control by the MOD.

432.  Mr Hoon reported that in order to comply with Mr Brown’s demand that the MOD

reduce its cash expenditure by £1.1bn in the current year, there would have to be a

moratorium on uncommitted expenditure. He had agreed measures that would reduce

cash expenditure by up to £500m in the current year (which would have “serious and

just manageable” consequences for defence), but would not agree any further measures

until Mr Blair had had a chance to consider the issue.

250 Letter Brown to Blair, 26 September 2003, ‘Ministry of Defence Budget’.

251 Letter Boateng to Hoon, 26 September 2003, ‘Ministry of Defence Budget’.

252 Public hearing, 5 March 2010, pages 126‑127.

253 Letter Hoon to Boateng, 29 September 2003, ‘Ministry of Defence Budget’.

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