13.1 | Resources

451. Mr Dodds forwarded the Likierman review to Mr Boateng on 28 November.265

He summarised its main findings:

• Since the 2000 Spending Review, the MOD had had no systems that provided

effective control over its net cash requirement (the actual cash required by the

MOD to carry out its business).

• The MOD was not aware of its near cash position.

• Treasury guidance could have been clearer in defining the controls that

departments needed to maintain. The MOD had set out its argument to the

review team: that it had not controlled cash or near cash because it was not

required to do so under full RAB.

452. Mr Dodds recommended that Treasury and MOD officials should develop

a framework to control the transfer of non‑cash savings into cash spending.

The framework could allow transfers where they resulted from efficiency gains and

subject to a cap. Decisions on the MOD’s budget for 2004/05 and 2005/06 should await

the conclusion of those discussions.

453. Mr Hoon wrote to Mr Brown on 17 December, proposing that the Treasury allow the

MOD to transfer £750m from non‑cash to cash in both 2004/05 and 2005/06.266 Mr Hoon

stated that the cash controls imposed by the Treasury had required the MOD to reduce

planned expenditure in the current financial year (2003/04) by £800m, and would require

the MOD to reduce planned expenditure by £1bn a year in future years.

454. Mr Hoon cited the Likierman review in support of this request:

“I was pleased, but not surprised, that the CAP Gemini Ernst and Young Report

[the Likierman review] gave the MOD a clean bill of health. It confirmed that the

Resource Accounting and Budgeting framework does not require control of net

cash or near cash … the MOD was following the terms of the settlement letter and

your rules.”

“Given the outcome of the … review, I can expect restoration of the freedom to

flex more than £1bn per year from non‑cash to cash – which is what is required to

maintain the direction envisaged at the time of SR2002 and the SDR New Chapter.

However, I do recognise … the fiscal position and our collective responsibilities in

this area. I accordingly propose that we agree to flex £750 million in 2004/05 and

£750 million in 2005/06.”

455. Mr Hoon wrote again to Mr Brown on 25 February 2004, highlighting the

implications of the cash controls imposed by the Treasury.267 The £800m reduction

in planned expenditure in 2003/04 had been achieved largely by reducing planned

265 Minute Dodds to Chief Secretary, 28 November 2003, ‘MOD – Cash/Non‑Cash’.

266 Letter Hoon to Brown, 17 December 2003, ‘Defence Budget’.

267 Letter Hoon to Brown, 25 February 2004, ‘Defence Budget’.

517