13.1 |
Resources
which had
been produced towards the end of 2003.273
Mr Lester
commented that the
chronology
had been produced to clarify the MOD’s internal understanding, and
was not
to be
handed over to the Treasury.
463.
The chronology
showed:
•
In December
2001, the MOD estimated that it would have an Annually
Managed
Expenditure
(AME) “surplus” of £500m a year (compared with its
previous
estimate).
•
The MOD had
“serious doubts” about that estimate (some of the figures
were
“clearly
wrong”), so used its previous (higher) estimate as the basis for
its 2002
Spending
Review bid.
•
Further
estimates in April and June 2002 increased the MOD’s
confidence
that it
would have a £500m a year AME surplus, though it was still not
certain.
The MOD
assumed that the Treasury would scrutinise its AME figures as part
of
the 2002
Spending Review; if it had, the MOD would probably have reduced
its
bid. But
the Treasury did not scrutinise the figures.
•
When the
MOD agreed its 2002 Spending Review settlement in July 2002,
while
it still
did not trust its exact AME figures, it was confident that “there
would be
scope to
bear down on … costs … That was why we were able to
recommend
acceptance
of the settlement.”
•
Prompted by
continuing doubts about the accuracy of its AME figures, the
MOD
conducted a
“detailed scrutiny” in December 2002. That exercise confirmed
the
AME
surplus. The surplus was “reinvested” for cash expenditure the
following
month.
•
MOD Top
Level Budget‑holders (TLBs) continued to refine their AME
figures,
revealing
further significant reductions in their requirement. The
forecast
surpluses
were reinvested for cash expenditure in February 2003.
•
Analysis of
the forecasts provided by MOD TLBs in late August revealed
further
reductions
in their AME requirement.
•
The MOD
warned the Treasury on 12 September that the MOD’s
cash
requirement
had increased from £490m to £870m.
•
The MOD
warned the Treasury on 24 September that the MOD’s
cash
requirement
had increased to £1,152m.
464.
Mr Lester’s
covering note advised:
“PUS
[Sir Kevin Tebbit] asked why we ‘got it wrong’ as the headline
numbers rose
from £490m
to £870m to £1,152m during the course of September 2003.
This is
not easy to
explain … the Treasury’s key accusation – that we lost control
of
TLBs
expenditure – is wrong. What did happen was that we found it very
difficult
273
Email
Lester to PS/PUS [MOD], 18 June 2004, ‘Non‑Cash Chronology’
attaching Paper, [undated],
‘Chronology
of Non‑Cash Debate with the Treasury in 2003’.
519