The Report
of the Iraq Inquiry
•
The MOD and
Treasury would share equally any costs in excess of this
amount
(with the
Treasury meeting those excess costs up front, and then
reclaiming
them from
the MOD on a rolling three‑year basis).
•
The MOD
would receive £200m to assist with its first payments under
this
new arrangement.
•
The MOD
would review its equipment programme with the intention
of
“rebalancing
spend towards … the current operating environment”.304
506.
Discussions
continued between MOD and Treasury officials over the detail
of
the new
arrangement, including the size of the “first
element”.
507.
Mr Lester
advised Mr Woolley on 30 October that:
“The agreed
aim is that the new arrangements should be cost neutral to
Defence,
albeit with
changed incentives, and Quinault professes to mean
this.”305
508.
Mr Lester
continued:
“The
Treasury have indicated that their intention is to drive the lump
sum [first
element] as
far down as possible in an attempt to change our UOR
spending
behaviour
(they have indicated that they see this as a vehicle to shift our
EP
[equipment
programme] towards current operations). Their prejudice is that
MOD
does not
make real prioritisation decisions on UORs …”
509.
Mr Lester
also reported that the arrangements which had been in place
since
June,
whereby the Treasury cleared each UOR individually, had not proved
to be unduly
constraining,
though the Treasury was “increasingly pushing back”.
510.
Agreement on
the size of the first element was reached in mid‑December
2007,
at £500m
for 2008/09, based on the MOD’s “central estimate” of UOR
expenditure of
511.
Mr Woolley
told the Inquiry that the change in the UOR regime:
“… was
intended to give a little bit greater certainty to the Treasury of
what the UOR
bill was
likely to be and it was effectively an attempt to incentivise us
[the MOD] to
forecast in
advance what the UOR spend in … the forthcoming year – would
be.”307
512.
Mr Woolley
said that the change had not affected operations in Iraq, which
were
by that
time generating fewer demands for UORs.
304
Letter
Burnham to Browne, 24 July 2007, ‘Comprehensive Spending Review
2007: Ministry of Defence
Settlement’.
305
Minute
Lester to Woolley, 30 October 2007, ‘Approach to UOR Funding
Following the CSR07
Settlement’.
306
Letter
Woolley to Quinault, 18 December 2007, ‘CSR07: UOR Funding
Arrangements’.
307
Public
hearing, 2 July 2010, pages 56‑57.
528