Estimates Day debate: Defence

The MOD’s Defence Departmental Resources publication contains details of UK defence expenditure. In 2020/21 defence spending amounted to £42.4 billion. This was a nominal increase of £2.5 billion from 2019/20 but a real increase of £1.5 billion after inflation measured by HMT’s GDP deflator.

Supplementary Estimates 2021/22

The MOD proposed a reduction in its Resource DEL budget by £2.1 billion (-5%), a reduction in its Capital DEL budget by £68 million (-0.5%) and an increase in its Resource AME budget of £9.3 billion (612%). These changes mean that planned expenditure for 2021/22 is now: Resource DEL: £39.821 billion (this includes depreciation charges), Capital DEL: £14.265 billion and AME: £10,809 billion.

The reduction in Resource DEL is predominantly driven by:

• a £2.3 billion reduction in depreciation charges due to an over allocation in the Main Estimate. Depreciation and impairment costs are non-cash items and make up roughly 21% of Defence’s total Resource DEL budget. The depreciation and impairment budget is however ring fenced and cannot be used to fund pressures on other elements within Resource DEL.
• an additional £0.2 billion required for ‘Operations and Peacekeeping’ driven by: ongoing Counter-Daesh operations, operational activities in the Gulf and ‘Operation Pitting’ – the operation to evacuate British nationals and eligible Afghans from Afghanistan following the Taliban offensive in 2021.

The reduction in the Capital DEL budget is driven by:

• a £488 million reduction following a Budget Exchange into future periods, there are no specific details on the areas that this relates to,
• a £423 million increase to reflect the draw down on the ‘Dreadnought’ contingency fund; [1] around £1.3 billion of the £10 billion contingency fund has been made available for drawdown from 2021 – 2025 from the central reserve should it be required.
• a £21 million increase required for ‘Operations and Peacekeeping’ (as mentioned above), and
• a £24 million reduction as a result of smaller inter departmental transfers from the Home Office and to the Security and Intelligence Agencies.

The increase in Resource AME of £9.3 billion is driven by changes in discount rates on provisions primarily relating to nuclear decommissioning.

Provisions are used to set expenditure aside for known future costs. This future cost is discounted back to a present value in the accounts. The ‘discount rates’ have changed since the Main Estimates were set last year and as such all current provisions have to be adjusted to reflect the latest rates. These changes are beyond the control of the department.