MoD Finances – Did You Know?

ministry-of-defence

Been having a browse through the ever useful Defence Statistics & Analysis web site over the last few days.

Did you know…

What a DEL is?

This is the official description, taken directly from the DSA website.

Departments are accountable to the Treasury (through the budgets that are set in Spending Reviews and updated by Estimates) for their spending against Resource and Capital Departmental Expenditure Limits (DELs).

A DEL is therefore a pre-agreed fiscal limit set by the Spending Review for discretionary spending, this being the majority in the MoD’s case.

There are two DEL’s, Resource and Capital

Spending against the Resource DEL includes the current consumption of resources. Capital DEL, whilst included in the Treasury’s Total DEL, reflects for the most part investment spending on assets that appear on the Department’s Statement of Financial Position (SoFP) and are consumed over a number of years.

The definitions are;

Resource DEL (RDEL)

Day to day spending;

Current expenditure such as pay, allowances, and running costs. It also includes the indirect costs of ownership of assets such as depreciation. This is split into Direct and Indirect RDEL:

Direct Resource DEL (DRDEL) – essentially near cash running costs – for example: pay and allowances, and accruals.

Indirect Resource DEL (IRDEL) – non-cash expenditure such as depreciation and the creation of non nuclear provisions.

Capital DEL (CDEL)

Investments in new equipment and infrastructure expenditure that has a life over more than one financial year e.g. ships, buildings and aircraft, again, split into two elements; Fiscal CDEL and Single Use Military Equipment (SUME) CDEL

Fiscal CDEL is expenditure on equipment that may have other civilian uses e.g. a building or IT equipment.

SUME CDEL is expenditure on equipment which only has a military role, e.g. a warship (Dual Use  military equipment counts as Fiscal CDEL).  (This division enables reporting as per the System of National Accounts requirements where single use military equipment is included in current expenditure.)

Total DEL

This is the the Treasury’s preferred measure of Government spending and is is calculated by  adding Resource DEL and Capital DEL, then subtracting Depreciation, Impairments and Fixed Assets Written On /  Off (indirect costs) (i.e. Near cash plus IRDEL) to arrive at the final figure.

Non Discretionary Spending or AME

The MoD (and other government departments are also responsible for something called Annually Managed Expenditure (AME). AME is variable demand led (for example, payment of War Pensions), sometimes called non discretionary spending.

Because it is demand led and cannot be controlled by the actions of the MoD AME does not form part of the DELs and the Spending Review Settlement.

No, I didn’t understand much of that either but interesting that pensions do not form part of the Spending Review Settlement.

How Current MoD Spending Compares?

We have had this conversation many times and it was the subject of one of the very first posts on Think Defence but this is the 1977/1978 to 2011/2012 numbers

UK Defence Expenditure 1977-78 to 2011-12

In line with previous years the MoD is the fourth largest spender of Government expenditure, behind Work and Pensions, Health and Education.

In 2011/12, Defence Spending (Resource DEL plus Capital DEL minus Depreciation and Impairments) totalled£37.2 billion.

Compared to NATO (according to SIPRI)

NATO Defence Spending 2011 as a percentage of GDP
NATO Defence Spending 2011 as a percentage of GDP
SIPRI Defence Spending
SIPRI Defence Spending

SIPRI definitions are often questioned and these sometimes differ from the NATO definitions but they are a reasonable indicator.

There are also a couple of other interesting comparisons worth looking at.

Defence Spending Comparisons with Allies as a Percentage of GDP
Defence Spending Comparisons with Allies as a Percentage of GDP

In 2011 the UK spent 2.6% of its national income on defence, France spent 1.9% and Germany spent only 1.4%. The drop in the GDP % for France in 2009 is due to the transfer of responsibilities for the Gendarmerie from the Ministry of Defence to the Ministry of the Interior. It is factors like this that has often made direct comparisons with other nations difficult.

Levels of spending as a proportion of GDP in all countries fell between 1985 and 2000.

Since then it has risen slightly for the UK, whilst levels in France and Germany have remained fairly static.

USA defence spending rose steadily from 2000 to 2010, when it reached 5.4%  of national income, however the figure dropped back to 4.8% in 2011 as spending on defence fell.

Defence Spending Per Capita 1980 to 2011
Defence Spending Per Capita 1980 to 2011

Since 2001, there have been significant increases in spending from the USA, and the UK partly associated with the operations in Iraq and Afghanistan, although the USA figure has dropped back a little in 2011.

In terms of  defence expenditure per capita, in 2011 the UK spent around $1,000 per person.

France spent slightly less per capita  than the UK (c.$850) whilst Germany spent substantially less (c.$590).

The USA still spent over double that of the UK  (circa $2,350)

I think defence spending per capita is a useful comparison but spending per serviceman even more interesting

Real Defence Spending per Serviceman
Real Defence Spending per Serviceman

The number of active military personnel has been falling in both the USA and UK.

As real Defence spending has remained reasonably level, spending per Serviceman has been rising.

The most dramatic increases in defence spending per Serviceman have been since 2000.

The USA has increased spending by 97% between 2000 and 2011 whilst UK  spending increased by 44% over the same period. In 2011 the USA spent $513,000 per Serviceman whilst the UK spent  $341,000.

Spending per Serviceman for Germany has been increasing gradually since 2000 with a large increase coming in 2011, which was as a result of conscription ending and the subsequent sudden drop in service personnel numbers. Following  the removal of the Gendarmerie from French expenditure since 2009 it would be misleading to compare changes in  France and Germany Defence spending per Serviceman over time.

Of the three European nations listed the UK spends the most per Serviceman, followed by France and Germany who both spend $235,000 per Serviceman

There is a significant difference between the UK, at $341,000 per serviceman, and Germany and France, both at $235,000 per serviceman.

We might reflect on this as the UK is continually compared unfavourably with France, France will face the same upward pressure on personnel costs that the UK has had and this will impact them across the whole spending theme.

Where the MoD Spends the Loot?

Personnel cash out turns in 2011/12 were £12.846 Billion, of which £10.101 Billion was for the Armed Forces and £2.745 Billion for civilians.

Or put another way, civilians account for roughly 21% of the MoD’s personnel costs.

These exclude the cost of contractors, specialist support and personnel contained within PFI’s

Equipment support saw a sharp rise in 2011/12, increasing from 34% to 41% of total equipment spending, with research falling to a 7 year low of 15%

Support, Capital and Research Spending
Support, Capital and Research Spending

The 2011 resource DEL split between the three services is;

  • Navy Command, £2.294 Billion or 18.7%
  • Land Forces, £7.189 Billion or 58.4%
  • Air Command, £2.826 Billion or 22.9%

Obviously, this is reflected in the relative sizes of the three services

  • Navy Command, 37,660 personnel or £61k each
  • Land Forces,106,240 personnel or £68k each
  • Air Command, 42,460 personnel or £67k each

The MoD Earns Money?

The MoD has a considerable income but this has remained relatively steady in the last 7 years, the 2011/12 figure being £1.46 Billion.

Income categories are;

  • Rental income – property
  • Receipts – personnel
  • Receipts – sale of fuel
  • Donated Assets
  • Receipts – supplies and services
  • Receipts – NATO/UN/US Forces/Foreign Governments
  • Reverse Tasking
  • Dividends and income from investment property
  • Other

The top three largest earners are Receipts (personnel) at £344 million, Receipts – NATO/UN/US Forces/Foreign Govts at £325 million and Receipts – supplies and services at £317 million.

MoD External Revenue 2011/12
MoD External Revenue 2011/12

Capital incomes fell to a 7 year low, indicating there is not much left of the family silver to sell off.

Don’t We Buy Everything From BAE?

In 2010/11, the MOD spent just over £20.4 billion with UK Industry, this represents a small nominal decrease of £160 million from the 2009/10 figure.

Expenditure in the Weapons & Ammunition and Aircraft & Spacecraft industry sectors fell in 2010/11 and was caused mainly by a fall in equipment support and other projects costs associated with Single Use Military Equipment. Expenditure increases in the Shipbuilding & Repairing sector were primarily driven by increases related to the Future Aircraft Carrier (CVF) contracts.

When compared to 2005/06 the Industry Groups with the largest % increases were Wholesale, Retail and Repair of Motor Vehicles and Shipbuilding &  Repairing. The largest % drop is in Electronics.

Changes in Spending 2005 to 2011
Changes in Spending 2005 to 2011

Spending on PFI’s continues to be a significant percentage of total spending,

The PFI project list includes

  • “C” Vehicles
  • Allenby/Connaught
  • Army Foundation College (AFC)
  • ASTUTE Class Training Service (ACTS)
  • Attack Helicopter Training – Apache Simulator Training
  • Bristol, Bath and Portsmouth Family Quarters
  • Central Scotland Family Quarters (HQ)
  • Colchester
  • Corsham
  • Defence Fixed Telecommunications Service (DFTS)
  • Defence Housing Executive – Information Systems (DOMIS)
  • Defence Sixth Form College (DSFC)
  • Devonport Support Services – ARMADA
  • Field Electrical Power Supplies (FEPS)
  • Future Strategic Tanker Aircraft (FSTA)
  • Hawk Simulator
  • Heavy Equipment Transporters (HET)
  • Joint Services Command and Staff College
  • Lynx Aircrew Training
  • Main Building Refurbishment
  • Marine Support to Range and Aircrew Services
  • Material Handling Equipment (MHE) – (Follow on)
  • Medium Support Helicopter Aircrew Training Facility (MSHATF)
  • MOD-Wide Water and Wastewater (Project Aquatrine) – Package A
  • MOD-Wide Water and Wastewater (Project Aquatrine) – Package B
  • MOD-Wide Water and Wastewater (Project Aquatrine) – Package C
  • Naval Communications
  • Northwood Headquarters
  • NRTA Fire Fighting Training Units (FFTU)
  • Portsmouth Housing 2
  • Provision of Marine Services (PMS)
  • RAF Cosford and Shawbury Family Quarters
  • RAF Fylingdales (Power)
  • RAF Lossiemouth Family Quarters
  • RAF Lyneham Sewerage
  • RAF Sentry E3D Aircrew Training
  • Skynet 5
  • Strategic Sealift (Ro-Ro Ferries)
  • Tidworth Water & Sewerage (Thames Water)
  • Tornado GR4 Simulator
  • Training Administration and Financial Management Information Systems (TAFMIS)
  • Tri Service Materials Handling Service
  • Tri-Service White Fleet
  • UKMFTS – Advanced Jet Trainer Ground Based Training Service (GBTE)2
  • Wattisham Married Quarters
  • Yeovilton Family Quarters

In 2011/12 just over 40% of total MOD procurement expenditure was with 10 suppliers. The largest  of these suppliers was BAE Systems although spending with BAE still only accounted for about 14% of the total spend.

MoD Top 10 Suppliers 2011
MoD Top 10 Suppliers 2011

Spending with BAE decreased by 1.2% with the greatest increase being seen by Babcock, at a 2.9% increase.

The next graphic shows dependence on the the MoD

MoD Supplier Dependency
MoD Supplier Dependency

Clearly, Babcock are heavily dependant on the MoD

This shows the revenue received by the MOD’s top 10 suppliers from competitive contracts as a proportion of their overall sales to the  MOD.

The Charts present data for the last three years. The analysis below shows that service based companies such as Serco and Hewlett-Packard tender a higher proportion of their work from  competitively let contracts, in comparison to ‘traditional’ defence firms.

The proportion of payments that MOD’s top 10 suppliers receive from competitive contracts has fluctuated over time depending on the particular set of contracts held by a supplier during a particular year. Over the period though there is no evidence to suggest that the proportion  of payments received from competitive contracts has increased/decreased to any great degree.

Competition
Competition

It is surprising (or not when you consider things) that only 3% of the spend with Finmeccanica (including Agusta Westland) has been through open competition.

In the past six years the proportion of MOD spending with the current top 10 suppliers has increased  by over 4 percentage points.

For seven of the MOD’s top ten suppliers, MOD sales account for less than 10% of their global
revenue.

63% of new contracts are placed without competition, not significantly different since 2007 which was 64%, despite continued defence reform and a desire for ‘competition’.

What are the MoD Input Indicators?

Key information about Defence is provided by a series of ‘input’ and ‘impact’ indicators.

  • Additional cost of operations in Afghanistan, per Service person deployed, £364,000
  • Additional cost of of new equipment (urgent operational requirements) for operations in Afghanistan, per Service Person Deployed, £60,000
  • Average percentage by which the cost of the MOD equipment programme varies compared to forecasts in year, 1.41%
  • Cost of Major force elements: Ship, £34 million
  • Cost of Major force elements: Brigade, £661 million
  • Cost of Major force elements: Aircraft (Fast Jets), £8.05 million
  • Cost of Major force elements: Helicopter, £3.41 million
  • Cost:Benefit ratio of the major change and efficiency programmes being undertaken by Defence, 1:1.85
  • Direct personnel costs, per Service person, £52,000
  • Direct personnel costs, per MOD civilian, £36,000
  • Defence spending as a percentage of Gross Domestic Product (published NATO definition), 2.7%

Where Do we Sell Defence Equipment To?

Not so much where, but what sector

This table provides data on identified export orders of defence equipment and services. These are taken from the annual survey of known defence  contractors conducted by the Defence and Security Organisation within UK Trade & Industry (UKTI).

Exports by Sector 2011
Exports by Sector 2011

The Air Sector exports significantly more than Land or Sea

Operations – How F***ing Much

Expensive business

Audited cost of Operations in Wider Gulf, Afghanistan and Libya; 2002/03 to 2011/12

  • Wider Gulf; £8.326 Billion
  • Afghanistan; £16.544 Billion

And counting

  • Libya; £234 million

 

 

 

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on pinterest
Pinterest
46 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments