Where the real power is

Friday, July 24, 2009

The final say on whether British troops will get reinforcements or more helicopters is not made by the MoD or the Prime Minister, rather the Treasury. Patrick Macgill looks at how a small group of junior officials control the MoD's financial fate.


At a time when the controversy surrounding funding for equipment and troops in Afghanistan is growing, questions have arisen over who is really responsible for the MoD's budget and for allocating monies and approving expenditures.

The ultimate decisions surrounding the MoD's budget are made not by defence ministers or the Prime Minister and the Cabinet, but rather instead by a small anonymous group of civil servants inside the Treasury, Defencemaagement.com has learned.

The complex, secretive and rigorous budgetary process is conducted years in advance and leaves the MoD with little leeway to negotiate a better budgetary deal. The setup forces the ministry to rely on reserve funding or Urgent Operational Requirements (UORs) if circumstances change during the three year Comprehensive Spending Review (CSR).

For example, the latest CSR was created during 2006 and early 2007 for commencement in April of the following year through to 31 March 2011. During 2006 and 2007 Afghanistan was still a small to medium sized conflict in which just 3,300 British troops were taking part. The main threat to British troops in combat in Helmand at that time was small arms fire and rocket propelled grenades.

It would have been impossible for Treasury officials to foresee Afghanistan turning into what it is now, nor would anyone have been able to predict in 2006 that the a massive credit crunch was looming that would make large procurement programmes such as the aircraft carriers unaffordable. But creating a spending plan up to five years in advance is not always convenient when a war escalates in year three.

Today the Armed Forces are involved in a full scale conflict involving close to 10,000 troops, where the most prevalent threats are IEDs and the demand for helicopters and armoured vehicles that can be rapidly delivered has never been higher.

According to Professor Colin Talbot, professor of public policy and management at the Manchester Business School, the whole budgetary process is very secretive. There is little public or political transparency in it. Most Treasury observers believe that officials broadly estimate public spending for the coming three years and then for each department as well.

Then, based on upcoming financial obligations and other needs, each department, including the MoD will basically "haggle" with the Treasury over additional funds. Many of these requests are shot down, but some may be approved based on their essentialness.

This is all guesswork however because the Treasury has never entirely revealed how it formulates departmental budgets. Talbot believes that the friction between departments and the Treasury has grown in recent years as the credit crunch began to impact public finances. This does not bode well for the MoD which already has faced a tough decade of minimal spending increases.

The budgetary process does not end with the CSR however. In theory once the MoD has its three year budget that should be the end of its negotiations with the Treasury since it has autonomy over spending. In fact MoD officials have to return to the Treasury every time they want to spend money over a certain level. The MoD might have £10bn for equipment programme this year but if it wants to officially commence the procurement of the £5bn aircraft carriers, the Treasury has the final word of authority on the subject.

Treasury officials attached to the MoD are supposed to review spending requests only on financial grounds, but this creates inflexible policies in which greater political and security arguments are missed or disregarded.

Allegations that the Treasury vetoed a surge of 2,000 troops into Afghanistan are more understandable now. Officials most likely viewed the costs as unaffordable and ignored the potential benefits of more troops on the ground.

The spending requests go to a team of Treasury officials that is dedicated to MoD spending. However according to Talbot the spending team is usually made up of junior officials who have worked with the MoD for more than two to three years. It is unusual for someone to work through two CSRs with the same department.

"If you want to get anywhere, you don't stay in the same job for more than 18 months to two years. It is likely that the Treasury team on MoD now is different from the Treasury team on the MoD three years ago," Talbot said.

Since these junior officials are new, they are more likely to question past spending decisions that they were not a party too. A programme like funding for the 5th-7th Astute class submarines may have been signed off on by the Treasury in 2004-05 after a hard fought battle by the MoD, but the newest Treasury-MoD spending team may want to review the deal or even shelve it due to the high costs.

Essentially, a team of junior civil servants who are planning to move on to another job in the near term have a wide degree of control over MoD spending.

Surprisingly, as rigorous as this process sounds, the MoD actually receives better treatment than many other government departments, according to Talbot.

"Huge departments like health, education and defence…. clearly has some political leverage," Talbot said.

The process could change but this would require MPs to take a stand according to Talbot.

Under the current format, MPs could propose spending amendments or attempt to vote down budget related bills, but it almost never happens.

"Parliament does not amend or challenge finance bills from the government. There are always discussions about a bill but it doesn't go to select committees for approval. It is purely by convention that it doesn't happen," Talbot said.

Last year's 10p tax revolt was the first time MPs nearly submitted a spending amendment in 40 years.

To help resolve situations like the MoD's budget, Talbot argues that more budgetary powers should be transferred to Parliament. While he is not in favour of a US system where Congress can cut money and debate the budget line by line, he would like to see a Parliament Budget Office and the select committees being able to review draft budgets for each department.

The MoD's budgetary problems are well documented. Even if it is given more money as many groups advocate, the Treasury will have to change its ways if the Armed Forces have any hope of actually seeing more money for kit and troops.