Defence budget: Shedding light on the £38 billion black hole
17th Mar 2011
"A £38 billion black hole? This is ludicrous. It always has been ludicrous," Bob Ainsworth, former Defence Secretary, Newsnight, BBC2, 9 March 2011
"As far as I'm concerned, I thought it was a £35 billion black hole. It turns out to be a £38 billion black hole. It's a fact" General Lord Dannatt, Newsnight, BBC2, 9 March 2011
The debate over UK involvement in a Libyan no-fly zone has raised the question of whether, given tightening purse string at the Ministry of Defence (MoD), the military have the kit to get involved even if such action was agreed.
The lack of ability was traced back to last year's strategic defence review, which in turn was blamed on the past spending, or rather overspending at the MoD under the last Government.
At the time a budget gap of £38 billion was claimed to exist by Defence Secretary Liam Fox, and the figure has been widely used since.
But is the £38 billion figure as ludicrous as Dr Fox's predecessor, Bob Ainsworth, claimed last week?
Black holes, by their very nature, aren't supposed to be places of great light and clarity.
So it is apt — if very frustrating - that the means by which this figure was arrived at remain unclear.
Some good work was done on this by the Channel 4 Factcheck blog last year. They looked through a 2009 National Audit Office (NAO) report which assessed the extent of the the gap in spending that could emerge over the next ten years.
The NAO estimated: "If the Defence budget remained constant in real terms, and using the Department's forecast for defence inflation of 2.7 per cent, the gap would now be £6 billion over the ten years. If, as is possible given the general economic position, there was no increase in the defence budget in cash terms over the same ten year period, the gap would rise to £36 billion."
According to Channel 4 last autumn the MoD were unwilling to give any more details on how the £38 billion was reached.
When Full Fact requested further information we were referred to a Written Parliamentary Answer given by Liam Fox last year.
Assuming the Defence Budget remained flat in real terms, Dr Fox explained that of the £38 billion gap, roughly £20.5 billion of overspending was due to equipment/procurement with a further £17.7 billion funding gap on other resources, including personnel.
It is curious how much the figure does differ from that given a year earlier by the NAO. In 2009 it estimated that should the defence budget be maintained in real terms, there would be a gap of £6 billion — this appears to be the same assumption which is being used in the MoD's £38 billion 'black hole' figure.
The Strategic Financial Management document published by the NAO last year, includes a graph highlighting the diverging budgets, but does not cover the full ten year period.
It could be that the NAO does not take into account as many costs as the MoD figure, but when we contacted the NAO they assured us their figure was fairly wide ranging, including capital costs, procurement, operational and personnel costs.
An NAO spokesperson explained that their figures must be signed off by the MoD, so there is little controversy about the figures that appear in their report. However on how the £38 billion was worked out, we were simply referred back to the MoD.
After several days waiting for a detailed breakdown of the calculations we received the following:
"We regularly estimate the amount of money we will need over the next ten years to generate and sustain the military capabilities required to meet both our existing commitments and a range of possible future operations.
"This depends on a variety of factors, including inflation, assumptions about the size and shape of the Armed Forces needed for various kinds of operations, and the kinds of future operations we might have to undertake. Before the Strategic Defence and Security Review, this exceeded our assumed budget by some £38 billion over the ten year period.
"It was against this challenging financial position that the Strategic Defence and Security Review (SDSR) was conducted."
So we are told that there are a "variety of factors", but not how these factors contribute to the overall figure, which might enable anyone else to check the numbers.
This point was alluded to last week when Secretary of State Liam Fox appeared in front of the Defence Select Committee.
Labour MP Gisela Stuart questioned whether the spending commitments that had been included in arriving at this £38 billion figure included "aspirational" committments or was solely ones that the Government was contractually committed to.
The Secretary of State was unable to give the Committee an estimate of the proportion of the 'black hole' the Government is contractually committed to, but said this information would be provided in due course.
However Dr Fox said there were cases of spending "where the MoD begins to spend money in the hope that it will be able to continue the programme and that money will become available in later years."
Nevertheless Committee Chairman James Arbuthnott concluded that the MoD "have been using this figure of £38 billion without there being any great degree of clarity."
Mr Arbuthnott's remarks get right to the point of the issue. Months after this £38 billion 'black hole' figures was first touted, even members of the select committee are still unclear about aspects of it.
The problem is, this leaves us no nearer to knowing whether the amount can be dismissed as "ludicrous".
The lack of information means we are not in a position to judge. However we feel if a Minister is to use such a headline-grabbing figure, it needs to set out how it is calculated. That way all concerned can be sure that the number is legitimate.
The problem was to an extent acknowledged by the Secretary of State in the Commons this week. Answering questions on the sums behind the figures, he told MPs: "I would like to see greater transparency in how the Department makes its information available."
The Defence Secretary is not alone in this aspiration, so it is to be hoped that action can be taken to deliver it.