Chapter 1 - Finance

Introduction

This Chapter provides details on the composition and scope of the Department’s expenditure. It also provides information on the impact of defence spending on the wider economy and international comparisons.

Related sources on the strategy and performance of the Department include:

A pdf version of Chapter 1 is available here.

Some of these documents and other background information can be found at the MOD website:

http://www.mod.uk

Where possible, every attempt has been made to maintain the consistency of this publication with those above. Where differences do occur, this reflects differences in coverage and/or the availability of more up to date information.

This year has seen the inclusion of some new charts and graphs, as well as a number of other changes to existing tables, including:

  • removal of historic Defence Expenditure Outturn in the UK by Industry Group (Table 1.9 in UKDS 2008)
  • reformatting of Table 1.18 relating to the cost of operations
  • the cessation of Defence Export Delivery Statistics (formerly UKDS 2008 Tables 1.13 and ‘top half’ of Table 1.14). The last estimates (for 2007) were published in UKDS 2008. For further details refer to the Trade section of Chapter 1.
  • the final publication this year of the Regional and National Defence Dependent Employment Estimates (Tables 1.10, 1.11, 1.11a & 1.11b). These estimates will no longer be published in UKDS after this year. For further details refer to the Industry & Employment section of Chapter 1.
  • the presentation of the defence expenditure of NATO member states at constant US$ Billions (Table 1.19) for the first time.

There are five main sections within this Chapter covering:

  • Departmental Resources – Defence Expenditure Outturn, Public Expenditure by Departmental Grouping, Principal Headings of Defence Expenditure Outturn, Estimated MOD Equipment Expenditure, MOD Resources by Budgetary Areas, MOD Resources by Departmental Aims & Objectives, MOD Fixed Assets and MOD Research & Development Expenditure Outturn.
  • Industry & Employment – Estimated Defence Expenditure Outturn in the UK, Estimated UK Employment Dependent on Defence Expenditure and Exports, Estimated UK Regional Direct Employment Dependent on MOD Expenditure and MOD payments on Private Finance Initiatives (PFI) Projects.
  • Trade – Estimates of Identified Defence Export Orders and Estimated Balance of Payments for Trade in Services.
  • Contracts – by type, major equipment projects and main suppliers (including by holding company).
  • International Defence – MOD Operation and Peacekeeping Costs, NATO Countries Defence Expenditure and their expenditure as a percentage of GDP and the Top World-wide Military Spenders in 2008.

Main Findings

The main findings from Chapter 1 are:

Departmental Resources

  • In 2008/09, Defence Spending ( Resource DEL plus Capital DEL minus Depreciation) totalled £38.6 billion.

  • In 2008/09, the outturn against the Departmental Expenditure Limits was £45.5 billion. The Resource DEL accounted for £36.7 billion of the 2008/09 expenditure, whilst the Capital DEL accounted for £8.8 billion.

  • In 2008/09 Defence is estimated to be the fourth highest area of Government expenditure ( Resource DEL plus Capital DEL plus AME) behind Work and Pensions, Health, and Children, Schools and Families.

  • In 2008/09, the main areas of Resource expenditure were personnel (£11.7 billion) and depreciation/impairments (£6.9 billion).

  • In 2008/09, the main area of Capital expenditure was Assets under Construction (£6.5 billion), which largely consist of major weapons platforms under construction.

  • Estimated MOD Equipment Expenditure has increased by just over £1 billion for 2008/09, largely due to an increase in capital expenditure related to Single Use Military Equipment (SUME).

  • The total net value of MOD Fixed Assets was £110.5 billion as at 31 March 2009.

  • The largest category of assets was Single Use Military Equipment (£35.4 billion) as at 31 March 2009.


  • In 2007/08, MOD net expenditure on R&D activity totalled £2.1 billion, comprising £0.6 billion on Research and £1.5 billion on Development.

Industry & Employment

  • In 2007/08, the MOD spent some £16.5 billion with UK Industry. The ‘manufacturing’ industries (section D) attracted nearly 50% of MOD expenditure with UK Industry. The single industry group attracting most MOD expenditure was Aircraft and Spacecraft (around 13% of the total).

  • Estimated employment in UK industry and commerce dependent on MOD expenditure and defence exports has fallen slightly from last year to around 300,000.

Trade

  • Estimated UK identified export orders of defence equipment and services were estimated to be nearly £4.4 billion in 2008. Following the significant increase in export orders in 2007, the value of orders have broadly returned to average historical levels.

Contracts

  • In 2008/09 MOD HQ placed just over 24,000 contracts with a collective value of around £32.7 billion. This represents an annual increase of nearly 130% (£18.3 billion) when compared to the year before. This increase was largely due to a number of high value contracts which were let during the year, the most notable of which related (a) to the manufacture of the Future Aircraft Carrier (CVF) which was valued at some £3.1 billion and (b) the Future Strategic Tanker Aircraft with a contract valued at some £10.4 billion.

  • The largest post Main-Gate equipment project by value is the Type 45 Destroyer (£6.5 billion). This is followed by the Astute Class Submarine (£3.8 billion) and the Nimrod Maritime Reconnaissance and Attack Mk4 (£3.6 billion).

International Defence

  • In 2008/09, the MOD spent just over £4.0 billion on conflict prevention worldwide.

  • The net additional cost incurred by the MOD as a result of operations in Iraq and Afghanistan was around £1.4 billion and £2.6 billion respectively.