Chapter 1 - Finance

Departmental Resources

This section examines changes in defence expenditure over time (Table 1.1). Table 1.2 examines expenditure on defence within the wider public expenditure framework. Table 1.3 gives a breakdown of defence expenditure outturn by main area. Table 1.4 presents estimates of MOD equipment expenditure broken out by the main categories of expenditure. Table 1.5 presents the MOD resources broken down by budgetary area. Table 1.6 is included to show the resources consumed against departmental objectives. Following the introduction of RAB, Tables 1.1, 1.3 and 1.5 display the Resource, Capital and AME components separately. Table 1.7 details actual net book values for MOD Fixed Assets broken down by budgetary area. Table 1.8 details the MOD's annual expenditure on R&D. This is broken down into intramural (within the department) and extramural (outside of the department) expenditure.

Main Findings

Defence Spending (Table 1.1)

  • 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 (DEL) 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.

Comparison with other Government Departments (Table 1.2)

  • 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 Health, Defence and Children, Schools and Families represent around 53% of Departmental Expenditure Limits (55% of Resource DEL and 39% of Capital DEL).


  • There is a large increase in both resource and capital AME in 2008/09 due to the support given to financial institutions.  The Capital AME increase largely comprises support to depositors, purchase of equity in Royal Bank of Scotland (RBS)/Lloyds Banking Group (LBG) and the loans (net of repayments) provided to Northern Rock and Bradford & Bingley.  The resource AME increase comprises a mark-to-market impairment on the value of the investments in RBS/LBG and a provision for potential future losses across all financial sector interventions.

Principal Headings of Defence Expenditure Outturn (Resources) (Table 1.3)

  • 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.

  • Between 2007/08 and 2008/09 expenditure on service personnel has increased by 3.4% while civilian personnel expenditure has decreased by 1.5%.

Estimated MOD Equipment Expenditure (Table 1.4)

  • 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).

MOD Resources by Budgetary Area (Table 1.5)

  • The largest outturn against the DEL by TLB in 2008/09 was for the Defence Equipment & Support (£21.7 billion).

  • Of the operational TLBs, Commander-in-Chief Land Forces had the highest outturn against the DEL in 2008/09 (£6.9 billion).

Fixed Assets (Table 1.7)

  • 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.

  • The value of land & buildings owned by the MOD totalled nearly £19.6 billion as at 31 March 2009.

  • Defence Estates hold over 99% of the MOD's land and buildings as at 31 March 2009.

  • The Defence Equipment & Support holds nearly 97% of the Department's remaining fixed assets as at 31 March 2009.

  • The large holdings of Defence Estates and the Defence Equipment & Support of fixed assets reflect the policy since April 2006 to transfer tangible and intangible assets from Top Level Budgets to Single Balance Sheet Owners.

Research & Development (Table 1.8)

  • 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.

  • Of this (net) £2.1 billion, over 90% was spent on R&D work undertaken outside of the department (extramurally).
Special Note to Table 1.6 - MOD Resources by Departmental Aims & Objectives

A change in costs affecting most objectives follows the introduction of Financial Reporting Standards for Financial Instruments which resulted in a reduction in operating costs of £1.2 billion which has been apportioned across objectives.

The variance between the costs of Objective 1 between 2007/08 and 2008/09 is mainly in "Operations and other (military) tasks" and is due to the increased operational tempo in Afghanistan and, to a lesser extent, Iraq, partially offset by a reduction in costs due to Normalisation in Northern Ireland.

The variance between the costs of Objective 2 between 2007/08 and 2008/09 is due to a number of factors. The reduction in the costs attributed to "Submarines" is due to a review of nuclear provisions, stock write offs and Capital Spares adjustments. The increase in "Frigates and Destroyers" is due mainly to Capital Spares write offs. The reduction in "Army Field Units" is due mainly to realignment of costs for "Non Equipment Investment Programme" (NEIP), an increase in the level of costs being shown in Objective 1 and Capital Spares adjustments. The increase in costs for "Army Other Units" is mainly due to a large receipt in the prior year offset by fixed asset write offs. The movements in the Air objectives are mainly due to adjustment in Capital Spares. The increase in costs for maintenance of war stocks is mainly due to Capital Spares write off.

The introduction of a new sub objective, NEIP, in Objective 3 has moved costs originally attributed to Objective 2. The figures were restated for 2007/08 and costs increased by around £0.3 billion in 2008/09.