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  annual report and accounts 2002-03

Resource Management

Annual Budget

Objective:

To control actual net financial resource expenditure within budgeted limits (-1% to 0%).

Performance Measures:
  1. Expenditure to be within Departmental Expenditure Limits; Defence budget not overspent.
     
  2. Disposal of surplus estate and equipment worth over £600M by March 2004.
Performance Assessment:
  1. The Department met its target, being within 0.3% of expenditure limits at the end of the year.
     
  2. On course. The in-year asset disposal target of £210M was exceeded by nearly 50% (£307M), bringing the total to £419M since April 2001.

On-going PSA targets are in italics. See Annex B for a complete table.

Summary

71.  Resource consumption on non-operational activities was within Voted Provision. Operational expenditure, including expenditure on Operation TELIC to the end of the financial year, was 20% below the amount provided for in the Spring Supplementary Estimates 2002/03.

Defence Budget and Spending

72.  2002/03 was the second year of managing the Defence budget under Stage 1 of the Resource Accounting and Budgeting regime with Departmental Expenditure Limits covering capital expenditure and the majority of the Department's operating costs, but excluding a number of non-cash costs such as depreciation and Cost of Capital Charges. Performance against the Voted Provision is set out in Table 3. The total underspend of £63M against the Departmental Expenditure Limits - less than 0.3% of the budget - represented a position well within performance measurement parameters. This underspend has been carried forward to 2003/04 under agreed end-year flexibility rules.

Table 3: Defence Budget Outturn against Departmental Expenditure Limits (DEL) 2002/03 (£M)
  DEL Outturn Variation4
Resource DEL1 19,058 18,946 -1123
Capital DEL2 5,836 5,885 +493

Notes:
(1) Includes all operating costs and cash expenditure provisions, less non-cash items such as depreciation and interest on capital. Excludes expenditure on Conflict Prevention activities (see Table 4).

(2) Includes all expenditure on fixed assets, less the income from the sale of such assets. Excludes expenditure on Conflict Prevention activities (see Table 4).

(3) The Department has flexibility to move resources from Resource DEL to Capital DEL.

 

Table 4: Net Additional Costs of Operations against Spring Supplementary Estimates (SSE) 2002/03 (£M)
  DEL Outturn Variation
Resource DEL 1,120 998 -122
Capital DEL 524 319 -205

 

Table 5: 2002/03 Parliamentary Controls (£M)
  Final Voted Provision Departmental Resource Accounts Variation
Net Resources1 44,489 42,014 -2,475
Net Cash Requirement 28,303 26,991 -1,312

Note:
(1) Includes Resource Departmental Expenditure Limit and Annually Managed Expenditure (e.g. depreciation and Cost of Capital), less Resource Appropriation-in-Aid (e.g. profit/loss on disposal of capital items and stock) and cash expenditure on provisions.

73.  The net additional costs of Operations were also recorded on a resource basis and are set out against the Estimates provision in Table 4. No formal budget is set for Operations as military requirements drive expenditure.

74.  The resources authorised by Parliament for 2002/03 also include Annually Managed Expenditure (such as provisions, depreciation and Cost of Capital) not covered in the Resource and Capital Departmental Expenditure Limits set out above. They are, however, included in the figures set out in Table 5 comparing performance against the full provision authorised by Parliament. The underspend this shows was mainly caused by the impact on Depreciation and Cost of Capital Charges of the Quinquennial Review of the Department's Fixed Assets that took place in 2002/03. This Review resulted in significant variations in asset values and assumed remaining lives, but fewer than expected asset write-downs and impairments.

75.  Outturn against the Net Cash Requirement, also shown in Table 5, was well within the final provision. This was due to a combination of factors, including higher than expected accrued expenditure, primarily on Operations.

76.  Further information on the financial performance of the Department, including a breakdown of the principal categories of operating costs for 2002/03, is contained in the Departmental Resource Accounts at Section 2 of this publication.

Asset Disposals

Estate

77.  Disposal receipts in 2002/03 amounted to £278M gross on an accrued basis, some 50% higher than the target of £185M. Major sites sold during the year included RAF Burtonwood, ABRO Ashford, Peel Circus Corsham, Arras Lines Catterick and Pease Hill Development Site in Scotland.

Equipment

78.  The Disposal Services Agency (DSA) had a successful year in which it achieved nearly £29M in gross cash receipts, exceeding its in-year target of £25M. Combined with estates disposals of £278M this gives a total annual Departmental figure of £307M. Major capital disposals, including regeneration and modernisation work by UK industry, included: the sale of two Type 22 frigates to Romania (HMS London and HMS Coventry); the sale of one Type 22 frigate to Chile (HMS Sheffield); the sale of five Offshore Patrol Craft to Bangladesh; the sale of three C-130 aircraft to Austria, with overhaul business, including upgrades to communications and navigational systems; and the transfer of the Challenger 1 tank fleet to The Hashemite Kingdom of Jordan, which is proceeding successfully with technical and logistic support through a number of British companies.

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Last Updated: 3 Dec 03