1.1 This part outlines the financial and strategic challenges the Department faces and how it is approaching cost cutting by reducing headcount.
1.2 The 2010 Spending Review required the Ministry of Defence (the Department) to make spending cuts of some 7.5 per cent per year in real terms (£2.7 billion) by 2014-15 to its overall budget as part of efforts to reduce the deficit across all government departments. The Department has fared relatively well over the Spending Review period compared with other departments. The Institute for Fiscal Studies calculated that the average cut in departmental budgets would be 11 per cent over the Spending Review period.1 The Department's budget over the next four years will stay relatively constant in cash terms.
1.3 In addition to the Spending Review savings, the Department needs to take measures to balance its budget. In 2010, the Department announced it had a funding gap of £38 billion over the next 10 years. In March 2011, the Department reported to the House of Commons Defence Select Committee that the funding gap had reached £42 billion.
1.4 In October 2010, the Strategic Defence and Security Review set out a number of measures that the Department plans to take to balance its budget including cutting non-front line costs by an estimated £4.3 billion by 2015. Reducing headcount is a key part of reducing its overall budget2 and the Review announced that the Department would cut its civilian workforce by approximately 25,000; and the military by 17,000. The subsequent three month exercise to identify additional cost cuts reduced the workforce further, the revised total reductions are approximately: 29,000 in the civilian workforce to 57,000 personnel and 25,000 in the military to 152,000 by 2015, a total of 54,000 personnel reductions. The military reduction includes a decrease of 2,000 RAF personnel which the Department had committed to make prior to the Strategic Defence and Security Review.
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1 Institute for Fiscal Studies, Where did the axe fall?
2 Reducing headcount will decrease non-front line and front-line costs.