1.5 The Department's spending has three main components: personnel, equipment, and infrastructure. The Defence budget has a relatively high level of fixed costs in the short term and a significant amount of procurement and equipment expenditure is committed for years in advance. The consequence is that the Department has relatively little flexibility to reduce spending in some areas of its budget. Personnel costs comprise over one-third of the budget and are more flexible in the medium and long term. As a result, a large part of the savings the Department needs to make under the Strategic Defence and Security Review will come from reducing headcount. Therefore, this report focuses on the Department's headcount reduction plans (Figure 1). We have separately examined equipment and operating costs in reports on the Aircraft Carriers, the Defence Estate, Typhoon Combat Aircraft and the annual Major Projects Report which examines the largest defence equipment projects.3
1.6 The numbers required to be delivered from headcount reduction may be subject to change depending on the extent to which savings can be released from other parts of the budget. The latest figures from the Department are that the civilian workforce will decrease further to 54,000 by 2020 and that the Army will reduce to 82,000 by 2020.
1.7 The Department estimates that reducing its headcount as set out in the Strategic Defence and Security Review will cut costs by £4.1 billion between 2011-12 and 2014-15 (Figure 2), excluding the impact of the additional reductions in headcount required by the three month exercise. Work on the impact of this reduction is advancing, for example, the Department has started to redesign the structure of the Army around this new figure. The Department has not yet published any revisions to the amount it expects to save from the Strategic Defence and Security Review overall. The military redundancy programme and civilian Voluntary Early Release Scheme are estimated to cost £0.9 billion to 2015 to cover the one-off costs of running the scheme, giving a net saving of over £3 billion. The costs for the redundancy and early release schemes cover compensation payments for staff leaving. Civilian personnel leaving under the Voluntary Early Release Scheme will be compensated under the terms of the Civil Service Compensation Scheme and the level of compensation is based on pay and years of service. For the military, the Department has calculated costs based on pay and years of service as specified by the terms and conditions of service. The estimated cost of the headcount reduction was reflected in the Department's Spending Review settlement.
Figure 1 Planned headcount reductions in the Ministry of Defence
NOTES 1 These figures are approximate and may not add due to rounding. 2 The numbers include the Strategic Defence and Security Review and the Department's internal three month exercise 3 Civilian baseline is April 2010 and the military is April 2011. 4 Prior to the Strategic Defence and Security Review the RAF had committed to reducing personnel by 2,000. This is included in the 40,000 personnel baseline, noted above. By adding the 5,000 personnel reductions set out in the Strategic Defence and Security Review the RAF will reduce to 33,000 personnel by 2015. 5 The civilian 2015 figure includes a reduction of 4,400 personnel in Trading Funds. A Trading Fund is a financing framework for Government operations that is not seen as central to government processes. The fund can usually manage its financial affairs more freely than if its costs are met by its parent Department. 6 These figures are correct at the time of publication. Source: Figures provided by the Department |
Figure 2 Estimated savings from reducing headcount from the Strategic Defence and Security Review between 2011 and 2015
NOTE 1 This is based on headcount reductions set by the Strategic Defence and Security Review and excludes the additional reductions determined in the three month exercise. Source: National Audit Office analysis of Departmental data |
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3 Comptroller and Auditor General, Major Projects Report 2010, Session 2010-11, HC 489, National Audit Office, October 2010; Carrier Strike, Session 2010-12, HC 1092, National Audit Office, July 2011; A defence estate of the right size to meet operational needs, Session 2010-11, HC 70, National Audit Office, July 2010; Management of the Typhoon Project, Session 2010-11, HC 755, National Audit Office, March 2011.