THE UK MINISTRY of Defence (MoD) has received an unexpected £600 million cash windfall in this year's military budget, and may use it to offset savings shortfalls in the Defence Cost Studies (DCS).

UK Treasury figures released last week, reveal an under-spending in the 1994-5 defence budget, with the figures falling £600 million short of the original estimate of £22.8 billion.

The under-spending is being attributed to savings in operational costs and to less-than-projected expenditure on major project (Category A) equipment costs.

With the MoD struggling to achieve the annual £750 million savings required by the DCS, the under-spending could be used to plug financial gaps over the next financial year.

The savings are partially explained by the MoD being able to defer payment on equipment contracts where industrial suppliers have failed to meet project milestones. There is evidence to suggest, that with an upturn in the UK economy and other business opportunities appearing, suppliers have been more willing to miss MoD milestones.

A change in Government policy also means that the MoD has been allowed for the first time to carry forward all of the savings made on operational budgets. In the past, operational funding was lost if it remained unspent at the end of the budget year, which gave little incentive to make savings.

When the carry-forward policy was introduced in other government departments, a first-year saving of around 3% was recorded, which tallies with the MoD's experience.

Source: Flight International