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The Rising Costs of the Iraq War

Iraq Analysis Group, March 2007

Introduction

In the 2003 Budget the government set aside £3 billion to cover “the full costs of the UK’s military obligations” in Iraq [1]. In the past four years the amount allocated to this ‘Special Reserve’ has steadily increased, and with an extra £400 million in this year’s Budget the total is now over £7.4 billion. This is in addition to recent increases in general military spending. This briefing investigates the financial costs of the Iraq conflict to the UK taxpayer. It notes a significant opaqueness in the budgeting process as well as the potential for costs to continue to escalate.

The financial costs of a war may not be the first consideration. War brings many costs, foremost in lives lost and damaged. However, the decision to involve the UK in the invasion of Iraq had substantial implications for UK public spending. Money spent on the Iraq war and wider ‘war on terror’ represents significant diversions from other government budgets.

The lack of transparency in the UK finances is in contrast to the US, where all budgetary proposals must be scrutinised by Congress. Comprehensive information about US military spending is available and has contributed to considerable public debate. The sums spent by the US government are many times those of the UK, and there are a number of projects aimed at publicising the scale of US war spending (e.g. http://costofwar.com).

The Special Reserve

The 2002 Pre-Budget Report set aside £1 billion to enable the armed forces to prepare for the coming invasion of Iraq[2]. By the time of the Budget in March 2003, UK forces were in Iraq. The Chancellor increased the amount to £3 billion and it became known as ‘the Special Reserve’[3]. In the 2003 Pre-Budget Report another £500 million was added for financial year 2003-04 and a further £300 million for 2004-05; bringing the total up to £3.8 billion[4]. While there was no increase in the 2004 Budget Report, another £520 million for 2004-05 was announced in the Pre-Budget Report of December that year[5]. The 2005 Budget Report included a further £340 million added for 2004-05 and £400 million for 2005-06[6], whilst the 2005 Pre-Budget Report included another £580 million . The 2006 Budget report allocated £800 million for operations in 2006-07 and this was followed by £600 million in the 2006 Pre-Budget Report. Most recently, the 2007 Budget allocated a further 400million for 2007-08. Thus, to date, the total amount allocated to the Special Reserve is £7.44 billion.

The Special Reserve is not only set aside for costs in Iraq, but also for “the UK’s other international obligations”[7]. However, nowhere in the public domain has the Treasury published how much of the Special Reserve has been spent, nor how much of it has been spent on Iraq. Table 2 (please see pdf file above)., which gives a breakdown of the spending of the Special Reserve, was obtained through a Freedom of Information request solicited by the Iraq Analysis Group.

Of the £6.44bn set aside at various times to the Special reserve by March 2006, at least £6.3bn had been allocated to departments, almost the total amount possible. About £4.4bn of the Reserve had been spent by the Ministry of Defence in Iraq[8] between 2002 and 2006, with at least an additional £156 million allocated to the Foreign and Commonwealth Office and the Department for International Development. Furthermore, the forecasted outturn for the financial year 2005-06 is larger than that of 2004-05, suggesting that costs in Iraq are still far from settling down to something approaching the spending in Afghanistan.

How Much is £4.4 Billion?

The £4.4 billion already allocated to operations in Iraq has been raised through the pre-existing tax structure, borrowing and other government revenue and consequently there exists some trade-off between the additional defence spending and other public spending options. £3.2 billion spent on education, for example, would be sufficient to fund the recruitment and retention of over 10,300 new teachers for ten years. In health, it would allow the building of around 44 new hospitals. The £6.44 billion Special Reserve represents the entire annual budget of the Department of International Development and would allow a five-fold increase in bilateral aid to Africa[9]. According to UNICEF estimates, £5 billion would fund two years of full immunization for every child in the developing world[10].

Rising Defence Spending

UK military spending is increasing across the board, in addition to the Special Reserve. It is likely that some of this increase reflects the costs of the Iraq war and the wider ‘war on terror’, as discussed below. At the beginning of the war in 2003, the Ministry of Defence’s total annual Departmental Expenditure Limit was £24.196 billion[11]. However, the 2004 Spending Review instigated an annual increase of over £5 billion, to £29.969 billion by 2007-2008[12]. This represents a nominal increase of over 23%, and does not include the Special Reserve, nor other money specifically set aside for Afghanistan. The UK spends similar sums on its military as it does on education and skills[13].

Lack of Transparency

There is a marked lack of clarity about which costs the Special Reserve is intended to cover. Funds from the Special Reserve are ‘drawn down’ by the Ministry of Defence as and when they are required, by arrangement with the Treasury. With no standard reporting procedure in place, it is extremely difficult to trace where sums are going. While the Special Reserve has been fairly well publicised, information such as how much of the Reserve is being spent in Iraq, as opposed to the wider ‘war on terror’ has not been put into the public domain. It should not be the case that this information has to be discovered through Freedom of Information requests.

The Special Reserve comes on top of the regular defence budget, which has also increased, as discussed above. Money drawn down from the Special Reserve does not cover costs such as wages or salaries[14]. Moreover, the Ministry of Defence itself notes that “it is likely that repair and refurbishment costs will need to be incurred in the future in order to bring the equipment back into full operational use“[15], suggesting there will either need to be further allocations to the Special Reserve, or that this is likely to come out of defence spending at the expense of other projects. It should therefore also be made clear how much of the MOD’s standard budget is likely to be spent on Iraq.

This lack of transparency was also highlighted in the recent report from the House of Commons Defence Select Committee [16]. It complained that whilst “military operations are by their nature unpredictable”, nevertheless “the MoD will undoubtedly have made internal planning assumptions about the costs of the operations in Iraq and Afghanistan and we believe these should be shared with Parliament”. Only after asking for further information it received the information in Table 4, a breakdown of the Resource DEL, and a breakdown of the Capital DEL estimate. Overall, the report concluded that the MoD should do more to make public the cost of Iraq, and not just negotiate its needs with the treasury.

Conclusion

It is clear that the total cost of operations in Iraq is quickly exceeding previous estimates, and is now well over the £3 billion originally set aside by the Chancellor to fund the conflict. Rough estimates suggest that as much as an extra £1 billion will be required for each further year UK forces remain in Iraq[17]. Perhaps as important as the rising costs themselves is the lack of transparency about where the money is going, and how much more will be needed in the future. The Iraq Analysis Group calls on the future government to clarify the costs of war in terms of size and expenditure type, and how they are being met. In the meantime, we will update this briefing as further information becomes available.

This briefing for the Iraq Analysis Group was prepared by Jim Cust, Alison Klevnäs and Liam Wren-Lewis. The Iraq Analysis Group was set up in 2004 by former members of the Campaign Against Sanctions on Iraq. Based in the UK, it is an independent, volunteer-run organisation. For more information please contact us.

Notes

[1] Budget Report 2003: Chapter 6

[2] Referred to in Budget Report 2003: Chapter 6.

[3] Budget Report 2003: Chapter 6.

[4] Pre-Budget Report 2003: Chapter 6

[5] Pre-Budget Report 2004: Chapter 6

[6] Budget Report 2005: Chapter 6

[7] Budget Report 2005: Chapter 6

[8]This is based on the assumption that most of the MOD’s expenditures from the capital reserves were spent on Iraq. This is reasonable when the total figures are compared with those given in the MOD Annual Reports and Accounts 2003

[9] ONS Annual Abstract 2005, Chapter 3: International Development

[10] Immunize Every Child: GAVI Strategy for Sustainable Immunization Services

[11] Figure quoted in terms of Near-Cash Spending. 2002 Spending Review: Chapter 12

[12] Figure quoted in terms of Near-Cash Spending. 2004 Spending Review: Chapter 13

[13] 2004 Spending Review: Chapter 1

[13] E.g. Pre-Budget Report Statement to the House Of Commons delivered by Chancellor Gordon Brown, 10 December 2003 and Paul Boateng, 26 January 2005

[14] MoD Consolidated Department Resource Accounts 2004-05

[15] MoD Consolidated Department Resource Accounts 2004-05

[16] Defence Select Committee, Third Report: Cost of Operations in Iraq and Afghanistan

[17] Defence Select Committee, Sixth Report: Chapter 4, Challenges in Southern Iraq