Minute hmt junior official to cs iraq funding fy 2003-04 dealing with reserve claims

Jonathan stephens John Dodds Andrew Kilpatrick IRAQ FUNDING FY 2003-04: DEALING WITH RESERVE CLAIMS Issue Options for dealing with Reserve claims for Iraq funding for the remainder of this FY, following the Prime Minister's recent call for a step-change in the UK's effort in Iraq. Recommendation That you note the strategy we intend to pursue at official level, scrutinising Reserve claims on a case-by-case basis and maintaining pressure on departments to look at reprioritisation and efficiency savings to cover increased Iraq expenditure in the first instance. Timing Routine DECLASSIFIED DFID Resources 15 255 270 Of the £60 million announced in the Budget, c£20 million has been transferred to the FCO to cover the costs of HMG secondees to the CPA, including the provision of increased security. MOD Costs The most recent formal cost forecast update is as follows: 3. Phase / Em 2002-03 2003-04 SUB-TOTAL 2004-05 2005-06 TOTAL 180 862 682 1 + 2: Plan / Prepare 862 3: Conflict 655 112 543 655 4: In-theatre 1082 800 200 1082 2082 5: recuperation 200 400 1000 400 400 TOTAL 1774 2999 400 4599 1225 1200 • MOD have always estimated that the costs of Op. Telic would be about £3bn for 02-03 and 03-04 • This fits with the £3 billion put aside to cover the costs of the conflict • This is 20% Capital: £600m, the rest is Resource DEL. • The total is also near their original estimate of £5bn • More recent estimates are that this figure, currently at £4.6bn will go down to £4.2bn, due to inflated recuperation cost forecasts DECLASSIFIED departments who see this as a legitimate invitation to bid for more resources. 5. Details of possible Reserve claims in the pipeline but not yet received are as follows: i) Security - approx. £10m (MOD/Home Office): Possible claims relating to: • Costs to cover UK police training teams to train Iraqi police in Jordan - no firm cost estimate yet. • Increased training of Iraqi Civil Guard and Army by MOD personnel - costs still uncertain. ii) Media Strategy - £26m (FCO): 7. The Iraq Media Network is perceived as doing a poor job in conveying the Coalition's message. Al Jazeera, whose emphasis is not in the Coalition's best interests, are providing the majority of The Prime Minister has news coverage for ordinary Iraqis. suggested to President Bush that developing a more effective media operation should therefore be a priority. Gary Thatcher (CPA Director of Communications) has proposed a development package costing £26.5 million. The Prime Minister is reportedly However, we very keen for the UK to cover these costs. understand that President Bush has suggested that he does not expect the UK to provide funding for this. 8. The FCO are taking the lead on this, with DFID claiming that it is outside the scope of the IDA. There is a strong sense of urgency from the PM on this, so we need to engage even if we do not actually cover the costs. The latest position is that the CPA is now expected to cover the majority of these costs, with a much smaller UK contribution than originally anticipated. DECLASSIFIED immediate access to £6.5m from the £60m announced by the Chancellor during the Budget, with the remaining £33.5m earmarked for anticipated requirements later this year. This money will be spent on immediate reconstruction work in the CPA South region, additional funding for NGOs, technical advice to the Iraqi Governing Council and further support for the UN. We will be providing advice in due course for dealing with this claim. v) UK Contribution to the proposed Multi-Donor Trust Fund 11. Pressure is also building on the UK to make clear its position on an additional financial support for Iraq. Specifically, the UK will need to make a public financing pledge for Iraq at the international Donors' Conference in Madrid on 23-24 October. Until the World Bank/UN Needs Assessment is available and the 2004 budget for Iraq is finalised, it is difficult to estimate what the likely UK contribution will be. However, DFID are beginning to build up a case for a substantial UK contribution - in the region of £250 million - which they will argue will require them to make a further claim on the Reserve. vi) Iraqi Internees (MOD) 12. On the UK's behalf, US forces are detaining 102 Iraqi nationals at a holding facility in Basrah. These are not POWs, but have been interned on the basis of intelligence or acts against UK forces since the end of major hostilities. Geoff Hoon has suggested establishing an independent board to oversee the treatment of these internees and that the Reserve should cover these costs on behalf of the Lord Chancellor's Department. There are no estimates of costs at this stage. DECLASSIFIED agreement How to deal with further Iraq Reserve Claims in 2003-04 14. It is clear that we need a strategy to assess a potential influx of Reserve claims before the end of this Financial Year. However, it is vitally important to maintain pressure on departments, both at official and Ministerial level, to reduce the possibility of claims being submitted in the first place. We will also continue to push for greater coordination between the MOD, FCO and DFID on funding tor iraq reconstruction and security programmes. 15. After discussing internally with GEP, officials have concluded that the best course of action in the short-term is to continue to scrutinise individual Reserve claims on a case-by-case basis, assessing the extent to which proposals represent Value For Money, the degree of impact they will have in country, whether the costs are robust and well-targeted with key risks identified and, where applicable, contingency measures in place to mitigate these risks. 16. The emphasis will be on satisfying ourselves over the degree of reprioritisation that has taken place to accommodate Iraq-related pressures within existing baselines. DFID received an 8 per cent real terms budget increase over the SR2002 period, the FCO nearly 3 per cent and the MOD received their most generous settlement for 20 years. We are therefore far from convinced that further reprioritisation within existina baselines is not possible. Iraq has clearly become a priority for UFID, the MOD and the FCO and they will therefore be required to scale back some lower order priorities in order to free up resources and provide clear evidence of the degree to which reprioritisation has taken place. This is how we dealt with Reserve claims immediately following the events of September 11 2001 and the subsequent conflict in Afghanistan. DECLASSIFIED beginning to ease and that funding is starting to flow again. However, some officials within the CPA(S) have stated that they find the Whitehall machine easier to navigate than the CPA machine and may therefore pursue funds from London rather than Baghdad. We need to guard against an impression that London is the line of least resistance on funding. We should therefore continue to push for the mobilisation of CPA resources to fund reconstruction initiatives in the South, rather than providing a significant increase in the level of UK funding, which could create the potential for expenditure overlaps with the CPA and alleviate the pressure on Baghdad to resolve the problems of transferring money to the regions. Synnott has stated that by November/December, he expects CPA(S) to be 'awash with funding'. It therefore makes sense to maintain pressure on UK bilateral spending now in advance of the expected increase in access to CPA funding over the coming weeks. A Central Pool for Iraq claims? 19. A second option we have discussed, given the various claims from MOD, DFID and FCO in the pipeline, is the creation of This would a pooled arrangement for future Iraq claims. potentially involve the creation of two pools: one for military activity and the other for reconstruction and related activity, which DFID This may help to ensure more effective would manage. prioritisation of funding for Iraq programmes and prevent a piecemeal stream of Reserve claims. The idea of a pooled Iraq fund has also been raised by departments. 20. After consideration, we do not feel that such a pool would suit the current situation where costs are so variable and difficult to forecast. If we did set up a pool now it would encourage departments to allocate money prematurely, before we know the DECLASSIFIED the idea of a pooled budget in the future if the situation changes. Recommendation 22. Following discussions between Spending Teams and GEP. we recommend that you agree to officials continuing to deal with Iraq claims on a case-by-case basis for the remainder of this FY We judge that this is the most effective means of dealing with Iraq cost pressures until CPA resources are mobilised over the coming weeks and the outcome of the International Donors' Conference in Madrid next month is clearer. GEP and the DDI team support this recommendation. 23. We will continue to emphasis to departments that the Treasury is not presenting unnecessary obstacles to spending in Iraq. Departments have the resources in their budgets this year, and from Reserve claims already granted, to fund immediate pressurco. The emphasis is on effective budgelaty discipim. and the efficient use of resources in times of increased pressure. International Poverty Reduction Team DEGLASSIFIED