Official Statistics

Background quality report: MOD regional expenditure with industry 2023/24

Published 21 November 2024

1. Contact Details

The Analysis Directorate welcomes feedback on our statistical products. If you have any comments or questions about this publication, or about our statistics in general, you can contact us as follows:

Analysis-Expenditure Head of Branch

Telephone: 030 015 86554

Email: Analysis-Expenditure-PQ-FOI@mod.gov.uk

If you require information which is not available within this or other available publications, you may wish to submit a Request for Information to the Ministry of Defence under the Freedom of Information Act 2000.

Analysis Directorate (Analysis-Expenditure)

Ministry of Defence

Oak 0 West, #6028

MOD Abbey Wood North

Bristol

BS34 8QW

For general MOD enquiries, please call: 020 7218 9000

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2. Introduction

2.1 Overview

This publication presents MOD expenditure with industry and commerce in 2023/24 by UK region and industry group. The statistics include direct MOD expenditure with UK and overseas industry as well as payments to Foreign Governments and Foreign Military Sales (FMS) agreements, with some comparisons made to previous financial years. Regional expenditure is presented across ITL Level 1 regions, referred to as regions in text, and as expenditure per person to take into account the varying populations of the different regions. Expenditure data is also presented broken down by industry group and on Small and Medium-sized Enterprise (SME) status. Comparisons are made between work funded in the UK versus overseas.

In addition, we have accounted for inflation by quoting comparisons over time only in terms of 2023/24 constant prices. This means that we have used the GDP Deflators from HM Treasury to calculate how much expenditure in previous years would be worth in 2023/24. This allows for more valuable comparisons between expenditure in different financial years.

Prior to 2022/23, the expenditure and jobs statistics were published in MOD Regional Expenditure with UK Industry and Supported Employment statistics. The decision was made to split the expenditure and jobs estimates into separate statistics to improve on timeliness and quality of the expenditure statistics. The latest MOD supported employment estimates for 2022/23 can be found in MOD Supported Employment Estimates.

3. Statistical Processing

This section sets out the data requirements and processes used to create the tables and charts in the core bulletin and supporting data tables. It also discusses the assumptions made as well as a number of limitations.

3.1 Source Data

The main source of MOD expenditure data is sourced from MOD’s Contracting, Purchasing and Finance (CP&F) system. Additionally, expenditure on expenses is also collected from MOD HR systems for both military and civilian personnel and included within the industry totals. FMS data is provided by UKDPO and FMS case managers. The UK Defence Procurement Office (UKDPO) in Washington D.C. provides data on Foreign Military Sales (FMS) agreement purchases. Additional data is collected from a variety of project teams and organisations across the department to improve on data accuracy of the regional and industry group estimates.

External data is sourced from:

• Annual UK Population Estimates produced by the ONS.
• Dun and Bradstreet are used to source data on Small and Medium-sized Enterprises (SMEs).
• HM Treasury GDP Deflators are used to for constant price conversions when adjusting for inflation.

3.2 Data Compilation

Expenditure information is extracted from MOD’s CP&F system. This dataset identifies all in-year expenditure recorded against a HQ contract or as a Miscellaneous payment. Further detail on HQ and Miscellaneous expenditure can be found in the latest Trade, Industry and Contracts’ Background Quality Report. Payments made to other government entities and foreign governments are removed, leaving only industry payments for all analysis except the global overseas estimates.

HQ Contracts - Expenditure against these contracts has metadata attached where location of work (LOW) and standard industrial classification (SIC) codes indicate the UK region and industry group assigned to contract expenditure. The fields are input by commercial officers within MOD when the contract is let. These are not always fully populated. The Analysis-Expenditure team conducts an annual assessment of the SIC and LOW codes, cleansing incorrectly assigned data and populating missing data where possible. After cleansing approximately 5% of both SIC and LOW codes are left unassigned and must be filled using other means which are detailed below.

LOW codes - In the absence of a LOW code, supplier billing address is used to populate the location of work. This will result in a small portion of headquartering (where the spend is distributed to the headquarter location of a supplier rather than the site at which the work takes place) but overall is seen as a good proxy for location of work. Location of work coverage at this stage is mostly complete, with less 1% of the spend unallocated, the remaining spend is apportioned based on the known distribution of all other MOD expenditure.

SIC codes - Expenditure with an unknown SIC code is first assigned based on the proportion of known SIC codes with the same assigned LOW codes. Where there is no SIC information available in an assigned LOW code to apply, then total UK region distribution is used.

Miscellaneous payments - MOD expenditure through miscellaneous transactions (those which did not go through the conventional contracting process) does not contain the same contract metadata on LOW and SIC codes. Examples include payments for the electronic Purchasing Card (ePC) and payments to the Organisation for Joint Armament Co-operation Executive Administration (OCCAR). To populate these fields the Analysis-Expenditure team collects additional data from project areas across the MOD to cover the majority of expenditure. Any remaining unassigned expenditure is assigned a UK region based on billing address and a SIC code based on the SIC distribution of contract expenditure.

Foreign Government payments - MOD expenditure with foreign governments is processed through miscellaneous transactions and does not contain contract metadata used to assigned LOW codes. Additional data from MOD project teams is collected for larger payments to assess the location of work. All remaining spend is assigned a country code using the supplier billing address which corresponds with the foreign nation.

Foreign Military Sales - Foreign Military Sales are one of a number of mechanisms used to purchase equipment or services from the United States. Purchases are made through FMS processes for a variety of reasons, including savings due to economies of scale or US requirement as a result of sensitive/classified equipment. All of the MOD’s FMS cases are managed through the United Kingdom Defence Procurement Office (UKDPO) in Washington DC, who then work with the US Government to set up the FMS agreement. For more information of FMS procurement see Trade, Industry and Contracts Report. Additional data from MOD project teams is collected for the top spending FMS cases to assess location of work. All remaining spend with an unknown location is assigned a LOW based on the distribution of known FMS cases.

Claims expenditure data from MOD HR systems for both military and civilian personnel is distributed to industry groups based on the manual assessment of data entries into the HR system. Claims expenditure regions are assigned using headcount locations of military and civilian personnel.

Mid-Year regional population figures are taken from the ONS website. These are used to produce figures on MOD expenditure with UK industry per person for each region. This is achieved by dividing the regional expenditure by the population of the area to see how much money was spent for each person living in that region. This gives the expenditure figures some context and allows comparisons across different regions to be drawn more easily.

3.3 Assumptions and Limitations

• In the absence of LOW codes, billing address information is a suitable substitute and that the proportions of unknown LOW codes are kept low enough as to not heavily introduce headquartering to the data.

• The small number of HQ contracts that we are unable to find accurate SIC code information for are distributed across UK regions/overseas based on the regional/national proportions for the known HQ contract locations.

• SIC code information is entered when the contract is let. It is likely that in different years of the contract’s life that the SIC distribution will fluctuate as different phases of work are started and completed. We have no way to measure these changes however, so whilst high value contracts will be reviewed, the same SIC distributions are used throughout the life of most contracts.

• HQ contracts let on a national or multi-region basis relating to the provision of facilities management or services to MOD sites (e.g. mess catering or utilities) are distributed across the respective areas according to the location of MOD personnel.

• Miscellaneous payments do not have any SIC code information associated with them. Therefore, the Miscellaneous expenditure is assumed to have the same SIC distribution as the HQ contracts.

• FMS location of work assignment of unknown cases is assumed to follow a similar distribution to the known cases.

• Spend with foreign governments is assumed to be for work undertaken in the corresponding country for those not specifically assessed.

• Miscellaneous payments also do not have LOW code information associated with them. Therefore, Miscellaneous expenditure is distributed regionally using the bill paying postcode where the data is not collected through other means.

• Electronic Procurement Card (ePC) payments are distributed according to the location of MOD personnel, including overseas.

• Claims expenditure distribution to regions is based on the location of civilian and Service personnel.

4. Quality Management

4.1 Quality Assurance

The general production process is enhanced by using an open-source programming language to automate large parts of the data processing. Numerous quality assurance measures are programmed into the data pipeline, reducing the scope for human error that was more likely to occur when doing a large volume of manual data. In addition, production time is reduced allowing more time to improve on quality and accuracy of the publication and can be easily reproduced.

4.2 Quality Assessment

The MOD’s quality management process for Official Statistics consists of three elements:

1. Regularly monitoring and assessing quality risk via an annual assessment.
2. Providing a mechanism for reporting and reviewing revisions/corrections to Official Statistics.
3. Ensuring BQRs are publishing alongside reports and are updated regularly.

5. Relevance

Statistics on MOD expenditure with UK industry were published annually up until 2009 in the UKDS publication. This publication was re-introduced in response to a request from the Secretary of State for Defence to begin producing these statistics again, which was supported by the Permanent Under Secretary in March 2016.

The information contained in this bulletin has potential for a wide range of users including the media, politicians, policy professionals and the general public. In particular, these statistics aid the measurement and monitoring of various regional expenditure targets throughout the MOD and wider government. Regional expenditure statistics are often used in parliamentary debate, in answering parliamentary question and requests from industry on MOD spending.

In 2020/21, SME expenditure statistics were introduced to the publication for the first time. This was in response to increased interest from central government on SME expenditure in relation to levelling up agenda.

In 2023/24, a new table (Table 10) was added containing expanded estimates of our spend with industry overseas. The new table brings in expenditure on Foreign Military Sales (FMS) agreements with the United States Government and direct expenditure with foreign governments. This table expands on the breakdown provided in Table 1 of the supporting tables and is in response to increased interest in the proportion of MOD expenditure taking place in the UK.

The MOD invites users to provide further feedback to the statistical output teams on any of their publications or reports and continues to assess the scope of publications to meet user needs.

6. Accuracy

The majority of expenditure data is sourced from MOD system CP&F, which has undergone a variety of transformations over the years. Further detail on this can be found in the latest Trade, Industry and Contracts’ Background Quality Report. Accuracy details of some of the key outputs of the regional expenditure statistics are detailed below.

Industry groups - MOD industry grouping are based on SIC codes assigned to contracts, for most contracts a single SIC group code is assigned to each contract, however, each contract will likely span multiple different industries groups. The vast number of contracts let each year means it is not possible to assess each contract individually therefore, where possible we contact the project teams who own the larger contracts to obtain more detailed SIC data. From 2019/20, an upgrade to the CP&F system has provided Commercial Officers the option to add in multiple SIC details which allows for an improved allocation of expenditure to work type.

Location of work - Interest has been shown for a lower level distribution of expenditure location, such as at constituency level. MOD LOW codes do not contain the necessary level of granularity required to report expenditure at this level, as LOW codes can be mapped directly into UK regions but one LOW code can span multiple constituencies. In 2023, a new field was introduced to CP&F to capture location of work postcodes which would enable this level of reporting so in future iterations of the statistics more detailed breakdowns could become available.

Issues arising from the introduction of the then new CP&F online end-to-end procurement system in 2016/17 have led to a greater number of missing and incomplete fields in our data. Whilst a large volume of data cleansing has had to be carried out on the dataset, we are confident that the data has been cleansed to a sufficient standard for our analysis. Further issues arose in the CP&F accounting processes which resulted in an additional £300 million in unpaid invoices at the end of 2016/17. That expenditure was instead reported in the 2017/18 dataset. Going forward there are no further issues expected due to unpaid invoices.

7. Timeliness and punctuality

7.1 Timeliness

Historically, MOD regional expenditure statistics have been released in January of the following year. However, following the split of expenditure and jobs statistics, the timeliness of this publication has improved and is now expected to be updated in November for both the current and future editions.

7.2 Punctuality

The release date for this publication was pre-announced on the MOD’s Calendar of Upcoming Releases section of GOV.UK.

8. Coherence and comparability

8.1 Data Comparability

Throughout the bulletin we compare data across 11 different financial years. With a short time series any trends could be due to the inherent variability of contract data and not indicative of a long-term trend. We would naturally expect total expenditure to fluctuate year-on-year due to the occurrence of large payments. As such, any comparisons should be used with caution. Due to methodology changes, a break in series applies between 2019/20 and 2020/21. Therefore, direct comparisons across the years 2019/20 to 2020/21 should not be made. Longer comparisons across the time series should still be valid.

It should be noted also that prior to 2017/18, the total expenditure figure included direct MOD payments to the Defence Science and Technology Laboratory (Dstl). Dstl ceased to be a Trading Fund in April 2017 and are therefore no longer paid through contracts processed by DBS Finance Systems, instead being funded through the central MOD budget through which it continues to run its own financial activities. This has resulted in a substantial payment being excluded in expenditure totals from financial years following 2016/17 (MOD paid £590 million to Dstl in 2015/16 and £560 million in 2016/17).

By breaking expenditure down into ITL Level 1 Regions, comparisons can be made about different areas of the UK. While the variation in expenditure is still present at a regional and industrial level, some comments about changes over time can be made here. If overall expenditure is going down in specific regions, or industries are showing a substantial rise, then this is more likely to be a significant observation.

The inclusion of expenditure per person makes the statistics more comparable across different regions. Without these measures, differences in the populations of the regions could make it difficult to compare expenditure levels.

Where comments are made about variation across years at the regional and industrial level it is important to consider inflation. In simple terms, inflation measures how the cost of goods and services change over time. Inflation of 2% would mean that something that you could purchase for £1 last year would cost you £1.02 this year. Therefore, inflation can mask effects when comparing expenditure across different years. This is because you are comparing expenditure in one year against another where the value of the pound was different.

To account for this, expenditure can be calculated in constant prices. This accounts for inflation by adjusting expenditure in one year so that it is in another year’s prices. When the effect of inflation is removed the real increases and decreases in expenditure can be seen. Throughout the publication, expenditure is presented in constant prices when comparing across different financial years. To access all of the data in both current and constant prices please see the supplementary data tables.

In 2022/23, a review of methodology bought in significant improvements to the regional estimation processes and resulted in revisions for years 2020/21 and 2022/23. Therefore, the time series presented in the previous format should not be used over the latest current published statistics. This revision resulted in a break in series between 2019/20 and 2020/21, comparisons across these years should be avoided, however analysis of longer term trends should still be viable.

8.2 Other Statistics

Figures were previously published by Defence Economics on MOD expenditure in the UKDS publication, but these were ceased in 2009 and differing methodologies means that the figures are not directly comparable.

8.3 SME Statistics

The MOD provides data to the cabinet office for their publication on Central Government Spend with SMEs. The expenditure and proportion of MOD direct expenditure going SMEs will differ from that published in these statistics due to the following reasons:

• The MOD SME estimates in this publication are produced for UK Industry only and exclude overseas expenditure which are included within the cabinet office publication.

• The Cabinet Office statistics are based on procurement spend rather than direct spend with industry, therefore there may be a small number of cases where procurement payments through government entities or foreign governments are included in the cabinet office expenditure totals.

• The Cabinet Office statistics include direct SME expenditure by both Dstl and the Atomic Weapons Establishment (AWE) whereas the MOD statistics include only direct MOD core departmental payments to SME suppliers.

9. Accessibility and clarity

The statistical bulletin can be accessed on the GOV.UK website where it is available to download in HTML format. Its release is noted in the Finance and Economics section of MOD’s list of Accredited Official Statistics by topic and can also be found by using an internet search engine.

Visualisations have been chosen to best display patterns and trends within the data. Terms used in the commentary are defined within the glossary of the HTML bulletin. All tables and data behind any graph or chart in the report are available as accessible Open Document Spreadsheet (ODS) tables.

Figures within the bulletin and ODS tables are often rounded to aid with clarity. In these instances, we have followed the Ministry of Defence Rounding Policy.

Should you have any feedback on the accessibility of any part of the bulletin or accompanying data tables then the Analysis Directorate encourages you to get in touch via any of the means noted in the Contact Details section.

10. Trade-offs between Output Quality Components

Regional Expenditure figures are produced at ITL 1 region level. Producing lower level breakdowns would require vast amounts of additional data cleansing, quality assurance and increase the burden on project teams and commercial officers as many would need to be contacted for further details.

11. Cost and Respondent Burden

In producing these statistics, our main data sources are administrative data which are used for many purposes. On occasion the data has required manual cleansing due to missing or incorrect information following the introduction of CP&F. However, this cleansing cannot be avoided as it is the only way to improve data quality to the standard required for this publication. Going forward we intend to use wider education methods in consultation with Commercial Managers to improve data quality.

12. Confidentiality and Security

12.1 Confidentiality - Policy

In producing these statistics, we adhere to the MOD Analysis Directorate Confidentiality Policy. A disclosure policy for commercial data has been agreed and a process now exists for deciding on the release of data that is consistent with the Transparency Agenda and the existing rules relating to the answering of Freedom of Information requests.

We adhere to the principles and protocols laid out in the Code of Practice for Official Statistics and comply with pre-release access arrangements. The MOD Statistics Pre-Release Access Lists are available on the GOV.UK website.

12.2 Confidentiality - Data Treatment

The Analysis Directorate maintains good links with policy colleagues to ensure that these statistics are understood and to prevent misuse. We regularly review our commentary and visualisations to ensure the data is presented in the best way possible.

12.3 Security

The team operate a secure environment for the storage of sensitive commercial data and other linked data. All data used in this bulletin is stored and managed securely on an internal SQL server.