| Previous Section | Index | Home Page |
7.51 pm
Mr. Robert Key (Salisbury): This has been one of those rare non-partisan debates in the House of Commons, and I hope that the Government will agree to the proposition advanced by my hon. Friend the Member for Macclesfield (Mr. Winterton), which has enjoyed wide support around the Chamber. It would be a milestone if that could be achieved.
The Bill will affect all our constituents. I should like to break with the tradition of the speeches made so far and deliver a constituency speech. I want to describe how the Bill will affect my constituents, and to set out what worries me about it. If some criticism of a certain Department should creep into my remarks, I hope that it will be taken in the spirit that I intend.
By far the largest employer in my constituency is the Ministry of Defence. It employs well over 11,000 people there: about half are scientific or industrial civil servants, and the other half are uniformed members of Her Majesty's forces. The Army's Land Command headquarters is in my constituency. The Land Command--the biggest budget holder in the Army--is responsible for implementing the strategic defence review as it affects the Army. It is also responsible for all Army training and therefore for the management of thousands of acres of training ranges. The Defence Estates organisation is responsible for ensuring that the ranges are usable throughout the year.
The whole of the Salisbury Plain training area, which is run from West Down camp at Tilshead, falls within my constituency. The Royal Regiment of Artillery is based at Larkhill, and its procurement processes cover shells, artillery and transport. The nuclear, biological and chemical defence establishment at Winterbourne Gunner is responsible for all the nuclear, biological and chemical training for all three services. The Defence Evaluationand Research Agency has two crucially important establishments in my area--the defence evaluation and testing organisation at Boscombe Down, and the chemical and biological defence establishment at Porton Down. In addition, there is the Territorial Army base at Old Sarum, with which there is also the Royal Gloucestershire, Berkshire and Wiltshire regiment and B Squadron of the Wiltshire Yeomanry. There is also the large and thriving Sea Cadet branch in Harnham--
Mr. Deputy Speaker:
Order. The hon. Gentleman seems well endowed with armed forces in his constituency, but I suggest that that is not what the Bill is all about. He should move on to the Second Reading debate.
Mr. Key:
I am grateful for your confirmation that I have succeeded in making my point, Mr. Deputy Speaker.
It is now three and half years since we had any defence estimates. The 1996 defence estimates were the last to be produced by the Ministry of Defence. Since then, there has been no proper basis for scrutiny by the House of the estimates of the Ministry of Defence. There has been no proper budget scrutiny of any aspect of how that Department spends £22 billion of taxpayers' money.
The Ministry of Defence has had good reason to claim that the manpower needs of producing such estimates are a problem. Not only has it had to cope with the strategic defence review and the comprehensive spending review, but it has also been to war and had problems of overstretch and increased commitments in all three forces to contend with.
The Bill's proposals to introduce resource accounting with five major statements are very welcome. The statement of outturn will show actual outturn against the estimate, while the statement of operating costs will be analogous to the profit and loss report in company accounts. There will be statements about the balance sheet and the cash flow, and there will also be a statement relating costs to objectives. As a consequence of all that, the budget of the Ministry of Defence will increase from £22 billion to £66 billion. That represents a remarkable impact.
Mr. Letwin:
My hon. Friend has said something so astonishing that I hope that he will repeat it. Is he really saying that the total budget outturn of the Ministry of Defence will be closer to £66 billion than £22 billion because of depreciation?
Mr. Key:
It will be quicker if my hon. Friend waits until I get to that point in my speech. He knows the problems caused by fumbling through papers, and he has the advantage of the Dispatch Box.
In the previous Parliament, the Select Committee on the Treasury reported on the resource accounting principle. It drew the House's attention to the particular problems of the Ministry of Defence. It stated that each Department would have only one parliamentary Vote, whereas the Ministry of Defence at present has four; that Departments would be able to produce shadow or illustrative resource- based expenditure plans from 1998, even though the full system would not be introduced until 2001; that information on what had been achieved with Ministry of Defence spending--that is, the outputs--and how that compared with expectations--that is, the performance--would be available several months earlier each year than the current departmental reports; and that the documents submitted to the House for financial approval should contain plans and targets for what the spending would achieve.
I was a member of the Select Committee on Defence which reported in the 1996-97 Session that we expected to consider the shadow resource budgets in the next Parliament. We recommended that the Ministry of Defence should publish shadow resource-based estimates in 1998 and every year thereafter. Sadly, that is not going to happen. I regret that very much.
When the proposal was first brought to the attention of the House in 1994 by the then Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the Ministry of Defence immediately went into overdrive. I want to congratulate all the officials in
that Ministry who have worked so hard over the years. An astonishing number of staff have been through a massive training exercise in accounting to prepare for what is a substantial task. However, it was clear by 1996 that there were huge problems to be tackled. I regret that the shadow departmental resource account for 1998-99 will not be published. That is an error, as publication would have been helpful for everyone.
The Ministry of Defence has another problem, and I hope that the Economic Secretary will offer some help on it. The resource accounting manual states:
Eurofighter will be obsolete in 20 or 30 years' time, of course, but it is only a platform for the weapons systems and electronic systems that will be mounted on it. How will all that be accounted for under the new systems? It is clear neither from the Bill nor from the resource accounting manual how such massive changes in the value of assets, which theoretically change the financial viability of the Ministry, should be treated.
There is a huge problem with the valuation of intellectual property rights under the new system. It may be said that the answer is simply the market value of IP rights, but if there is no market value because rights are not for sale, but are secret defence systems obtained on particular terms involving intelligence from the United States, how will intellectual property be valued? How can we value the assets of an establishment such as Porton Down chemical and biological defence?
How do we value deterrence? We have moved away from the cold war, and we must ask from where come the massive new threats facing our country. How can we account for those threats? The defence budget is decreasing. Last week, the French also announced that their defence budget would decrease. Some of the money that the Treasury will regain from defence comes from rationalisation and management of the defence estate, but the Ministry has problems regarding historic buildings or large military bases in the middle of nowhere that have married quarters that could be sold but for the fact that no one wants to live in such remote places. How can we judge their market value? I should be grateful for guidance on that huge problem.
We have had precious little guidance on the sums faced by the Ministry of Defence. In the Ministry's 1997-98 performance report, there were just five lines on resource accounting, under the heading "Project CAPITAL" at paragraph 804. "Modernising Defence", the annual report of defence activity for 1998-99 contains five lines of text, three pie charts, one bar chart and a table. None of it is helpful if one is trying to fathom what is being attempted.
However, I can now answer the question posed by my hon. Friend the Member for West Dorset, because that report states:
The strategic defence review contained five lines of financial text and a pie chart. I thought that the comprehensive spending review would surely let me know what was going on and how the House could scrutinise the Ministry's budget, but it contains even less financial information than the SDR document did.
We should have received a White Paper on defence estimates that would have enabled us to discuss the Bill more satisfactorily. Such a White Paper was promised for last summer. It would still have been three years since the previous one. We were later promised that the White Paper would be produced before Christmas, but it will not be. The traditional two-day defence debate is being slipped into the new year because it cannot be held until the Government have received the report of the Select Committee on Defence on the estimates, which will not be published until early next year. I regret that matters have slipped further and further back.
My final point bears on the accounting that the Bill introduces. Today, the Defence Committee's report on the OCCAR convention was published. OCCAR is the organisation for joint armament co-operation, which was established in November 1996. The acronym stands for the French title, the organisation conjointe de cooperation en matiere d'armaments, but OCCAR is shorter.
The report points out the difficulty of achieving resource accounting--any accounting--if we stray across joint procurement with other Governments who use completely different systems. The juste retour system has operated previously, meaning a carve-up between the Governments who put money into a project. I am glad that that system is being abandoned, but no satisfactory accounting procedure has been produced under the OCCAR convention that would match the system proposed in the Bill. The Government must address that point.
If we are to move towards having a European aerospace and defence company or joint Government procurement projects--the common new generation frigate system that was recently cancelled is an example of where we are not going--we must ensure proper scrutiny and accountability of extra-territorial systems. There will be more co-operation, and, in defence, that means Government- to-Government deals, rather than deals involving the private sector, but I see no mention in the Bill of such systems of scrutiny.
"The normal basis of valuation may not be appropriate if a modern substitute is markedly different in its cost, life or output, or where technological advances have resulted in likely replacements having significantly improved quality or quantity of outputs. Under such circumstances, it will be necessary to undertake a 'modern equivalent asset' calculation to arrive at a replacement cost for the asset."
I am not an accountant, but I understand that that is a perfectly acceptable accounting principle. The problem with the assets of the Ministry of Defence is that modern substitutes for many items of equipment have the potential to vary enormously in nature and costs, depending on the defence needs of the country at the time and on the military capabilities of potential aggressors. In other words, a hugely expensive equipment programme costing many billions of pounds may be rendered obsolete.
"From next year, the £22 billion cash budget of the Ministry of Defence will be calculated in a different way, bringing us into line with the best accounting practices of the business world. In preparation for this we have, for the first time, assessed the value of our assets--£66 billion. We will now be able to identify the full (rather than just cash) cost of what we do, a great step forward in helping us to manage our resources more effectively."
The figure of £66 billion is the value of assets, not the increase in defence budget. Would that it were the latter.
| Next Section
| Index | Home Page |