Examination of Witnesses (Questions 360
- 379)
WEDNESDAY 12 JANUARY 2000 (Morning)
MR COLIN
BALMER, MAJOR
GENERAL JOHN
KISZELY AND
MR TREVOR
WOOLLEY
360. They will be replaced presumably on the
same basis as the Paveway missiles as discussed but there will
be a cost?
(Mr Balmer) The missiles used in Kosovo will be replaced.
On Front Line Naval Forces, we have reduced frigates and destroyers
from 35 to 32, with three ships having been paid off. We are on
course to achieve the reduction in nuclear submarines by 2 and
we are on course to achieve the mine countermeasures vessels total.
That is an easy one to achieve because it was a planned increase
and we are simply not making all the increase.
361. What happens in relation to Spartan? There
were arguments about it being decommissioned half way through
its life and then having a refit. Did it have a partial refit?
(Mr Balmer) The conclusion was that—I am not
sure that partial refit is the technical term—it would not
be as full a refit as it would have been if it had been expected
to stay in service for longer, but it is still expected to stay
in service until 2006, and the refit will be enough to achieve
that. The judgment was that that would still be sufficient value
for money to proceed on that basis. The formation readiness cycle
we have described and the Sixth deployable brigades are scheduled
to form in 2000, in the current year, and go into the formation
training cycle in 2001. The Air Assault Brigade was launched with
some publicity in September, it still of course has not got its
Apache Long Bow Attack helicopters, they will be coming into service
over the next year or two, and again that is all on schedule.
As regards Germany, we have withdrawn one unit ahead of schedule—the
First Royal Tank Regiment—and that is forming the basis
of the new Joint Nuclear Biological and Chemical Defence Regiment
which has been established at RAF Honington and is on schedule.
The Eurofighter programme continues well and I am not aware of
any more significant slippage. There has been slippage to some
extent in that programme but the plan to have them in service
continues and there has been no significant slippage in that.
There are new capabilities described in paragraph 59, particularly
the Brimstone and Storm Shadow missile systems. Both those projects
are under contract and are proceeding. Front line numbers for
the RAF have now been reduced as planned in the Defence Review
and we have achieved all of those reductions, and the plan to
withdraw the RAF completely from Germany is on schedule to be
completed in 2002 when RAF Bruggen closes. More generally, some
of the joint forces which are not specified in here but were a
key feature of the Defence Review are all on schedule. Joint Force
2000, a combination of Royal Air Force and Royal Navy Sea Harriers,
is on target to form on 1st April. The new Helicopter Command
was formed on 1st October 1999, bringing together both the Army's
helicopters, the RAF's support helicopters and the Royal Marine
Commando helicopters, and the Attack helicopter will join that
when they are in service. As I have described, the joint NBC regiment
was formed on time. So at the moment all of those new organisations
have either arrived on time or are clearly scheduled to arrive
at the time we determined in the Defence Review.
362. Thank you for that. That is quite a good
picture but there are a couple of points arising from that which
I would like a bit of clarification on. You have talked about
some delays in the formation readiness cycle and the new formations,
could you tell us a bit more about that? How big is that delay?
(Mr Balmer) We are still on schedule, we think, to
achieve the formation of 12 Mechanised Brigade during this year
and into the cycle in 2001. I think the formation is some months
behind where the Army hoped it would be and that is partly because
a lot of the individuals who will help to form it and be experts
within it have inevitably been deployed through Kosovo, and the
Kosovo effect has been to slow down to some extent the rate at
which that brigade is forming and is available to move as a formed
organisation into the training cycle.
(Major General Kiszely) The cycle will be largely
in place by the end of 2001 but clearly it will be to some extent
disrupted depending on the level of operational commitments and
indeed the achievement of full manning.
363. It could slip further?
(Mr Balmer) There is some risk, particularly with
under-manning, but at the moment we are hoping not.
364. Can I come back to the Tomahawk and get
clarification on that because I am not sure about the answer you
gave? It was said we were going to buy these, the Secretary of
State announced we were going to buy these in a blaze of publicity,
and then a lot were used.
(Mr Balmer) Yes.
365. In view of the previous answer you gave
in relation to those Paveway bombs in Iraq, I am not quite sure
what arrangements there are for replacement, or what budgetary
policy is in place in relation to these Tomahawks.
(Mr Balmer) We have not yet announced in detail the
procurement timescale for replenishment, that is something we
are still in discussion with the Americans over. But at the point
at which we replenish and it costs us money to buy them, that
will be added to that year's claim against the reserve on the
Kosovo ticket.
Mr Blunt
366. Will that change with resource accounting
and budgeting?
(Mr Balmer) Resource accounting and budgeting will
only affect our budget for the first time in the year 2001-02.
That is the first year in which we will be looking for parliamentary
approval for an estimate. At that stage we will be seeking approval
for the resource consumption total, which would not include purchases
of new equipment because we would only be looking for depreciation
and consumption within that budget, but there will also be parliamentary
approval of a cash total for all defence expenditure which would
include the purchase of new equipment.
367. Your previous answers to me and the answers
about SLCMs suggest that you will only negotiate with the Treasury
on the basis of when you replace them and when the cash moves.
That will change of course because as soon as you have exploded
these things on the ground, they will come off your inventory
and therefore come off your list of assets.
(Mr Balmer) Yes, but at the moment we do not have
a resource—
368. So that is when the money moves in accounting
terms.
(Mr Balmer) In accounting terms we measure it in two
different ways. One is we measure it when the equipment is consumed,
either by depreciation of its life or by being fired off—
369. And resource accounting and budgeting will
change your relationship with the Treasury, will it not? You will
be able to negotiate with the Treasury now on SLCMs and on Paveway
bombs.
(Mr Balmer) But we will have two discussions with
the Treasury in the future. Rather than a single discussion about
cash flow, we will have a discussion about the resource assumption
number and we will have a discussion about the cash for buying
new equipment because that will still be a fact of life. It is
under that heading that we will be looking for additional cash
from the Treasury to cover things we have expended in things like
the Kosovo campaign.
Mr Cohen
370. You have mentioned a figure of up to 40
million could be minor when you were referring to Iraq and the
Paveway bombs, but we do not know how many Tomahawks were used
in Kosovo—it has not been made public anyway—but if
a lot were used then the replacement figure would be a big number,
would it not?
(Mr Balmer) Yes, individually these missiles cost
a lot of money.
371. That is not then a minor operation which
you would absorb, it would be something you would get direct Treasury
approval for and would that be made public, because that is a
big number?
(Mr Balmer) Kosovo is defined as a major operation
and we are having the extra cost reimbursed. We so far have not
declared the detailed make-up of some of those figures because
some of the replenishment totals will be a bit sensitive and this
is one of them. If we put in the public domain exactly how many
we fired in certain circumstances, that is information we would
not wish to disclose. So we will have to look quite hard at how
we present the figure-work at that stage. But in terms of my discussion
with the Treasury, the extra cost of replacing Tomahawk missiles
is something I would put on to the ticket to be paid for from
the reserve in the year in which we incur the expenditure.
372. One other point in relation to this, have
there been any one-off costs associated with this force restructuring
or any unexpected costs which have come about which perhaps we
should know about?
(Mr Balmer) There have clearly been quite a lot of
one-off costs of moving organisations between sites. For instance,
the creation of the joint NBC regiment at Honington has involved
moving people out and some refurbishment of the buildings, so
there are one-off costs attached to all of that. These were all
allowed for within our budget and will be so over the next year
or two. There are a lot of transition costs, if you like, still
to come through. The final withdrawals from Germany, for instance,
will still attract extra transition costs and we will cover those
in the budgets over the next couple of years.
Mr Colvin
373. Sale of assets—real estate first.
You have to find £700 million-worth of income from real estate
sales in SDR, and over the past five years the average has been
£135 million of receipts, which is very good, but this current
year the estimate is £251 million, which seems to be a very
large jump. How is that actually going to be achieved? Are you
on course to do it and what major assets have been sold to authorise
that money?
(Mr Balmer) We are on course to achieve this target.
It was an ambitious target we set ourselves. Over the four year
period, from 1998-99 to 2001-02, we expect to achieve £700
million-worth of receipts, and that was pretty well a doubling
of the previous programme, so it was ambitious but again the Defence
Estates Organisation, which has now been reformed into an agency,
feels it has the competence and the confidence to see those receipts
coming in. Last year, the target was £150 million and they
over-achieved it, they managed to get £168 million in. In
the current year, the target is actually £261 million which
we hope to achieve. It turns out that the one or two quite significant
components of that happen rather late in the year. Probably the
biggest single item is the sale of the Duke of Yorks' Headquarters
in Chelsea.
374. Does that not belong to the TA?
(Mr Balmer) No.
Mr Brazier: It has been their headquarters
for years.
Mr Colvin
375. Some of the TA's headquarters belong to
TA trusts.
(Mr Balmer) Some of them do but this is something
which the Ministry of Defence owns. We will be retaining a TA
presence on the site as part of the deal for some years. The sale
of the site will probably come in two tranches and the first major
payment which will be a very significant payment is scheduled
to happen in the middle of March, so if it goes smoothly the receipt
will arrive in time and we will achieve our target. If there is
any sort of delay, we will not achieve the target for income this
year, but we do not expect that to happen, things are going smoothly,
so currently we are confident that we will achieve the £261
million this year. There are three or four other quite big sales
happening this year. There is RAF Stanmore Park in Stanmore, Middlesex,
which is again tens of millions of pounds of income, as well as
things like the RAF Quedgeley site in Gloucestershire, the old
storage depot which is being disposed of, and that income is already
in. So there are quite a lot of big ticket items this year which
give us confidence we can achieve the £261 million.
376. And £700 million over the four year
period?
(Mr Balmer) Yes, because we had £168 million
last year and £260 million this year, so that is already
well over £400 million in two years, which is significantly
more than half way through the programme.
377. What about the Greater London Defence Estate
Study? Is that going to throw up any additional prospects for
sale?
(Mr Balmer) It could well do and that is its intention.
We have been looking hard at the big value items which tend to
be expensive sites in Greater London, so that is why that particular
study was launched. The work is still going on.
378. If the prices are coming in better than
estimated, will the Treasury let you keep the money?
(Mr Balmer) Yes.
379. What about the sale of other things like
DERA? DERA is meant to provide £250 million at the end of
the SDR three year cycle, but if you take the Committee's advice
and do not part-privatise DERA what happens? How do you fill that
gap?
(Mr Balmer) At the moment we are still considering
the Committee's advice.
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