Examination of Witnesses (Questions 380
- 399)
WEDNESDAY 12 JANUARY 2000 (Morning)
MR COLIN
BALMER, MAJOR
GENERAL JOHN
KISZELY AND
MR TREVOR
WOOLLEY
380. Good!
(Mr Balmer) In fact the Government's response is with
Ministers at the moment and I hope it will emerge any moment.
In fact, I had rather hoped it would emerge before this session,
but I am not sure it has! Clearly the Government's position is
that we will proceed with a PPP in some form, we have not yet
determined what that is, and we would expect the most likely outcome,
of which there are more than one, will indeed produce significant
income for the Exchequer. That money actually goes to the Treasury
because that is what happens with all major privatisations, which
is how this would score. The deal is that we would indeed be given
the first £250 million back to the defence budget.
381. How much did you receive for the sale of
the three frigates, HMS Beaver, Boxer and London?
(Mr Balmer) I have not got the figure to hand. It
is certainly the case that the market for major secondhand equipment
at the moment is significantly depressed and indeed the Defence
Sales Disposal Agency has missed some of its key targets this
year for precisely that reason; they are operating in quite a
difficult market place.
382. If we are going to have a note on that,
could we also have your estimate of what you might get from the
three countermeasure vessels which are going to be sold as well?
(Mr Balmer) I have not got a figure to hand but we
can let you have a note on that[8].
Chairman: We have some questions on the
efficiency programme and Mike Hancock and Crispin Blunt will ask
questions on that.
Mr Blunt
383. The efficiency programme is of some importance,
it is £2 billion cumulative over four years, is it not?
(Mr Balmer) Of that order, yes.
384. You say you scored £594 million-worth
of efficiency savings in 1998-99, if those savings are not on-going
and not replicated are those measures actually efficiency savings?
Does it actually mean that your target for each successive year
is going to be greater than £500 million?
(Mr Balmer) The first point is that if a measure is
a genuine efficiency measure it ought to be a permanent saving.
385. It should be a permanent saving. So if
it is not a permanent saving, it is not an efficiency saving?
(Mr Balmer) There are circumstances in which it might
be because it depends whether it is a saving against what you
otherwise expect to do. If you simply close some facility two
years earlier than you expected to close it but you still manage
to deliver the outputs, then for two years you are being more
efficient, but thereafter you are not saving any money because
you planned to save it anyway. So that is where you have a temporary
effect and these things can happen. But, generally speaking, most
of the measures we engage in in the efficiency programme, whether
relying on contractors to produce a different service or using
a private finance initiative deal, will be effectively permanent
because they will last over many years.
386. You will remember coming before the Committee
with the PUS, Mr Tebbit, on 10th February last year, and Mr Tebbit
gave us an undertaking when I put it to him about the transparency
with regards to efficiency savings. Having talked about asset
disposals as part of the transparency picture, I then said to
him, "And where you are achieving efficiency savings, that
is part of the transparency and that will be made clear?"
He said, "Indeed. The 3 per cent challenge on efficiency,
at the moment this year we will do rather better than that, we
think." I then said to him, "You will tell us not that
you have it, but how?" Mr Tebbit then went on to say, "And
where, in which budget area and that sort of thing." Then
when you came before us on 21st April 1999 you said to us, "We
certainly collect these measures centrally. We do not always collect
the details of the £12,000 ones, although I can quote some
examples. I am very happy to look to see whether we can give the
Committee a list that would be manageable and meaningful."
You stand by that?
(Mr Balmer) I remember those words.
387. Why have we had a list for 1998-99 which
consists of 36 measures out of 1,300?
(Mr Balmer) We have done two things. First of all,
as Mr Tebbit promised, we have given you lists by top level budget
area so you can see how the programme is spread around the different
areas, and we have given you those figures both for 1998-99 and
for the current year which is still a forecast in total. So that
gives you a feel for the sorts of areas in budgetary terms where
the programme is having its greatest effect. We then did look
at producing lists which would help both to understand the nature
of what we are doing and indeed to check, as I know you, Mr Blunt,
will want to do, that we are genuinely driving efficiency here
and not just having arbitrary cuts, and we have tried to provide
a list to do that. I suspect the list, you are right, is a bit
short at this stage and we could probably do better, but I do
come back to the point that the big ticket items tend to be quite
few and far between. To find £500 million or so of measures
spread across over a thousand measures means that each one is
worth quite a small amount of money.
388. £400,000, of that order.
(Mr Balmer) Of that order. On average they are worth
slightly less probably.
389. But the issue there is critically whether
it is an efficiency saving or whether it is a cut, and the £2
billion saving may turn out to be a cut particularly to the quality
of life of servicemen and their families when they are implemented
down at the base level budget holder level, the bottom level,
and will actually turn out to have a seriously deleterious effect
on SDR and the sustainability of our armed forces. So would you
agree that it is very important that there is visibility of the
type of measures which are being taken and their potential effect
on the armed services?
(Mr Balmer) Indeed I would, which is why for the larger
ticket items which could have that more significant effect we
collect those centrally and we have shared, as I say, I hope the
more meaningful ones with the Committee. We can continue to look
at the lists and see if there are more examples we could offer
you. I still hold by my proposition that to comb through over
a thousand of these measures would not necessarily give either
the Committee or us in the centre of the Ministry of Defence any
particularly additional useful information, which is why we do
not collect the details at that level. We give guidance to our
budget holders, we tell them what the rules are, they have no
interest in implementing measures which will have the deleterious
effects you describe, and that is not something they would want
to do.
390. They may not have any alternative because
they are told they have to find a target which is an average of
3 per cent—as explained in the memorandum—but those
targets are assessed centrally and they then have to find that
amount of money. Obviously if any budget holder fails to find
his target, that is not going to reflect very well on his personnel
report, is it?
(Mr Balmer) But the way in which the target has been
set has deliberately not involved an arbitrary assumption that
any given budget area can save 2 per cent, 3 per cent or 4 per
cent. We rely on the budgetary areas to report what they think
they can achieve. Certainly looking at next year, at the moment
we do not have measures which add up to 3 per cent of the total,
we have not yet identified all those measures, but we are waiting
for the budget holders concerned to continue their search and
to report. If we got to the stage where they reported below the
level of 3 per cent, then we might have to think about a harsher
regime to go out and put pressure on people, but so far we have
not yet felt obliged to set arbitrary targets to budget holders.
391. How much visibility do you have on these
measures?
(Mr Balmer) On all the measures—
392. In the Department.
(Mr Balmer) In the centre of the Department we do
not have visibility of the many hundreds very small measures,
we get visibility of the more significant ones.
393. Which are?
(Mr Balmer) Which are the sort of measures we have
reported to the Committee and some more. Mr Woolley may be able
to help us by giving some more details of the sort of measures
we are continuing to collate in the centre.
394. You told us in April, "We certainly
collect these measures centrally". What does that mean?
(Mr Balmer) The budget holders report in the totals
they have achieved and they have to report against a series of
headings which are actually laid down by the Cabinet Office of
the types of measures adopted, whether it is a manpower saving
or whether it is the result of a market testing exercise or whether
it is a reorganisation. So we collect measures against those headings.
Then we separately collect the more significant items as descriptions
of items themselves. What we do not have is a single central data
base with every measure listed with its detailed description.
Mr Hancock
395. But it does not go anywhere, does it? You
only have to look at the sheet here. For example, one of the ones
you did give us was "Following the cessation of operations
there, RAF Ash was closed leading to savings of over 2 million."
The decision to stop RAF flights from Ash was not simply because
a target was given to them to reduce expenditure, was it?
(Mr Balmer) Indeed not. This was a decision which
enables the RAF to be more efficient in aggregate and therefore
scores against its programme. It will indeed save us money without
affecting our outputs or the quality of life.
396. Where else does that appear? Where else
does the closure of RAF Ash appear in the defence budget saving
heading, as it were? Is the only place it appears here?
(Mr Balmer) This is the only place we probably reported
it publicly, although there may well have been some local publicity
at the time of closure.
397. But is it a proper efficiency saving that
that budget holder offered up, when the decision to close it to
save that money was taken long before he was given the target
to save that amount of money?
(Mr Balmer) There will be examples of that sort where
a budget holder strikes lucky, if you like, that someone has taken
a decision which enables him to be more efficient.
398. But he has not made the saving.
(Mr Balmer) Yes, he has.
399. No, he has not. He has made the saving
because a decision was made to close something in advance of you
giving him the instruction to save money.
(Mr Balmer) But he has still saved the money and therefore—
8 See p. 203. Back
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