Examination of Witnesses (Questions 400
- 419)
WEDNESDAY 12 JANUARY 2000 (Morning)
MR COLIN
BALMER, MAJOR
GENERAL JOHN
KISZELY AND
MR TREVOR
WOOLLEY
400. Why did you not take that into account
beforehand? Knowing you were going to close this place, you knew
you were not going to spend that money.
(Mr Balmer) We do both. The list of efficiency savings
is savings which have been achieved on the efficiency ticket.
We also have to give people budgets and those budgets will indeed
reflect things we know, or have decided, will happen. So if a
station is due to close, of course we do not give people a budget
for that station because they do not need it any more.
401. So how can you offer that as an efficiency
saving?
(Mr Balmer) Because the RAF is still delivering the
outputs required of it at less cost.
402. I feel there is a lot of issues there in
the way this is done. This is a very selective list, is it not,
out of the 1,200? As you rightly say, we could be easily side-tracked
for a month looking at them, but somebody must be looking at the
effects of what is happening. I led a large local authority with
a billion and a half budget, 55,000 staff, and the easiest thing
for me to do at budget time was to say, "Each department
will make a 5 per cent cut. Go away and do it." The last
thing I wanted to know was the consequences, all I wanted to know
was that the bottom line was a 5 per cent saving. I fear that
is the case here. I want to know who it is who looks into the
operational effects of what is being asked for someone to save
here. Where do they go if they do not want to make that saving?
Who makes those judgments? You have said there are guidelines,
can we have those guidelines?
(Mr Balmer) I am sure you can, we will need to look
at the instruction which went out internally which guides people
as to what is efficiency and what is not efficiency, and why they
must look for efficiency measures and not simply for cuts. Building
on your example of issuing an instruction which said, "Cut
by 5 per cent and do not tell me the consequences", that
is not what we are doing here. We are saying to people, "You
must find ways of being more efficient, report to us those you
have found both in financial terms and for the more significant
measures how you have done it." But it is for the budget
holder concerned, the commander of the station wherever it may
be, to judge how best to continue to deliver the output that is
necessary at less cost. It is not an arbitrary cut in the budget,
we do not arbitrarily cut the budget in anticipation of an efficiency
measure at local level. We aim for that at aggregate level but
not at local level.
403. I am interested in what people are saying
to staff because when we spoke to pilots who were, some of them,
delivering live loads for the first time in an operational situation,
and they came into some difficulty over that, they were telling
us that the problem was that they very seldom if ever had the
opportunity to do this in training because of the cost involved
in dropping a live weapon. If that is offered up as an efficiency
saving, it is not an efficiency saving, if you are giving instructions
to people that they can only fire so many shells per year, or
drop so many live ordnances from a plane. You say here, "A
reassessment of Sky Flash rocket motor stocks by the RAF ....",
what does that mean? Does it mean they did not use them? How do
we know they are any good if they do not get used? How do we know
if the people know they are doing it properly if they do not get
a chance to use them? Efficiency savings can sometimes end up
costing more and in the case of defence they can end up costing
people's lives.
(Mr Balmer) I would not attempt to pretend that every
judgment that is made about efficiency is a perfect judgment.
On the examples you are touching on, things like the Sky Flash
rocket motor stocks, someone has taken a judgment, a responsible
judgment, not under pressure that says, "You will cut these
things and call it efficiency" but under pressure which says,
"Can you find a way of operating with fewer in total and
yet still have enough available to sustain the operational environment?"
That is a judgment someone has reached. They have found a way
of having a smaller pool which needs less maintenance, less storage
capacity and so on, and therefore saves money. That is the judgment
someone has made.
Mr Blunt
404. Can we go down the list of efficiency measures
and examine some of them because these are the only ones you have
made public. There are, in fact, 35 not 36 because one appears
twice in your list. Perhaps we could go down and see whether they
are efficiency savings or not. In the one you produced to us on
26 April following your session with us on 21 April you said that
price negotiations on the NATO Eurofighter and the Tornado Management
Agency's Tri-national NATO audit have achieved savings of just
under £1.7 million in 1998/99. Is that an efficiency saving
or is that an economy?
(Mr Balmer) Clearly the judgment of those doing the
negotiation is that compared to what they expected to have to
spend they are able to achieve the same outputs at less cost so
that is efficiency.
405. But is that going to recur in the following
year?
(Mr Balmer) Compared to what they expected to spend,
yes, that one should carry on.
406. The just under £1.7 million in 1998/99
is going to go on recurring year on year on that measure?
(Mr Balmer) I would expect it to on that measure by
the sound of it.
407. When you are able to talk to your officials
afterwards can you confirm whether that is the case or not?[9]
(Mr Balmer) Yes.
408. Equally in the measure listed above that
price negotiations on Tornado UK national contracts is down here
to produce a saving of £5 million over five years. That is
presumably £1 million a year for each of the next five years.
That equally is not a recurring measure, is it, because it obviously
comes to an end.
(Mr Balmer) If it comes to an end by definition it
does not recur thereafter.
409. So these price re-negotiations probably
should not be scored as efficiency savings, should they?
(Mr Balmer) I think they are efficiency savings because
it is continuing to deliver the output required at less cost.
If it is for a limited period, as I described earlier, it is still
more efficient for that period. We can no longer score the saving
thereafter if we are no longer achieving the saving but for the
period we are achieving the saving that is a more efficient way
of doing business.
(Mr Woolley) I think the limitation on the period
in that case is the duration of the contract to which it refers.
My understanding is that this is a spares contract and the period
of the spares contract is over five years and a new spares contract
is going to save £5 million over that five-year period compared
with the old spares contract. The issue then would be beyond that
period when the contract was renewed again and there was to be
a further saving whether it was to be at the same level in which
case it would be an infinitely enduring saving or whether for
whatever reason the contract proved to increase the current saving.
410. If these savings are not on-going there
is an enormous challenge. It obviously means that you are not
trying to find £500 million a year, you are trying to find
6, 7 or 8, or whatever, to make up the proportion that is not
on-going.
(Mr Balmer) Indeed.
411. I was rather puzzled by one of the more
substantial savings, the drawdown of RAF Bruggen and RAF Laarbruch.
I seem to recall that we announced the closure of RAF Bruggen
or Laarbruch in the Defence Cost Study and scored the savings
then .
(Mr Woolley) We did but these are savings that occur
year on year. The savings we are scoring are what are we spending
this year on that activity as compared with what we spent last
year on that activity.
Mr Blunt: If it was scored in 1994 as
part of Frontline First it obviously cannot be scored again.
Mr Brazier
412. Absolutely.
(Mr Woolley) It cannot be scored as a saving to the
defence budget in as much as if the money has been taken out of
the defence programme and therefore out of the defence budget
then indeed if the underlying defence budget has been reduced
for that year as a consequence of that saving you cannot say there
is an additional saving to be had against the defence budget.
However, there is not an immediate connection in all cases between
efficiency measures and the size of the defence budget because
the amount that we are saving through efficiency in a year exceeds
the amount by which the defence budget is reducing efficiency
each year. That reflects the fact that some of the efficiency
savings may have to be recycled to reinvest. It may reflect the
fact that the reduction in the defence budget has already been
taken for the sorts of reasons you suggest. In terms of RAF Laarbruch
what we are saying is that in 1998/99 we are spending less money
on producing a given level of RAF operational output than we were
the previous year and therefore an efficiency saving can be scored.
(Mr Balmer) We would not have scored it in the Defence
Cost Study because the Defence Cost Study targeted savings in
particular years. You are quite right that Laarbruch was announced
as a decision then but we could not score the savings then because
we did not make them. We are making the saving in 1998/99 so we
can therefore score it then.
Mr Blunt
413. No you cannot because the announcement
to cut the defence budget by £750 million in the expenditure
statement in 1993 which included this measure over RAF Bruggen
or Laarbruch, whichever went first, was part of Frontline First,
a way of finding over a billion pounds worth of on-going savings
by the end of the three-year implementation period which then
was secured against that £750 billion budget and the £250
million reinvestment in the frontline.
(Mr Balmer) It cannot have been scored against the
£750 million because it was not saved then. Until last year
we were still spending money on RAF Laarbruch so the savings could
not begin until last year.
Mr Blunt: Since this is the biggest ticket
item on the list you have given us you might give us a full note
to explain how this figure of £30 million sits against the
Defence Cost Study.
Chairman: I would put it a little further
than that. Because people are a little sceptical I think it might
be a good idea if you would set out again if necessary the ground
rules and, secondly, we will pick half a dozen and ask you to
give us in much more detail the extent to which the ones we have
chosen, which we prefer to choose ourselves for obvious reasons
and we will try to be representative in our choice, either in
private or in public and where you can genuinely show it was an
efficiency saving and not a sleight-of-hand.
Mr Brazier
414. Just a very quick echo because I think
that is an excellent way of handling it and I want to pick up
Mr Blunt's first point. This is a very, very odd list. It is not
only a very short list and not only comes to less than ten per
cent of the total but as a former statistician I cannot help picking
out the fact that the individual totals for the projects do not
make any kind of sense. We have established the average, not the
median but the mean, must be round about £400,000 per project.
You have got several on this list well that are below £400,000
including one that is only £170,000. One's instinctive feeling
is that you have picked out the 22 least embarrassing projects.
(Mr Woolley) We have got some that are considerably
in excess. We have tried to give a representative sample.
415. In what way representative?
(Mr Woolley) Representative in terms of the value
of individual measures, representative in terms of the different
parts of the defence budget in which these are scored, and representative
as between the three Services.
416. If you can give us a description of one
for as little as £170,000 you could at least give us a description
of all of those for more than 400,000 surely?
(Mr Balmer) We can certainly offer, as we have done
before, to provide the Committee with more detailed examples.
I am very happy, Chairman, as you have suggested for you then
to select items from that list.
Chairman
417. Why not the full list? Would that be too
difficult?
(Mr Balmer) As I explained, we do not have available
the full list centrally.
Mr Blunt
418. You obviously have quite a large list because
people supply it to you. This is about transparency and this Committee
being able to make a judgment as to whether these efficiency savings
are either efficiency savings or cuts and since the MoD is carrying
£5 billion worth of efficiency savings since the programme
started in 1988 there are a lot of us who believe these are more
likely to be cuts than efficiency savings because you have been
to the well so often that it is starting to run dry. This is a
£2 billion programme to enable the SDR to happen. I really
think you should be able supply the Committee with all the measures
that have been detailed and supplied to you. It is a paper transfer
of information. The PUS has told us that it would be a transparent
exercise and one that is proper in the public interest for this
Committee to be able to make a judgment on as to whether these
are efficiency savings or cuts.
(Mr Balmer) I understand absolutely the concern being
expressed and the desire to understand the detail. What I have
tried to say is that the information we have collected centrally
so far does not produce all 1,300 measures in detail. It tells
us the type of activity that is being scored either by budget
area or type of measure adopted. It will involve us in a significant
extra piece of work to go out to budget holders to ask them to
recall all the 1,300 in sufficient detail to describe the measure
and describe the sum of money. I am reluctant to engage in that
exercise in its entirety. What I think we will certainly undertake
to do is to look at all the information we have centrally to see
the extent to which that would be helpful and will give the Committee
a fuller list, a longer list, a more representative list of the
big ticket items. If the conclusion of that exercise is that it
still is not sufficient of a sample to give you confidence, then
we will have to think about whether we have a major exercise to
collect more information. I am not saying we cannot do that but
I am reluctant to do that at the moment with hard-pressed budgeting
staff.
419. But surely you in the centre should be
making the same judgment about whether or not these are really
efficiency savings or whether they are cuts? You must therefore
be gathering sufficient information to enable you to make that
judgment. If you are not it clearly means you wish to be blind
to the process like Mr Hancock wished to be blind to the process
in his local authority area to expect his top level budget holders
in the equivalent system to deliver the cuts. Surely you have
enough information to make that judgment and that information
is held centrally and surely it can be given to this Committee?
(Mr Balmer) The judgment that we make centrally is
first that we trust our budget holders to do what they are told
to do. They are 11 extremely senior people. Most of them are full
admirals, generals and air chief marshals. One or two are civil
servants. Under them are disciplined, responsible civil servants
and officers. If they are required to take some decisions on their
own authority I expect them to do it properly. That is why I do
not feel it necessary to call in all that they have done and check
it.
9 Note by witness: the £1.7 million is
an on-going efficiency and is expected to occur year on year.
However, the £1.7 million is the total for the tri-nations
involved; the UK share is approximately 47 per cent. Back
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