The Efficiency Programme
158. The SDR settlement was based, it seems, on the
achievement of 3% a year cumulative efficiency improvements over
the four years to 2001-02. In our SDR inquiry we heard that this
amounted to about £500 million worth of new efficiency measures
to be found in each of those years.[391]
More specifically, the target for 1998-99 was £505 million,
and against that target the MoD have now told us that they achieved
£594 milliona 3.9% efficiency gain.[392]
The target for the current year is £525 million.[393]
159. There is, it seems to us, a fundamental implausibility
in the total efficiency claimed by the MoD over the years. In
our SDR inquiry, we heard how all the measures introduced since
1988 suggested a department operating nearly £5 billion more
efficiently than it was ten years before, and at the end of the
CSR period this would be well in excess of £6 billion per
annum. Taken at face value, we are being asked to accept that
without these efficiency improvements the MoD would need a budget
about 30% higher than it is today in order to deliver the same
level of output. It seems to us that a major weakness in the current
system is that as costs are cut in response to budget reductions,
the Department do not have sufficient information to be able to
demonstrate conclusively that defence outputs have not also diminishedin
other words that the MoD is simply doing less with less money.
The introduction of RAB will we hope bring improvements in this
area, with cost data linked to activities and then to outputs,
but this still remains some way off (paragraph 34).
160. In the meantime, we intend to explore further
the validity of the MoD's claims of improved efficiency. When
we examined the Department on its 1997-98 Performance Report in
April 1999, we obtained from them a list of a few of the measures
which would support their overall efficiency claims.[394]
The MoD told us that it does not collect detailed information
centrally on all efficiency measures (between 1200 and 1300 last
year),[395]
but for our more recent review of the 1998-99 Performance Report
we have been able to extract some additional details, including
the savings each Command contributes to the total.[396]
We have not had an opportunity to delve any further, but we have
signalled our intention[397]
that we will want to collect information on all of the
higher value efficiency measures claimed, and then to examine
more closely a selection of case studies. We cannot be expected
to believe the MoD's assurances that these measures are genuine
efficiency savings, and not cuts, until it produces this evidence.
A year-on-year programme of efficiency savings can have a debilitating
effect at all levels of command, and can be destructive to the
quality of life that will sustain retention in the Armed Forces.
161. Overall, we conclude that the condition of
the defence budget is sufficiently poor to give rise to serious
concern. The cumulative evidence of cancelled exercises, delayed
equipment programmes and of resources apparently insufficient
to reverse the problems of overstretch and undermanning suggest
that if the wheels have not yet come off the SDR, they are certainly
beginning to wobble alarmingly. The Department's finances should
be rebalanced in the current Spending Review. Commitments and
resources have to be brought back into line, or we risk finding
ourselves stumbling from one crisis to the next.
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