Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 200 - 219)



Dr Lewis

  200. Our own Joint Rapid Reaction Force is presumably our major tool for dealing with the shift towards an expeditionary strategy. In your performance report, you conceded that the achievement of its full operational capability has been delayed "due to exceptional level of operational commitments", but in the Defence Policy 2001 document that we have just seen today it says "there is no sign that operational demands are likely to diminish". In other words, presumably we are going to stay at this exceptional level of commitment for some time. Does the slippage in this target for the operational capability of the Joint Rapid Reaction Force not suggest to you that the MoD is operating too close to the margins in being able to generate deployable forces?
  (Mr Hoon) It is undoubtedly a risk. I accepted almost all of what you said until your very final observation because, clearly, we have to maintain an appropriate balance between training, exercising, preparation for operations and conducting operations but, as I think I have said to the Committee before, there is no point in having training and exercising if we are not in a position to use the armed forces who are trained and exercised. The reality is, and the explanation is given in the report, that we have not been able to move quite as quickly as we would have liked in relation to the Joint Rapid Reaction Force simply because of Kosovo and, to a lesser extent, Sierra Leone, because we are achieving with the capability that we have. Now I accept that there is a need for careful judgment about the extent to which we commit ourselves to operations and, therefore, run the risk of neglecting appropriate training and exercising and I assure you the Chiefs of Staff are very conscious about that and give me regular advice on that, but I am equally confident at the moment that we have the balance right but we continue to address this very carefully.

  201. You have pointed out repeatedly in written answers to written questions of mine that the proposed new European Rapid Reaction Force is not a standing force and, therefore, would call on contingency forces from the contributing countries. Presumably the type of forces that would be called on for some sort of operation involving the European Rapid Reaction Force would be precisely the same as those that we are hoping to allocate to our own Joint Rapid Reaction Force. What would the effect then be on reaching our targets with the Joint Rapid Reaction Force if we found that a problem arose where we wanted to deploy forces under that label but that we did not have the forces to deploy because they had been drawn away for the European Rapid Reaction Force?
  (Mr Hoon) I have equally made clear to you on a number of occasions, both in answer to written questions and at question time in Parliament, that we only have one set of armed forces and we can only use that on a single occasion, if they were all to be deployed. I have made it clear that, in relation to specific decisions about the deployment of British forces, that decision would ultimately be taken by the British Prime Minister in the light of the degree of commitment that we had at the time. That, really, is a complete answer to your question because the labels that we give to the organisations will depend on particular circumstances, and I would invite you to be a little more flexible in your imagination because what we are doing are designating capabilities. Having designated a capability, we are not putting that capability in a corner and saying, "That is what that particular group of the armed forces will be doing". That applies equally well to the JRRF where we are looking at developing a pool of capability from which we would draw for particular operations but it is the way in which that capability is used that is important, and that applies equally well to the headline goal and whatever forces might conceivably be used by the European Union in the event of NATO not being engaged.

   Dr Lewis: I only wish I could restrain my imagination when I come to consider the disastrous scenarios that could come out of the European Rapid Reaction Force, but I will just content myself with this: in trying to assess the competing priorities which could arise between demands made on what we hope will be a standing Joint Rapid Reaction Force of our own and demands made indirectly on those same forces by this commitment to second forces to a European Rapid Reaction Force, would the reconciling of those competing demands not have been a lot easier if the European aspect had been kept within the NATO structure and not placed outside it?


  202. You will have ample opportunity to answer the same question on 7 March so could you just be brief and give a more complete answer when he asks it next time you come—and the time after, and the time after!
  (Mr Hoon) I think that it would help enormously to put on one side this word "standing", because that is the key to the difficulty in imagination that I think you have. We are not training people to stand waiting for operations. We have a range of people available at different levels of notice with different abilities to do particular jobs and, providing they are trained for that purpose, then they do not have to be put in a box in a corner marked "Do not open until we need it". They are busy all the time and what we are doing is developing a capability, which can then be used. If we do not train for it, we cannot use it but, as I said to you, it can only be used once and we would have to make an appropriate judgment—as we do day in day out—about the resources we have available to satisfy particular tasks whether they are NATO tasks, European Union tasks, United Nations tasks or, frankly, notwithstanding all of the assessments we have made, whether one day there is a direct threat to the territory of the UK. We have to have that flexibility and part of what we are training for is to have that flexibility available to the United Kingdom.

  203. Thank you for taking along two of our colleagues with you when you went to Sierra Leone; I am sure it was a very interesting experience. Turning to another group of malevolent people the Treasury, how has the Treasury setting of public service agreement targets sharpened your performance management? I am not comparing the Revolutionary United Front with the Treasury—it would be a bit unfair on the RUF in some respects!
  (Mr Hoon) Can I say in the first place that obviously the setting of targets has been important right across government, but I think it is right to say that government as a whole recognises that perhaps we should not have too many targets for each department and there has been a determined effort to focus on key elements. As far as defence is concerned, the performance targets have been built on in the light of achievements that we wanted in any event and, therefore, in a sense it is early days yet—we have just been discussing the Joint Rapid Reaction Force—to see whether there will be a close correlation between the setting of those targets and our ability to achieve them within appropriate timescales. Reducing the number of targets for government is sensible because it does allow departments to concentrate on what is important rather than satisfying a whole range of different targets.

  204. Will that put the relationship between the Treasury and the MoD on a slightly different basis? Will the Treasury adopt a more arm's length approach generally, or just in one area of setting for public service agreements?
  (Mr Hoon) The targets are set after negotiation and discussion with individual departments and clearly we emphasise to the Treasury and government in a wider sense the importance of setting realistic and achievable targets that are consistent with the overall direction of policy for the Ministry of Defence. These are not targets that appear from out of the ether: they are targets that are discussed vigorously between government departments.

  205. The Treasury and Civil Service Committee in its report was recently critical of the overbearing influence of the Treasury on government departments. Would you share that view?
  (Mr Hoon) No, I would not and certainly not as far as the Ministry of Defence is concerned.

  206. You believe that?
  (Mr Hoon) I am absolutely confident; I think you would have to show some basis for your proposition. Clearly the Treasury, quite rightly, takes a close interest in the amount of money available to the Ministry of Defence; I am delighted to say that they took sufficient interest to recognise that there should be more money available to defence over the next three years, and I am delighted about that. They clearly take an interest in major policy decisions that are taken by all government departments but I have no sense that the Treasury in any way interferes in the decisions taken by the Ministry of Defence.
  (Mr Tebbit) I would only add that the Treasury are sincerely trying to move to a more strategic way of managing their relationships with departments, and these public service agreements are a manifestation of that and they are in negotiation between Treasury and Department, which was doing it anyway. Our Strategic Defence Review made it much easier for us to have key targets that we were doing anyway; basically that is how they have been articulated. I would also say, however, we do spend £25-23 million a year; we have an asset base of £67 billion and it is right for us to be under pressure and for us to have that pressure that we transfer to our own staff to use our money as efficiently and effectively as we possibly can and, to the extent that the Treasury might be regarded as overbearing, I am also overbearing on the department as the accounting officer in making sure we spend money wisely. Prioritisation and efficiency is terribly important in the Ministry of Defence; the public expects it. So I do not mind when the Treasury sometimes interferes.

  207. They are not trying to second-guess you or instruct you on policy?
  (Mr Tebbit) There is less micro-management. On policies, these are for the Secretary of State.
  (Mr Hoon) I have no sense of being interfered with.

   Chairman: I think we had better move on!

Mr Cann

  208. We understood when smart procurement was introduced, which we all agree with, that we were going to make a £2 billion saving in defence equipment. It now appears that most of the savings—maybe all, I do not know—will be made by just shifting back into another timeframe. I would call that either a cut or a slippage. Which would you call it?
  (Mr Hoon) It is simply not true. Could I emphasise that the biggest problem we face in managing resources today is the result of the success of smart procurement because in the past it is undoubtedly right to say that one of the ways in which the Ministry of Defence has managed its year-on-year account is by being able to slip payments into the next year, simply because industry was not in a position to be able to deliver on what it had said it would deliver. Smart procurement now means that, in fact, industry is delivering to time and, therefore, understandably expects to be paid. That ability, therefore, that was once exploited by successive permanent under-secretaries in managing accounts from year to year is much less available. I am determined it should remain so, because it does underpin the confidence that both the department and industry have in the success of smart procurement.

  209. But your memorandum dated 14 September 2000, paragraph 8.3, talks of removing from projected project costings £2 billion which was otherwise planned to be incurred over the next ten years?
  (Mr Hoon) But that is precisely because we are able to make savings in the process. One of the consequences of delays in equipment being available is that the cost tends to rise, so the earlier you take delivery, generally speaking, the lower the cost and that is the way in which, in part at any rate, we have been able to identify the £2 billion savings. There are other ways as well because the teamwork in process means that the teams have been able to identify savings in the through-life cost of the equipment. Again, in parenthesis, that is why we tend now to talk about "smart acquisition" rather than "smart procurement" because one of the areas we can make significant savings is in the way in which we utilise the equipment once it has been procured. So the £2 billion is a real, net saving over that ten year period of amounts that we would otherwise have had to spend had we not adopted this different process.

  210. So could Mr Tebbit produce us, then, a list of where the £2 billion savings have come from?
  (Mr Tebbit) No, I cannot. The reason I will not do it is not because I am trying to be devious but because ministers still have to take decisions on a large number of those projects because it is a ten-year period.

  211. So we have not made the savings?
  (Mr Tebbit) No, these are plans. I as an official have to plan a defence programme over ten years.
  (Mr Hoon) And longer.
  (Mr Tebbit) But that £2 billion is the net change to the cost of projects over ten years—not by just shifting it to 15 years—which we attribute to smart procurement principles. It does not mean the programme has got £2 billion pounds cheaper, because it has given us headroom to put other elements in. Ministers take decisions on individual projects at particular points, and these are plans, not all absolutely committed projects. The Secretary of State will need to take decisions as we go through that ten-year period and until he does I cannot say to you "This is going to happen" because that would be pre-empting political decisions. I can give you some comfort in other areas, however. We have other targets which involve £750 million over three years, 2001-2004 and that is a very exacting target.

  212. What is that on?
  (Mr Tebbit) That is the same—positive action in the programme but in a much shorter timeframe.
  (Mr Hoon) I had some difficulty on this when I was first appointed and, if I can go through the learning process, most government departments spend a particular amount of money in a given year on a particular project, and that is an end to it. Our budget is three-dimensional in the sense that if we are talking about, say, Eurofighter, if I say that Eurofighter is affordable—which it is—I have to say it is affordable not only this year, but next, and for every year we are planning to be able to operate Eurofighter. There are going to be very significant peaks and troughs in a profile over a long period of time. For example, it may well be that I am talking about savings in this case in year ten of a budget, because in year ten it may well be at that point that I have a significant cost of maintenance—

  213. In year ten, of course, you will not be in this post, and nor will Mr Tebbit!
  (Mr Hoon) Leaving aside those projections, the reality is that we have got to agree budgets today that are sufficiently robust to deal with year ten. I cannot agree to a project today that I know full well is unaffordable in ten years' time, but it follows from that that there may well be opportunities in year ten to make savings, and that is part of what we are looking at. For example, in the long life of a project like Eurofighter it may well be that I can project forward savings on maintenance. We are not spending enormous amounts on maintenance today because we have not got enormous numbers of aircraft in service, but that will obviously increase as the aircraft comes into service and many more are available. If I can negotiate today agreements as a result of a different way of working through smart procurement that says that in ten years' time the projected cost of maintenance is going to be reduced, that is a perfectly proper saving that we can claim credit for because it is the result of the system. It is important, therefore, not to see this in terms of a single snapshot about this year's accounts, but to project forward.

  214. I accept all that and I do not have any problem with it, but somebody has put £2 billion down as what we are going to save through this system. You cannot quantify it; Mr Tebbit cannot; I cannot; even the Chairman cannot, and yet it is set down here. Now, if it were to be said that it may vary by this, that or the other, then I think we would know where we are.
  (Mr Hoon) What Kevin has said to you is completely accurate, and the statement is accurate, and what he is saying is that there are projected savings of £2 billion over that ten-year period that could be available to the Ministry of Defence should we continue—

  215. Could and should?
  (Mr Hoon) Yes—with this process. Now if, at a certain stage in the process, I or my successors judge that this particular aspect of the saving is not a good idea for wider policy reasons, then what the permanent secretary would say to me at that stage is, "Fine, Minister, you are entitled to take that policy decision but you must bear in mind that there are certain risks to your budget in taking that decision". It might well be that that policy decision was so important to the minister at the time that he or she would then choose something different and there would have to be savings made elsewhere to come within budget or, alternatively, we would have to persuade the then Chancellor of the Exchequer that this was justified and required extra spending for the Ministry of Defence. All we are saying, however, is that if we continue with the present policy we can expect to secure savings of £2 billion over that ten-year period and that there are reasonable expectations that that can be done.
  (Mr Tebbit) We can also give you a more specific promise than this. We are taking all of our projects worth more than £100 million—of which there are about 100—which means we will be expanding our detailed tracking beyond the thirty odd major projects we currently track, and we will be tracking those on an annual basis for time, quality and cost. That information will be made available as we go through our programmes so you will be able to see how much better the Ministry of Defence is getting at bringing projects to fruition on time and on cost, and when I say "you" I mean also the Public Accounts Committee. In other words, we are not trying to evade in any way or cheat in any way; we have no reason to.

  216. Nobody is accusing you of that.
  (Mr Tebbit) I can assure you that I am already finding how well this is working because there is already pressure in the budget within the equipment programme because equipment is now arriving to time and cost. It is getting very difficult because we used to rely on good old-fashioned slippages where we would expect to spend £100 million this year and we would only get bills for £80 million because of the relative efficiencies of industry and the Ministry of Defence. Now we get the £100 million; it is already happening. In all sorts of ways, therefore, we know that the performance is improving. This £2 billion is absolutely real but it is a planning figure. You will have much more detailed information and Sir Robert Walmsley is putting this in place as I speak on our 100 major projects.

  217. It is not a planned figure; it is an aspiration figure.
  (Mr Tebbit) That is what plans are, but they are a bit better than aspirations.

  Chairman: We must move on to defence diplomacy.

Mr Hancock

  218. Before I ask some questions on defence diplomacy may I ask this, finally, on smart procurement, because I do think it is a bit of a scam and I think the £2 billion is a bit of a scam because you cannot quantify it and nor can we. There has to be a downside to smart procurement and you put your finger on it when you talked about Eurofighter and the maintenance cost. It is a bit like buying ships; if you buy ships on a smart procurement programme, the first ship is undoubtedly not going to be the same as the last ship. If you buy well upfront you are not absolutely sure that the last ship is going to cost that much but you have agreed a price and I think the scam is when you get ripped off over the last part of it.
  (Mr Hoon) Let me be absolutely clear; there is no scam and there is nothing wrong with this process. The process is working and delivering. Your example about ships might apply if you were buying rowing boats and you might well agree a single price for ten rowing boats, but we do not buy many rowing boats.

  219. Are you suggesting that the Type 45, the first, is going to be the same as the last?
  (Mr Hoon) No, because that will be part of the discussion and negotiation we have.
  (Mr Tebbit) On the Type 45 the government has let a contract for the first three. The reason it has led a contract for the first three is because it needs to see how the performance comes in. This not done as a straight run of everything on the same price. On the Attack helicopter, we have actually increased the price we are paying for the Attack helicopter by £120 million because, in doing so, we can achieve through in-service support cost savings of £750 million over the programme of in-service support. Now, you will say to me "Prove it" and, of course, I cannot yet but we will be tracking it as we go, so sometimes it is worth spending to save. That also may not look smart procurement if you look at it superficially but we are looking at whole-life costs as well as what we are doing now.

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