Examination of Witnesses (Questions 360
- 379)
WEDNESDAY 8 MAY 2002
LORD BACH,
SIR ROBERT
WALMSLEY KCB, AIR
MARSHAL SIR
JOCK STIRRUP,
KCB, AFC AND MR
JOHN COLES
360. Well, it has not been in the Navy, has
it?
(Air Marshal Sir Jock Stirrup) Well, if I can just
go back to one point that was raised earlier about the criteria
for deciding the balance between sponsored reserves and regulars,
one of the issues, for example, is that sponsored reserves servicing
tankers will only be used to go and service tankers on deployment.
Regular servicemen who service tankers can be called to go and
do other deployments elsewhere, other enduring deployments, and
the smaller the corps of regulars, then the greater the burden
on them, and that is an important factor and is one of the criteria,
one of many, which was used to inform the initial judgment on
the balance between sponsored reserves and regulars, so it is
taken into account.
361. So has it been changed in the Navy?
(Air Marshal Sir Jock Stirrup) I would not want to
answer and could not answer for the Navy.
362. Could I move on to another question which
is really about the charges which are levied in terms of PFI services.
To what extent are they actually limiting your flexibility in
terms of budget at the MoD and have the Treasury had any thoughts
on this in terms of tying up your budget for many years hence?
(Sir Robert Walmsley) We are very conscious of course
of the fact that we could be potentially locking up a large part
of the defence budget, and that is now part of the MoD's annual
accounts process to look at how much of our future budget is locked
up in existing contractual commitments. I think we are very sensitive
to the issue and our new financial procedures at the Ministry
of Defence require us to keep score.
363. So what is that score in terms of the percentage
of budget that you have tied up?
(Sir Robert Walmsley) Well, it is clearly increasing
as we push through these private finance deals, but a very big
one like the Future Strategic Tanker Aircraft will have quite
a significant effect on that. That is going to be, if we get it
into a private finance deal, somewhere around £12-15 billion
over, I think it is, 27 years, some enormous period of time, so
you can work out that that means that it is about 3 to 4 per cent
of the defence budget on that contract alone. We will not do it
unless it is better value than doing it by the conventional method.
364. I accept that, but does it not actually
limit your flexibility in being able to manage your budget if
you have got a large percentage of your budget tied up in contracts,
and not just for that?
(Sir Robert Walmsley) That is absolutely right and
that is why part of the sophistication of these private finance
projects is not to lock in the same level of MoD demand at the
end of the contract period as you start out with at the beginning.
That is part of the competition.
365. So have you set yourself a certain percentage
of budget that you would not go over?
(Sir Robert Walmsley) No.
366. Have you got any indication of what it
will actually be, the budget?
(Sir Robert Walmsley) Well, I have told you the situation
on Future Strategic Tanker Aircraft.
367. Well, that merely doubles—
(Sir Robert Walmsley) That would double effectively
our PFI commitment in the MoD, more than double it actually.
368. But have you actually made a projection
of what it could be if you actually followed through all the PFIs
which you have got and those stopped?
(Sir Robert Walmsley) No.
369. Why not?
(Sir Robert Walmsley) I think at the moment the position
is that we are talking about a very small proportion of the defence
budget. We will keep a score of what the commitment is and if
the Government become concerned about it, it is clearly the sort
of thing where we would then say, "Well, no, that is a step
too far".
(Lord Bach) You have to look at the alternative as
well of course. If we were to have conventional procurement on
each and every one of these items, then also that would have an
enormous influence on the future programme.
370. I accept that, that the defence budget
and defence policy, perhaps the difference in certain areas is
that you might get major changes in what you actually want to
do and if you have got the majority of the budget tied up in a
certain way, it limits what you can do in terms of flexibility.
(Lord Bach) But you can also have the budget tied
up, if I may say so, if you procure in the conventional way because
then you have year by year what it is you have to spend on that
particular piece of equipment and it is tied up and tied up. Both
are sums which are tied up unfortunately.
371. Would it be possible for you to send us
some analysis of the percentage of budget and how you see it going?
(Lord Bach) I think, if we may, Chairman, as part
of the paper that you have asked for as a result of Mr Jones's
and your own questions, we will try and include something on that.
Chairman
372. Thank you, but you are not out of the woods
yet. There are six more areas which are equally contentious one
of which is of course the Sea Harrier. We had an opportunity very
recently with Sir Jock and I am not sure whether he is going to
stand by exactly what he said in question 192, and Mr Howarth
will pose the questions, but as we have so many other things to
discuss, I do not want questions on the Sea Harrier to go on for
more than ten minutes.
(Lord Bach) Well, Chairman, I am absolutely happy
to answer questions on Sea Harrier. It does not entirely take
me by surprise, but at the same time you had a pretty good go
at this last time, or rather Mr Howarth and Mr Rapson to a lesser
extent had, and I think "go" is the right word, at the
Air Marshal. My own view is that he answered extraordinarily well
and I stand by what I have read he said, and that has embarrassed
him. Of course we are absolutely in your hands as to how much
time or how little we spend on this.
373. Well, what he said was that if we had more
money, we would keep them, and the question is whether—
(Lord Bach) That is one of the things he said.
374.—more money should be made available
and I will say what I have said a thousand times in the last 20
years, that more money needs to be made available so that the
Ministry of Defence can have the defence policy, the human policy
that I think everyone on this Committee believes it should have.
We will have not a re-run of the arguments, but perhaps ten minutes
on a rather different dimension with Mr Howarth having hot-footed
it from the debate on Sea Harriers earlier.
(Lord Bach) It seems to be topic of the day today,
Mr Chairman.
Chairman: Well, there are a lot more.
Mr Howarth
375. I suspect, Minister, it may well be a continuing
topic of the day because, as you know, from today's Daily Telegraph
there is concern and the headline says, "Sea Harrier's
demise puts Britain's fleet in peril for six years". This
is a very serious matter. If I may say in parenthesis that I think
all of us on this Committee were extremely impressed with Sir
Jock last week. He came, as it were, on his own and he is new
in the job, so what we are going to be doing is concentrating
on one or two aspects following up from last week. Last week he
did say to us that he would prefer to keep the Sea Harrier and
its air defence capability. Your colleague, the Minister of State,
Adam Ingram, admitted there would be a risk associated with the
withdrawal of that aircraft and Sir Jock said that he envisaged
that we would be going into offensive operations with allies or
partners, but it is clear that if we wanted to mount another Falklands
campaign, we would be unable to do so. Now, as the Chairman was
saying also, and I am sure you have seen the transcript of what
happened last week, Sir Jock told us that to upgrade the FA2,
the Sea Harrier, would be extremely costly. Can we, therefore,
explore this a bit further. Adam Ingram told the House recently
that taken together, the withdrawal of the Sea Harrier and the
upgrading of the Harrier GR7 to GR9 would produce a net saving
for the MoD of £109 million. That is the net figure and I
understand it is arrived at after taking into account the cost
of upgrading the Harrier GR7 to GR9 as standard.
(Lord Bach) No, you are wrong about that.
376. Can you tell us what the gross figures
are?
(Lord Bach) You are wrong about that, if I may say
so. I will take a little time to explain this and I am grateful
for the question. The £109 million net saving is the combined
result of two main work strands that contribute to the revised
strategy of the JFSH. With the first work strand, about £135
million is saved by a composite measure to withdraw the Sea Harrier
from service and to facilitate an increased CVS commitment by
the GR7 to become the GR9 force during the transition to an all-GR
force. Savings arise principally from the withdrawal of the Sea
Harrier commencing in 2004 with the commensurate reduction in
aircraft support costs, the avoidance of unnecessary infrastructure
work at RAF bases, and you will recall that Cottismore and Wittering
were both designated to be the air bases before the cancellation,
and the cancellation of upgrade programmes on the FA2, on the
Sea Harrier. These savings are offset by some expenditure on the
GR7 aircraft and also by modifications to the Invincible-class
carriers and improved logistic support to a GR7 force, both the
embarked and land-based operations. Now, the net effect is a baseline
saving of £135 million reduced to £109 million when
the extra cost, the £26 million, associated with the GR7
to GR9 upgrade programmes are taken into account. That is the
upgrade programme which means that those planes can be on ships
and on aircraft carriers, not, if I may say so, the cost of the
GR7 to GR9 upgrade that would involve the integration of the Pegasus
engine providing improved performance and other upgrades as well.
Now, I hope that is clear. It involves some part of upgrading
GR7 so that it can be on aircraft carriers, but it is not the
figure for the total upgrading of the GR7 to GR9. Sorry to have
taken a long time, but it is important to get this on the record.
377. So what you are saying is to make the GR7
carrier-capable, in other words, to provide the modifications
necessary to deploy the aircraft from a carrier, is going to cost
£26 million?
(Lord Bach) Part of the £26 million, if you heard
me right, comes from that. There are also some modifications to
the carriers which no doubt is relevant to the GR7s going on the
carriers and improved logistic support to the GR7/9 force.
(Air Marshal Sir Jock Stirrup) Could I just clarify
one point because it is important. These things are not required
to make the GR7 deployable on a carrier. As we know, the GR7s
have deployed on carriers and operated from carriers. These are
improvements to enable it to do it better.
378. I am sorry, I did not quite understand.
The Minister has just told us that it is in order to enable the
aircraft to be deployed on a carrier and you are saying it is
not true.
(Air Marshal Sir Jock Stirrup) Improvements to the
aircraft to enable it to be employed from the carrier better.
379. Can you explain how, what sort of improvements?
(Air Marshal Sir Jock Stirrup) The improvements, I
have not got a list, but we can let you have the details of that,
if you like. I am sorry, but I just had to be clear because what
you were saying was suggesting that we could not deploy on a carrier
now which of course is not true.
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