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End-to-End Business Process Review of Disposal Activity in the MOD

The Minister of State, Ministry of Defence (Mr. Adam Ingram): I have today agreed that the Ministry of Defence should retain its in-house disposal expertise and that the two in-house disposal organisations, the Disposal Services Agency and Head of Specialisation (Disposal and Sales) of the Defence Logistics Organisation (DLO), should merge under the ownership of the DLO with effect from 1 April 2005,
 
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retaining agency status and where appropriate relocating. The relocation will form part of the Ministry of Defence's contribution to the Government's Independent Review of Public Sector Rationalisation, the "Lyons Review". I have directed work to begin on implementing the review's recommendations, and I will make arrangements to place a copy of the review in the Library of the House.

End-to-End Logistics Implementation: Air Depth Support

The Minister of State, Ministry of Defence (Mr. Adam Ingram): Following extensive work to identify the best way forward for military aircraft support, I am announcing today my preferred option, subject to trades union consultation.

In 2003 the Ministry of Defence undertook an end-to-end review of the logistics process from the front line to industry. This review, the results of which I announced on 10 September 2003, concluded that there was a need, and substantial scope, for improvement in all areas of military air systems support—in industry, the Defence Logistics Organisation (DLO) and the services front line commands alike.

The review recommended that on-aircraft depth support—deep repair, scheduled maintenance and modification of aircraft—could best be rationalised by concentrating at main operating bases (MOBs), and that this conclusion should be tested in an investment appraisal.

The investment appraisal identified three broad options—to concentrate forward support of certain air platforms to MOBs, to concentrate backwards the same platforms to Defence Aviation Repair Agency (DARA) sites and where appropriate industry sites, or a hybrid solution with some platforms concentrated forward and others back.

In order not to prejudice the in-service date of the upgraded Harrier GR9 of 2006, I have already announced that Harrier support will concentrate forward to the MOB at RAF Cottesmore.

The wider investment appraisal and subsequent affordability analysis has demonstrated that concentrating support of the Tornado GR4 aircraft forward at the MOB at RAF Marham would provide best value for money compared with the alternative of concentrating backward on the DARA site at St. Athan.

Conversely, the work has demonstrated that it would not be cost-effective to concentrate the Tornado F3 aircraft either forward or back, given that it will soon be replaced by Typhoon. The work has also shown that it would provide better value for money to concentrate depth support for Lynx, Chinook and Sea King back to DARA Fleetlands.

My preferred way ahead is consistent with the announcement made by my right hon. Friend the Secretary of State for Defence on 21 July this year, which set out the need for the armed forces and their associated support functions to evolve in order to meet the demands of a changing world.

The streamlining of our logistic and support functions, such as those which flow from the end-to-end logistics review, will help the Department meet its targets under the efficiency review. In conjunction with
 
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the £3.7 billion increase to the defence budget, it will enable us to continue to modernise our armed forces, tailoring our military capability to meet the challenges of the future.

Our preferred way forward has implications for our military and civilian work-force, as well as for our partners in industry who undertake depth support of military aircraft.

Concentrating support for rotary aircraft at DARA Fleetlands offers the opportunity to exploit fully the economies of scale that may be achieved by collocating these platforms at a single centre. Sufficient defence work would remain at DARA St. Athan to enable continued operations there until 2008–09.

We will explore with other Government Departments alternative options for St. Athan after 2009, although the migration of work and the withdrawal from service of some platforms means that 500 redundancies would be needed there in 2005. In the longer term, failure to win alternative work would result in the closure of St. Athan.

The application of end-to-end principles will ensure that the MOD works smarter and will improve efficiency by adopting modern best practice in supporting our military aircraft. It will lead to reductions of some 1,500 RAF uniformed personnel, which form part of the overall reductions of 7,500 set out in the 21 July announcement on force structure changes and defence change and modernisation programmes.

There would also be modest reductions in MOD civilian posts and contractor staff posts at RAF Lossiemouth, RAF St. Mawgan and Wattisham and RNAS Yeovilton. Other service personnel would be transferred to the new depth support locations.

A formal consultation period of 30 working days will now begin with the trades unions. Once a final decision has been taken detailed consultation on the implementation of it will follow.

TRADE AND INDUSTRY

Rural Post Offices

The Secretary of State for Trade and Industry (Ms Patricia Hewitt): The performance and innovation unit report on modernising the post office network, published in June 2000, recommended that the Government should support the rural network in the first instance to 2006. It also recommended that the postal services commission, Postcomm, should advise the Government on options for the rural network after 2006. I have received that advice and have considered it very carefully.

The Government are fully committed to supporting the Post Office's strategy for creating a viable and vibrant post office network that meets changing customer needs, providing reasonable access to services in rural communities.

My hon. Friend the then Minister of State for Energy, E-Commerce and Postal Services announced in the House on 2 December 2002 the Government's decision to make £450 million available to support the rural post
 
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office network through from 2003 to 2006. That three-year package was intended as a transitional measure, designed to help rural post offices through the changes in the network's business between 2003 and 2006.

At this point in the transition rural post offices continue to face real challenges and a large part of the rural network continues to be unsustainable commercially. For many post offices the number of customers they serve is simply too small to make the business attractive or sustainable. With the prospect of customer numbers continuing to fall as people access services in different ways it is clear that there are challenges ahead and that new ways to deliver services more efficiently and effectively are needed.

How and where people access services is changing. It is not clear that the present network best meets those changing needs, or whether because of that the current shape and scale of the rural network is a viable long-term prospect. A solution for the longer-term will need to take these changes fully into account.

Against this background Postcomm has advised the Government to review the reasons for and nature of our support of the rural network in the longer term. They advise that the nature of that support may need to change substantially.

Postcomm's advice recognises that such changes must be well informed and that further work will be necessary. Pilot activity by the Post Office, funded by the Government, to test new ways of ensuring access to post office services in rural areas is under-way. The lessons that will emerge from these trials over the next 12 to 18 months will be crucial in informing longer-term decisions about the future shape of the rural post office network. At this stage it is simply too early to draw conclusions.

The Government have, therefore, concluded that now is not the right time to take decisions about the long-term future of the rural network.

It is, however, vital that we continue to support the network through this continuing difficult period. The Government are committed to ensuring reasonable access for rural communities to postal and other services. It is also clear from Postcomm's advice to us that without Government funding much of the current rural network would face closure.

I am, therefore, pleased to announce that the Government have decided, subject to securing any further necessary state aid clearance from the European Commission, to extend its transitional financial facility for rural post offices for two further years from 2006 until 2008.

The Government will make available up to a maximum of £150 million a year until 2008 to enable Post Office Ltd. to continue to meet the cost of maintaining the non-commercial part of the rural post office network and to pilot new ways of delivering services. Pilot activity is a key element of the current funding package—we have already allocated £25 million to fund pilots. Our intention is that this will continue to be a key element of the package going forward.
 
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The funding will ensure that Post Office Ltd. will have money to test new ways of delivering services and will not be forced to close unprofitable rural post offices because of a lack of funding.

Current funding is from the gilts—Government money previously received as dividends from the company and made available back to the company for certain specific uses—and it is our intention that the further funding to April 2008 will also come from these gilts. The detailed mechanism, sums of money and timing of payments will be subject to further detailed discussion with the company, as well as being subject to state aid clearance.

The PIU report recommended that the Post Office should be required to prevent avoidable closures of rural post offices, in the first instance to 2006. Postcomm has advised us that it is concerned that this policy can lead to post offices being saved or reopened where it is clear that customer numbers have dwindled to levels far below what is sustainable. Furthermore they have recommended that this policy should not be extended beyond April 2006.

The Government's direction to Post Office Ltd. to maintain the network and do all they can to prevent avoidable closures remains in place. There is no question of them being able to initiate the closure of offices. However, in response to Postcomm's immediate concern I propose to amend the definition of what is unavoidable so that when Post Office Ltd. is responding to a closure—for example when a sub-postmaster decides to retire—it takes into account circumstances where there is no prospect of a viable future for a post office because of a collapse in demand for services in a particular location. The intention will be to ensure that Post Office Ltd. is focused on maintaining access to services in rural areas fully taking into account local circumstances. These changes, yet to be worked up in detail, will be published.

I believe that we will be better placed to take a decision on the longer-term future of the rural network, including whether the current policy on avoidable
 
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closures should continue beyond April 2006, when we have feedback from the pilot activity now being undertaken by the Post Office.

I propose therefore to ask Post Office Ltd. for a full report on pilot activity and its implications for future access to post office services by the end of 2005. I will then review the policy on avoidable closures beyond April 2006 at that point.

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