Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 80-99)


24 JANUARY 2006

  Q80 Mr Jenkins: Just keep us of informed of the way you are thinking now and what we can have expectations for in the future, and if we have it in black and white I would be very grateful. If I move on to the value for money, we are going to reduce the costs for military training for recruits by 6% and I have seen now that we have scrapped the target entirely. What target is now in place?

  Mr Jeffrey: It is not that we have scrapped it; it is that there have been some changes which mean that it can no longer be satisfactorily measured, and we assessed that it would not have been achieved. Do we have another target?

  Mr Woolley: No, no replacement target.

  Q81  Mr Jenkins: So we had a target and you could not meet that target and so you have not adjusted the target, you have scrapped it.

  Mr Woolley: As Mr Jeffrey says, the fact is that it is no longer really possible to measure performance against that target in the way that that was originally envisaged, because the target was very much related to measuring training on a single service basis and because of the creation of more joint service establishments it is not really possible to make the measure on a single service basis any more.

  Q82  Mr Jenkins: So you are telling me that no one now can work out that if I have three streams of individual recruits and I put them into a mixed facility and then I bring them back out at the end of the mixed facility, I cannot cost that process? Are you telling me you cannot do it, or it cannot be done?

  Mr Woolley: What we are saying is that it is no longer possible to attribute the costs of joint establishments to single service throughput, and as the measure was on a single service basis you cannot effectively measure the cost on a single service basis.

  Q83  Mr Jenkins: So where do you attribute the cost of this multi-service unit to, then?

  Mr Woolley: Where do we attribute?

  Q84  Mr Jenkins: If you have a multi-service unit where do you attribute the costs? To training?

  Mr Woolley: Indeed.

  Q85  Mr Jenkins: So part of this also is training and if you divide the amount of the cost of training by the number going through you get a cost per head, do you not?

  Mr Woolley: You could get a cost per head of all Armed Service personnel. What we cannot do is have a cost per head for a soldier or a sailor or an airman, which is the way the target was originally expressed.

  Q86  Mr Jenkins: It says here, "Reduce the per capita cost of successfully training a military recruit by an average of 6%" and that was your target. It does not say an RAF or an Army or a Royal Marine recruit, does it?

  Mr Woolley: But the measure is on a single service basis; the individual measures underline this target.

  Q87  Mr Jenkins: But the point is now you have no target at all rather than a military recruit target, do you?

  Mr Woolley: Correct.

  Q88  Mr Jenkins: Do you find that alarming or are you quite happy to have no target to work to?

  Mr Woolley: There are clearly potentially almost an infinite range of targets that we could work towards, and as far as what goes into the PSA we have agreed with the Treasury that this particular target should no longer feature as a PSA target because of the nature and the change of the policy.

  Q89  Mr Jenkins: I am going to get no further on that one, obviously I will have to talk to a Minister about why they are quite happy to have no targets for public expenditure on this sort of activity. If I move on to the next one, we are going to reduce our expenditure and the cost of the DLO by April 2006 by 14%, but I do not have a breakdown here. Are we reducing the stockholding, reducing the service times or are we reducing or increasing the efficiency saving in the running of the establishment? What is the main ingredient in the reduction in costs in this area?

  Mr Jeffrey: It is principally the performance and efficiency that we were discussing earlier in this hearing, which enable costs to be reduced.

  Q90  Mr Jenkins: So we are increasing the efficiency in the running of it? It is just not stock?

  Mr Jeffrey: I do not believe so.

  Mr Woolley: In some cases reducing stock might be part of the efficiency saving.

  Q91  Mr Jenkins: Yes, I know, and last time we asked you, you had a very good trick, when you wrote down the amount of stock I think some stuff went down from about £20 when we bought it in to a value of pennies, and you said, "Look we have reduced our stock." That is why I am always a bit wary about looking at savings in value of stock. Or should we classify stock separately to the actual manning costs and the look at the increased efficiency of the manning costs?

  Mr Woolley: What we would score, as it were, to the saving is not the value of the stock as such but the cost of capital on the value of the stock, and that is what would contribute towards a saving in budgetary terms.

  Q92  Mr Jenkins: The next item is MoD main buildings. When we modernised it we got a 12% reduction in Head Office and other management costs. Are all these staff functions that were originally in the Head Office still carried out in the main building? The reason I ask you is because we did a PFI on one office and because it was too small we had to move some of the staff out to peripheral offices and then we said that the cost of running the main office had fallen.

  Mr Jeffrey: Broadly speaking, my understanding is that we have much the same staff in the main building as we had before. Certainly my experience in other fields is that when you modernise buildings like this there are significant savings to be had simply because you use the space more effectively than you might have done in an older building.

  Q93  Mr Jenkins: So all the functions are still carried out in there? Yes? Thank you. If we turn to page 95 in the report, a simple question: at the bottom of that page on logistics we see that we have £21.6 million cash receipts achieved from the sale of surplus equipment. Did we buy any surplus equipment back this year?

  Mr Woolley: Did we buy any surplus equipment back this year?

  Q94  Mr Jenkins: Yes.

  Mr Woolley: Not that I am aware of.

  Q95  Mr Jenkins: Can you check please[15]? We certainly did not in the previous years. On page 97, paragraph 210, as we look down to the "Lean" engineering and support facilities for the Tornado we see that in partnership with Rolls-Royce we have produced cost savings of £88 million over four years. This is the year 2004-05 accounts, so the previous four years. When did they start at Marham "Lean" engineering, please, what year?

  Mr Jeffrey: I think this is the Tornado future support improvement and efficiency that I mentioned earlier.

  Q96  Mr Jenkins: It says, "Produced cost savings of £88 million over four years". So this is an expected result and not an actually achieved result?

  Mr Jeffrey: This is a programme on which work began some years ago, in May 2000, to simplify the way in which Tornado support arrangements work. It is partly already producing savings of this sort and partly still to do so.

  Q97  Mr Jenkins: I do not understand. The figure here says it has produced cost savings of £88 million and I take that to be a fact. I do not understand it £88 million actually saved but a projection of £88 million. Which is to be, is it £88 million saved or is it £88 million projected savings?

  Mr Jeffrey: These are four years in the past since this was produced.

  Q98  Mr Jenkins: So I take it has saved £88 million. Could you check on that and let us know?

  Mr Jeffrey: Yes, we will.

  Q99  Mr Jenkins: I will go to a much more complicated part, unfortunately. Page 139, cost of operations. The figures on your schedule, once again—it always confuses me when figures do not add up—do not add up, and they are qualified in the next page over. Is it my understanding here that we have a baseline of expenditure and we have an operational cost? And whilst we are on operational costs the Treasury pick up all the extra funding that comes in over and above our baseline. On operations, if we crash a vehicle it is replaced, but if we wear it out it is not and that has to come out of the baseline cost. An example would be, if I had a gun the ammunition was paid for out of the contingency fund to fight the war, but if I wore the gun out and I brought it back they would not replace it; the replacement and refurbishment would have to come out of my base budget, is that right?

  Mr Woolley: To the extent that we are able to capture the net additional costs incurred by going on operations then we can and do claim that back from the Treasury. So in the example you quote, if we could demonstrate that a gun that had been used on operations had needed to be replaced sooner or it wore out faster as a result of that operation than it would otherwise have done, then indeed we score that to the cost of the operation.

  Mr Jenkins: Page 194, please. The third item down there is a loss of £65 million being incurred following the impairment of an operational building.

15   Note: See Ev 94 Back

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