Select Committee on Defence Tenth Report


3  Finances

23. The Met Office receives funding from a range of Government and non-Government sources (see Table 1). The MoD is the main source of funding, which is provided in return for direct services to the department and the Armed Forces, and through the National Meteorological Programme (NMP), which sits within the MoD.[41] Mr Hutchinson explained the variability in the level of funding provided by the MoD by saying that funding through the NMP was "lumpy", depending on the level of investment required in a particular year into, for example, international bodies or satellite programmes.[42] The NMP funding "provides the investment funds for some of [the Met Office's] underpinning capability" to produce weather forecasts for the Armed Forces and others.[43]

Table 1: Met Office Turnover
2004-05 2003-04
Defence (main customer—MoD) 77,712,000 (47.0%) 59,911,000 (37.3%)
Civil aviation (CAA) 26,067,000 (15.8%) 25,584,000 (15.9%)
Civil departments 22,374,000 (13.5%) 37,447,000 (23.3%)
Climate research 11,817,000 (7%) 10,525,000 (6.5%)
Commercial 20,370,000 (12.3%) 20,380,000 (12.7%)
Government met. Research 7,240,000 (4.4%) 6,928,000 (4.3%)
Total 165,580,000 (100%) 160,775,000 (100%)

Source: Met Office Annual Report and Accounts, 2004-05[44]

24. The MoD explained that a National Meteorological Service Commissioning Group was established in April 2004, which consisted of the Government customers of the Met Office. The contribution to the NMP for the Met Office was transferred from separate contributions from the constituent Whitehall departments to a single contribution within the MoD budget.[45] Mr Hutchinson told us that although the majority of funding for the Met Office came from the MoD it was not a "threatening dependency", and did not stop the Met Office from finding funding elsewhere within Government or the private sector.[46]

Investment

25. The Met Office is a capital intensive organisation that requires regular and expensive investment to maintain its position in the international meteorological community. Mr Ewins told us that when he took over as Chief Executive "the Met Office had been grossly under-invested in the preceding decade or more".[47] He said that trading fund status had provided an opportunity to recover that position:

    For the first five years of the trading fund the Met Office was required to make a return on capital employed but not required to pay it to the owner. The MoD gave us a bye each of those five years, and that allowed us to have the money to invest; and it is that money, together with the sale of land associated with the move to Exeter (that total package), which gave the Met Office sufficient funds for its investment programme…[48]

He thought that about £100 million of the Met Office's profit had been reinvested over seven years that he was Chief Executive, excluding the investment in the new building in Exeter.[49] The investment decisions were made by the Met Office, although Mr Ewins told us that "As Chief Executive I would be mad to do anything which upset the MoD too much".[50] He emphasised that if the United Kingdom is to "maintain our position as the acknowledged best weather forecasting organisation in the world, by which I mean the most accurate, then we also need to invest and we are probably still under-investing to do that".[51]

26. One of the most crucial areas for continued investment is the procurement of supercomputers. The Met Office Annual Report and Accounts 2004-05 describes how the upgrades to its information technology infrastructure and computing power are enabling improvements in the quality of forecasting predictions.[52] The quality of the work at the Met Office, particularly in terms of the accuracy and resolution of forecasts, is largely determined by the level of computing power at its disposal. Mr Ewins said that "At the moment my understanding is there is sufficient funding and sufficient borrowing agreed with MoD to fund a future supercomputer programme".[53] He explained that the supercomputers were necessary for future research and development. He considered this to the area in which:

    …probably the most tension exists between the MoD and the Met Office about how the United Kingdom as a country would fund meteorological research and development.[54]

27. During our visit to the Met Office we were told that the Office could lose its international reputation very quickly if the level of investment in supercomputers were not maintained. Mr Ewins told us that once that reputation was lost it would be very difficult to recover.[55]

28. Mr Ewins told us:

    The area of investment is quite a tricky one for a trading fund. In the case of MoD it is slightly more tricky, because they are the principal customer and, in the modern arrangement, they are also the head office's banker and so it is to them we turn to borrow money, etcetera. So, there is a potential conflict of interest, but in my time there it did not raise its head at all. Whether it has done since, I cannot answer.[56]

29. Mr Andrews told us that the MoD was committed to providing loan funding, if there was a compelling and persuasive business case. The "quid pro quo" for that commitment was the department taking a dividend from the Met Office.[57] The Minister told us that "…provided there is a robust business case put, any future investment that is required in the Met Office will be made".[58]

30. The Met Office's continued success depends on the quality of the people who work there. It must also have the tools to do its work. Assured funding for investment is essential to maintain the Met Office's position in the world meteorological community and to enable it to provide a technological advantage to the United Kingdom's and its allies' Armed Forces. Maintaining the United Kingdom's competitive edge in this field is essential. We welcome the Minister's commitment that the MoD will fund investment in the Met Office if a robust business case is made. That investment will need to be substantial if, as it should, the United Kingdom is to maintain its competitive edge and remain a world leader in meteorology. We also look to the MoD to continue to allow the Met Office to decide on its own investment priorities.

The Met Office move to Exeter

31. The Met Office has recently invested substantial funds in the recent relocation of its headquarters from Bracknell in Berkshire to Exeter in early 2004. The MoD's memorandum states that "The approved net budget for the Relocation Programme, at the time of signing the contract to completing construction of the building was £90.8 million".[59] The memorandum explains that overall the project was completed on time and within budget.[60]

32. Mr Ewins told us that the new building was a "five-star building" in terms of its efficiency, and "its friendliness with the environment".[61] The new building also enabled different teams working within the Met Office, which would not normally interact, to meet in the common areas, thereby facilitating cross-fertilisation of ideas between research teams.[62]

33. The evidence suggests that the move to Exeter has been successful, both in financial terms and staff satisfaction terms. Both the Met Office and the MoD are to be commended for this.


41   Q 226 Back

42   Q 227; See Ev 46 for details of investment in satellite programmes Back

43   Q 226 Back

44   Met Office Annual Report and Accounts 2004-05, p 54 Back

45   Q 232 [Mr Andrews] Back

46   Q 226 Back

47   Q 100 Back

48   Q 97 Back

49   Qq 98, 99 Back

50   Q 102 Back

51   Q 105 Back

52   Met Office Annual Report and Accounts,2004-05, pp 24-25; See Ev 45-46 Back

53   Q 105 Back

54   Ibid. Back

55   Q 207 Back

56   Q 93 Back

57   Q 231 [Mr Andrews] Back

58   Q 231 [Mr Watson MP]. "Trading funds retain their trading income which is used to meet expenditure. Capital expenditure is financed from loans arranged through either their parent department or, if there is none, directly from the National Loans Fund. It may also be possible to use accumulated cash resources." Guide to the Establishment and Operation of Trading Funds, Central Accountancy Team, HM Treasury, May 2004, http://www.hm-treasury.gov.uk Back

59   Ev 48 Back

60   Ev 48-49 Back

61   Q 202 Back

62   Qq 202-204 Back


 
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