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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 59-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE DEFENCE COMMITTEE
THE FUTURE OF THE UK'S STRATEGIC NUCLEAR DETERRENT: THE MANUFACTURING AND SKILLS BASE
Tuesday 21 November 2006 LORD DRAYSON, MR DAVID GOULD CB, MR NICK BENNETT, REAR ADMIRAL ANDREW MATHEWS Evidence heard in Public Questions 96-189
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Oral Evidence Taken before the Defence Committee on Tuesday 21 November 2006 Members present Mr James Arbuthnot, in the Chair Mr David S Borrow Mr David Crausby Linda Gilroy Mr David Hamilton Mr Mike Hancock Mr Dai Havard Mr Adam Holloway Mr Kevan Jones Willie Rennie John Smith ________________ Witnesses: Lord Drayson, a Member of the House of Lords, Under Secretary of State and Minister for Defence Procurement, Ministry of Defence, Mr David Gould CB, Deputy Chief Executive, Defence Procurement Agency, Mr Nick Bennett, Director General Strategic Technologies, Ministry of Defence and Rear Admiral Andrew Mathews, Director General Nuclear, Ministry of Defence, gave evidence. Q190 Chairman: Welcome, Minister and gentlemen, to the second of our inquiries into the strategic nuclear deterrent, which as you know is into the skills base. I must open by saying how welcome it is to have you, Minister, and the Ministry of Defence taking part in this inquiry, so thank you for coming. We are waiting at the moment for the White Paper, but I wonder whether I could begin by asking you to introduce your team, some of whom have given evidence before us already. If you could you tell us about your team that would be most helpful to start with. Lord Drayson: Perhaps if we could start on the left-hand side: Nick Bennett, who is the Director General of Strategic Technologies, David Gould who is the Deputy Chief Executive of the DPA and Rear Admiral Andrew Mathews who is DG Nuclear. Q191 Chairman: The White Paper. We were told in June by the Prime Minister that the Government were likely to be publishing a White Paper by the end of the year. Is that still the expected timing? Lord Drayson: Yes it is, Chairman. Q192 Chairman: Are you able to give us any better indication of when? Lord Drayson: No further than that, except to say that we have indicated that the White Paper will be published once decisions have been taken on the future of the nuclear deterrent. No decisions have been taken as yet, but the expectation is that the White Paper will be published by the end of this year. Q193 Chairman: What sort of form will it take? Will it set out what decisions have been taken and ask for comments or will it set out the options that the Government could follow? Lord Drayson: It will set out the assessment that has been made of the options that there are for the replacement of the deterrent. That assessment will include the risks, the threats, the options, the costs that are involved in the different ways forward. It will set out the results of the preparatory work which has been undertaken to give Parliament an opportunity then to assess that once ministers have had an opportunity to review those issues. Q194 Chairman: The way you put it just now, it will set out the decisions that have been taken for the replacement of the deterrent. That contains just the slightest tinge of an implication that a decision has been taken to replace the deterrent. Lord Drayson: Absolutely not, Chairman. No decision has yet been taken. We are at the stage where the options are being reviewed, but no decision has been taken as yet. Q195 Chairman: May I put to you one point which was put to us this morning by Greenpeace? They said that the programme of investment in Aldermaston raises some concerns, that the proper procedure should be an open and informed debate first, then a decision by Parliament on whether to go ahead with the investments necessary to make a bomb and finally, the investments. Instead, the evidence strongly suggests that we have an Alice in Wonderland situation of investments first, official decisions second and public debate and parliamentary vote last of all. What do you say about that? Lord Drayson: That reflects a misunderstanding of what the investments that have been made in Aldermaston have been for. They are to ensure that the existing deterrent can be maintained in a safe and effective form given that under the nuclear test ban treaty the only way in which we can make sure that the deterrent is safe is to carry out very sophisticated physical and computational experiments and that requires investment in the infrastructure at Aldermaston to make sure that we continue to be able to do that properly. Q196 Chairman: But in any event the public debate will follow the Government's decision. Lord Drayson: The public debate will follow the publication of the White Paper. The White Paper will follow the position taken when ministers have reviewed the options which have been presented in the White Paper. Q197 Willie Rennie: Many have criticised the necessity of having this debate at this exact time. Could the reasons as to why we are having the debate now rather than in four, five or six years' time not be set out? Lord Drayson: The central issue that we have to focus on, which is why the debate is important now, is that we have the existing deterrent system. That system has a life and if we decide that we wish to replace that system when it comes to the end of its life, we have to take decisions now relating to the way in which we are going to do that because of the length of time it takes to develop and build and bring into service a successor system. That is the central reason why a decision is made now. Q198 Willie Rennie: What do you say to those who say that it is far too early in the process to do that and you should actually allow more time for events to develop and perhaps to chime in with the developments in America for the replacement of their system, which might be more economic for the UK in the long run? Lord Drayson: I would say that we do not have the option to do that if we wish to retain the option to be able to replace the deterrent because of the very long lead times which are involved in the design and development and the bringing into service of any successor deterrent system. Rear Admiral, would you like to give a bit more detail in terms of the timing? Rear Admiral Mathews: This is a compromise between the time it takes to design, build and then commission a nuclear submarine and how long we can economically and reliably run on the existing system. The decision really comes round to the fact that it is the platform that is driving this decision and the two questions then are: what is the time to develop a new submarine and what is the time that we can run on the existing system? If I just answer those two questions. We estimate it is around 17 years to design and build a new platform, which is exactly in line with the American model. It is about two years to get through the concept stage, there are big decisions about the number of missile tubes, the type of proportion, the type of submarine you want and then to get into detailed design. At the end of detailed design, we have to have got it right because we do not build a prototype: the first-of-class is the first-of-class and we expect it to go to sea on time. It is a bit like building an onion once we start building this thing because we work from the outside in. So if we come to a late change, it is extremely costly because this is a highly integrated platform, it is highly complex and change means that we often have to make change throughout the submarine which is difficult to do once we have started construction. We also have a complex safety case which, again, we have to mature before we get into serious construction. If we do not have our safety case right ... Bear in mind what we are doing with this platform: it is a complex piece of kit, it operates in a complex environment, nuclear propulsion, nuclear weapons, it has a complex safety test. It is important you get those principles right at the end of that design stage, so long design, but it is a vital piece. Then we go through critical path through built proportion and we test that before we put it into the submarine and then we build it in sections, join the sections together and integrate them. This is a complex process and then we need about two years for trials, commissioning and testing at sea and training the ship's company to operate it. A thirty-year life is about as long as we can get out of these platforms. We design them for 25 years; we estimate that we can extend Vanguard for about five years to get reasonable reliability from it. To go beyond that, we start to get into the law of diminishing returns; we need to invest significant amounts of money. Our experience of operating old submarines is not good: they are unreliable; they cost a lot of money. We see around 30 years as the maximum life of a submarine. That drives us to making a decision about now. Q199 Willie Rennie: The defence industrial strategy says that the UK must retain onshore key skills in design, construction, maintenance and decommissioning of nuclear submarines. Why exactly does the UK need to have that onshore sovereign capability? Lord Drayson: It relates to a number of factors, but the most important is that we have a responsibility in terms of making sure that if we are operating nuclear submarines we have the capability to do so safely, to meet all our regulatory commitments and being able to do so properly. Being able to ensure that we have that capability and that know-how is intimately tied up with an understanding of the design, the development of the system, which best comes from an intimate knowledge which is generated from having the design base and the skills here in this country to do it. The second thing stems from security aspects: it is not possible for us to procure many aspects of the submarine from other parties. Therefore, for those two key reasons, we are put in a position where, if we take the decision to replace the nuclear deterrent and if we decide that the best way to do that is to continue it being submarine-based, then we do need to maintain that capability here in the United Kingdom to do so. There is a second order issue relating to that which relates to affordability and value for money for taxpayers, where our analysis shows that having the capability to do so here in the United Kingdom does also give us the best value for money in terms of the affordability of the system through doing it in this way. That is the experience which we have had from the existing class of submarines and the class of submarines which we are building at present, the Astute class. Q200 Willie Rennie: Why is that different from armoured vehicles, fighter jets, even Trident missiles? Why is the submarine any different? Lord Drayson: The nuclear issues provide a greatly enhanced burden on us in terms of the regulatory burden which we have to meet in terms of the safety case and so forth. That is what puts it in a different league to everything else in terms of military equipment as opposed to armoured fighting vehicles which you mentioned. Q201 Willie Rennie: The DIS is silent on alternative options for the deterrent, on whether it is air based or submarine or land based; it is silent on the alternative options for the deterrent. Do we have the capability in the UK to develop those capabilities for air and land if it was decided that that was the route we were going to go down? Lord Drayson: We would have the capability in those alternative areas and the alternative possibilities are being looked at in terms of the basis of the system and those are being looked at in the various options as to whether it should be a preferred solution which continues to be submarine based or another system such as air based. Those options are being looked at. We have to recognise though that we have an existing level of significant knowledge and expertise and experience in operating a nuclear deterrent on the basis of a submarine and therefore, should we look at an alternative in terms of it being air based or land based there would be a significantly greater technological risk because it has been some time since the United Kingdom has deployed an air-based system and the United Kingdom has never deployed a land-based system. We would need to recognise the difference in technological risk in those two areas and the difference in capability here in the United Kingdom. Q202 Willie Rennie: Does that rule out the other two options then? Lord Drayson: This is an example of the issues which are being looked at as part of the preparation for the White Paper. As I have said, no decision has been taken. Q203 Mr Hancock: Forgive me if I misheard you. I was under the impression that when the White Paper was going to be published there was going to be a government-preferred option that would be the starting point for the debate on this issue. However, when you were giving your answer to the Chairman, you alluded to a ministerial view but it did not appear that the view was going to be expressed in the White Paper. How is it going to be presented to the country? Lord Drayson: Yes, it will be expressed. I apologise if I was not clear on that point to the Committee. The White Paper will express that view as to the preferred option. Q204 Mr Hancock: What? A ministerial view or a government view? Lord Drayson: A government view. Q205 Mr Hancock: So there will be a decision of Government on the preferred solution, whether we have a deterrent or not or what version we have? Lord Drayson: Ministers will review it and then the White Paper will be published. Q206 Mr Hancock: I wait to see what that decision will be. May I just ask a question? When the existing Trident boats were being planned, they were planned originally for a 30-year life, were they not? Rear Admiral Mathews: A 25-year life. Q207 Mr Hancock: Not originally 30 years downgraded to 25? Rear Admiral Mathews: I do not know the answer to that. My belief is that we designed them for 25 years. Mr Hancock: It would be interesting to know for sure, because my recollection is that the original spec was that the boats would be for a 30-year service life which was then downgraded to 25 years. Chairman: Could you possibly write to us? Mike Hancock is probably older than you are so he may remember it. Q208 Mr Borrow: Would I be right in assuming then that when the White Paper is published, there will be analysis of the options of a land-based and an air-based system and in that analysis it would include the timescales involved in developing a land-based or an air-based system and obviously if those timeframes were less, significantly less than a submarine-based system, that would obviate the need, were that the one to be chosen, for us to do anything significant straightaway? Lord Drayson: What we expect to see coming out in the White Paper - and, as I have said, this is a work in progress - is that the options will be reviewed and they will be set out in the White Paper as I have described. We do need to recognise that we know today, and as we have expressed to the Committee today and in the submission from the Ministry of Defence, our views on the timescales that exist predicated by the length of time it takes on the basis of a submarine system. Alternatives to that are being looked at within the White Paper and, as I have expressed today, the challenges that that would present, beyond the submarine base comes from the fact that the United Kingdom has not for some time had an air-based system and has never had a land-based system and that needs to be reflected in the assessment of the technical challenge, the technical risks that would be present. Q209 Mr Havard: I am not going to talk about the skills at the moment, but as you are on the White Paper and this is the first opportunity we have had, it will obviously mention platforms but will it mention other things? For example, I want to ask you later something about the virtual arsenal concept; the idea of saying "We are not going to have one" but still retaining the capability to revitalise one should we wish to have it. To what extent is the White Paper actually going to look at the options? Is it just simply going to be narrow? How wide is going to be and does the end of the year mean when Parliament is sitting? Lord Drayson: My understanding of the end of the year is a calendar end of the year. Chairman: Your focus in relation to the defence industrial strategy was exemplary and you got it in four days before time, so we expect and hope for great things. Q210 Mr Crausby: It is generally argued that one of the major reasons for the cost overruns for Astute was the extended gap between the Astute and the Vanguard programmes. What lessons have you learned about the problems of skill retention caused by that gap and what are you doing to ensure that similar problems do not occur between the Astute programme and a potential Vanguard successor? Lord Drayson: The central lesson that we have learnt is that if we are to maintain the level of skills that we need within an industry, this is not just applying to the submarine industry but is a general fact of the defence industry, then if we need to maintain those skills, we need to provide sufficient work to do so, but the way skills can be maintained is only by putting them into practice. It is not realistic - the United States looked at the possibility with its submarine programme - to have a pause and then look at regenerating the capability. It was deemed that it was just not practical to do so. What we have learned from the gap, as you rightly say, that was between Astute and Vanguard, is that we need to have a very clear understanding of the frequency of orders and therefore the frequency of build of submarines that is required as a minimum to maintain those skills, to make sure that we do have that capability. That requires quite a detailed look at the various trade-offs, taking into account that we have considerably reduced the submarine industry in this country; it is now at a minimum critical mass, therefore we need to make sure it does not get any smaller and we do not lose any of those skills. The analysis which we have done, which has been vindicated by external analysis, is that a frequency of orders, the drumbeat that is talked about in the industry, of approximately 22 months is what is needed to require the maintenance of that level of skills. Whether or not these are submarines which will be used for the nuclear deterrent - they could be entirely attack submarines, not bomber submarines - we should still need to be maintaining a build of submarines at that frequency to maintain those skills. Mr Gould: It is a whole raft of skills that goes from high level design, detailed design, actually practising those skills. One of the things we learned on Astute was that you could not, for example, take specialised submarine designers, give them work on surface ships, which we did, and then expect to reconvert back from surface warships to submarines at the level of skills with which they left the submarine business. The skills inevitably fade if you do not practise them. It goes beyond that. This is not just about building a submarine; it is also about building the reactor plant and the supply chain for the reactor plant and the steam-raising plant and the systems inside the submarine. To keep those skills alive and to benefit from changes that you can make to make the submarines easier to operate, easier to build, you need to do the 22-month/24-month delivery of a new submarine, but progressively, you need to change and adapt the design to reflect changes in the supply chain, changes in the way in which you maintain the submarines and that actually also keeps the skills going. We have now got that sort of rhythm built. We have been working very closely with the companies - BAE systems, Rolls-Royce, Stern & Henshaw, the MO at Devonport and they are increasingly coming together to do this as a single submarine enterprise and work together. Clearly, if you stop that, if you slow it down, then you might save some materiel costs as you slow down the number of submarines you build, but you carry the overhead of keeping the skills there and inevitably you get skill fade, so that when you try to build up again it takes you longer to do it and if you let it go too far then it becomes a very, very difficult problem to solve. That is borne out by US experience as well. Q211 Mr Crausby: So you do accept that the slowing down of that rhythm - BAE seem to be fond of this word "drumbeat" - would affect the retention of those skills. We have heard as well from SMEs that it particularly affects them; probably more than it affects BAE. If you accept that there has to be a rhythm of about two years, does then the production of the Astute submarines in some respects dictate when we will want to produce a replacement for the Vanguard submarine? Lord Drayson: The two issues are absolutely connected. It is firstly about having a critical mass of know-how and skills within the industry which are submarine design and build skills, which are, in many aspects but not entirely, common to both attack and bomber submarines. However, we also need to recognise that the length of time it takes to design a new class of submarines, should it be decided a new class of submarines is needed to replace the Vanguard, is considerable, which in itself is what is determining the timing. It is a combination of two issues which we need to manage, but within the Ministry of Defence we absolutely do accept what industry is saying, that maintaining that critical mass of skills does boil down to maintaining the frequency of build at approximately this two-year cycle. Q212 Mr Crausby: I suppose if we accept that there is going to be a regular drumbeat of two years for submarines and the number of Astute submarines is going to be six, then we almost do not need the White Paper do we? We pretty well know when you will be making the decision to produce the Vanguard successor because these things are absolutely linked. Rather than us working it out that way, when is the ideal date for a potential Vanguard successor from the point of view of skills, not from the point of view of the decision or the White Paper but from the point of view of skills retention? What is the ideal year for a potential Vanguard successor? Rear Admiral Mathews: If I just take you back to my 2024 date for the successor, if there were one, to go on patrol, then that ties in nicely with our plans for Astute which currently sit at seven boats, that is our target, if that is deemed affordable when we get there, then that sets a nice drumbeat to get to that date. So that is an integrated programme. If the decision is not to build a successor nuclear submarine, then we are in a different business. Q213 Mr Crausby: So that is taking it out 30 years then from the 2024 date? Rear Admiral Mathews: Yes. I am sure that the design life was 25 years when the original staff requirement was set. Q214 Mr Hancock: I have a quote here which says that the Government assume the lifecycle for the whole system is 30 years. Rear Admiral Mathews: But the staff requirement, when we set it, was 25 years and we design the submarine around the staff requirement. We shall send you a note. Q215 Chairman: Mr Gould, may I come back to something you said which was that a 22-month/24-month drumbeat was roughly what we needed? The difference between 22 months and 24 months may be important if, as the Minister says, we are at the moment at a minimum critical mass. As I understand it, we are currently operating at a 22-month drumbeat. Do you think that the difference between 22 and 24 could be critical? Mr Gould: It is the gap between deliveries. What is critical is the confidence that the industry has that that is the rhythm that they are working to, because then they can plan and size their workforce on that. Twenty-two is a good figure but individual submarines might actually vary a small amount without destroying or undermining that confidence. Q216 Chairman: It is just that my memory is seared with memories of "We will have around 50 ships". Mr Gould: Yes, I remember that. Q217 Chairman: It somehow seems to get down to about six and I worry that the "around two years" might become two- or two-and-a-half-year drumbeats. Would that entirely endanger the submarine industry in this country? Mr Gould: The size of the fleet that the Government decide they want to have in terms of the number of attack submarines, SSNs, and the number of SSBNs is the critical factor. Once you have that size of fleet, you can plan the industrial programmes but what the industry tells us and what we actually agree with from our own analysis is that 22 months, or around that figure, is what we can economically and sensibly do with the size of workforce and the skill base that we now have put in place. But the critical factor is the type and number of submarines that you want to run. Q218 Mr Crausby: May I just try to link that to affordability as well because affordability is all part of this in the sense that our understanding is that the price for boats two and three is not yet agreed and therefore you could not commit yourselves to boats two and three, never mind the next three, until you can agree the price of all of that. All of these things seem to be becoming dictated together: affordability, the price, the drumbeat and the 20 years or 25 years. Almost the whole business is dictating back to affordability. We hear as well that the French and the Americans are spending a good deal more than we do on submarines. Are we trying to get these boats too cheaply and is affordability affecting the whole issue of production as to whether we do produce a Vanguard successor? Lord Drayson: You have rightly highlighted that there is a real interdependence between the costs, and therefore the affordability of the system and the size of the industry which can be sustained which is determined, because we are the only customer, by the number of submarines that we require. We have looked very carefully; the whole point of the defence industrial strategy was to look into each sector and really get a clear understanding of where there was an interdependence between the Ministry of Defence's requirements as customer and the supply base. In the case of submarines, given that we do not export submarines so it is entirely the MoD as customer, we need to recognise that a nuclear submarine of either type is an incredibly complex piece of machinery which requires the highest levels of skills from the defence industry at the top level of systems integration skills through to a number of vitally important, very small companies who are providing very small numbers - twos, threes, fours - of items of equipment in terms of those items required for the submarines. Those companies, in particular those smaller companies within the supply chain, do need the clarity over the numbers of pieces of equipment that they will be asked to provide, therefore the number of submarines and the cost, and therefore the affordability, are directly related to those numbers and the frequency with which those orders will come. In the past the Ministry of Defence has had a policy which has been largely on the basis of looking for competition between bids, but in certain sectors it has become increasingly clear to us that competition does not work where the market has reached a point where it is not big enough to support competition and where there is such a small number of suppliers in that market that we have -to recognise our dependence on the supplier staying in the business at all. We recognise that some companies will take the decision to exit this business, if we do not provide sufficient clarity to them to provide us with this equipment. Our worry is that once they leave the market it is going to be much more difficult for us to be able to regain that capability in the future. Q219 Mr Crausby: So back to the question of the French and the US. Why do we expect our boats to be so much cheaper than the French and American submarines? Lord Drayson: I cannot speak to the way the United States or France go about their procurement processes. We can be proud of the job that is done by the defence industry in this country in this area. It really is world class. We have to recognise though that the number of orders which we are placing for submarines is a small number and therefore making sure that we are maintaining the efficiency of the industry to continue to invest to improve efficiency and therefore improve affordability is what we need to make sure happens. The data which we have seen, comparing prices which we have seen on the Astute class of submarines, are what give us the basis to believe that we are getting good value for money from the submarines which we are procuring at the moment. Q220 Chairman: As a matter of fact, do you believe that the US and the French submarines are more expensive than the British ones? Lord Drayson: I do, yes. Q221 Willie Rennie: Is it our defence needs or is it the industry demands or their needs that are determining this debate? I am a bit confused. Lord Drayson: It is absolutely the defence needs which come first. That is something which underpins our whole policy. It goes across defence in that the defence industrial strategy very clearly puts the defence needs first and this is a decision which will be dictated by the decision that is taken based upon the strategic defence of the country. Once that decision is taken, an implementation of that decision needs to take into account the realities of the industrial base which we will acquire should we decide to go down a particular track. The responses I am giving really reflect our understanding of those realities as they face us today. Q222 Mr Hancock: When the Rear Admiral first spoke he talked about seven Astute submarines, subject to affordability and whether we as a nation could afford them. If we cannot afford the seven and we end up with five, then Barrow have a big problem because they would not be able to hold the workforce, would they, for the period of time from the completion of the fifth boat to the start of work on the first replacement Trident? So you cannot have it both ways, can you? You cannot say there is a steady flow and this is all being done to fit in. If we cannot afford seven Astute submarines because the costs cannot be got right, then we have a serious problem in holding onto that expertise anyway, so what is the remedy then? Rear Admiral Mathews: I did not say we could not afford, I said that we had to make them affordable and I cannot order seven submarines just to make them fit in; that is not the position we are in. Where we are, is that industry understand that they have to make these submarines affordable and that is what we are working hard with them to do, to deliver an affordable programme which delivers the right number of submarines to support our defence requirements. That is where we are pushing. Q223 Mr Havard: May I just be clear about this business of skills? What I was getting from you Mr Gould was that what is crucial are the skills necessary to produce a nuclear-powered submarine as opposed to a nuclear-armed submarine. Is that correct? Doubtless there is a relationship here, but how crucial is that difference? Could you have a nuclear-powered conventionally-armed submarine? How different is the cost of that and the skills necessary to produce that than for a nuclear-powered and nuclear-armed submarine? Mr Gould: To produce a nuclear-powered conventionally-armed submarine, which is what the Astute class is, requires very much the same skills as producing a ballistic-missile-firing submarine, but to produce the weapon system for a ballistic-missile-firing submarine is quite different. We need all the skills we have at Aldermaston to produce the warhead for that system and we had the programme of cooperation with the US on Polaris and on Trident to produce the missile and the fire control system for that. The ballistic-missile-firing submarine is the set of skills you need for the conventionally armed submarine plus a lot of others, which is where the warhead technology comes in, but also there are some issues with the design of a ballistic-missile-firing submarine which are different. A complication is that if we continue a programme of cooperation with the US, if that is the decision, the rhythms for the US programme are slightly different in terms of submarine and ballistic missiles. Q224 Mr Havard: But the skills sets and the numbers of people involved in the production of the submarine, just the platform, is not hugely different. Mr Gould: No, not hugely different. Q225 Mr Holloway: The way you guys are talking about drumbeats, it strikes me that you are talking yourselves into the decision that you are going to make eventually. Are you? Lord Drayson: Not at all. What we are doing is describing the situation as it exists in reality. Q226 Mr Holloway: Well that is a powerful dialectic to make the decision to build new ones then. Lord Drayson: Not at all. What we are saying is that if the decision is taken in the future to replace the deterrent, if the decision is taken to replace the deterrent, and if the decision is taken that the right basis for that deterrent should be submarine-based, these are the implications taking into account --- Q227 Mr Holloway: So if you decide not to build a successor to Vanguard, what effect does it have on your ability to build, construct, service and operate the rest of your submarines? Lord Drayson: We would have to look then at the requirement which we would need in terms of the attack submarines, the ones which are conventionally armed and the frequency of build of those and we would still be faced with the need to maintain this capability. We could not have the option of stopping building submarines and expecting there to be a submarine building industry ten years down the track and we cannot expect, it is not realistic to expect, that that submarine industry could be re-built again. Therefore, if you want to have the option in the future to build submarines, conventionally armed or not, you have to provide a minimum number of orders and we judge that minimum number to be a drumbeat of about 20. Q228 Mr Holloway: That is a very powerful forward-moving argument from both the Navy and from industry to help the Prime Minister, to ease him into making "the correct decision", in inverted commas. Lord Drayson: I can understand why you are making that point but I do not believe it to be fair because this fundamental point also applies to other sectors within the defence industry. Some sectors in the defence industry have customers apart from the Ministry of Defence, because the technology can be used in civilian applications, say communications, or they have customers apart from the Ministry of Defence because they have export markets. In the particular case of submarines neither of those applies. We then add on the fact that a submarine is without doubt the most complex example of a piece of defence equipment. The level of complexity is to such a degree greater than other systems that it then adds to the challenge which you have. It is because of the particular aspects which are prevalent in the submarine area, but there are other markets within the defence capability where the same applies, that if the Ministry of Defence does not maintain a certain level of orders, then industry declines and then eventually disappears and it is then not possible for us to source that because we cannot source it elsewhere. Q229 Mr Holloway: Just a final observation then. It would seem to me that the decision as to whether or not renew our nuclear deterrent is in small part considerably influenced by these arguments and not the pure argument as to whether or not we have one. Lord Drayson: The first question that needs to be considered and then answered relates to the defence need; answering that question first. Then the other issues arise out of that once that decision has been taken as to what the defence need is. Mr Holloway: So there will be no surprises when the announcement is made. Q230 Mr Borrow: If it is felt that there is not a defence need for a nuclear-powered submarine to deliver nuclear weapons, the MoD would be faced with the option of allowing the industry to die or placing orders for nuclear-powered submarines that do not carry nuclear weapons, irrespective of the defence requirement for those particular submarines and therefore in the cost equation, should we decide to pursue a nuclear weapon option in looking at different platforms, the fact that we would have to spend a lot of money to maintain the nuclear-powered submarine base would mean that there would have to be a very, very strong argument indeed in favour of looking at acquiring any other platform to use as a base for nuclear weapons. Would I be right in reaching that conclusion? Lord Drayson: If the decision were taken that there was no defence need for nuclear submarines carrying nuclear weapons, then the next question relating to the submarine industry is whether there is a defence need to have nuclear submarines carrying conventional weapons. If the answer to that is yes, then there is a minimum number of submarines which needs to be built in order to maintain that capability. So yes, on that basis you then have to look at the implications in terms of the frequency in the same way. That does apply to other areas of defence where you have these very specific capabilities for which we are the only customer. Q231 Mr Borrow: Following on from the fact that this is an industry for which the MoD is the only customer with a small order book and therefore a very small number of companies involved, one key thing being worked on now, and which is mentioned in the defence industrial strategy, is greater coordination and collaboration between the different companies. How do you think that collaboration and reconstruction are going? Lord Drayson: It is a mixed picture. On the one hand, there are great signs that progress is being made. When we look at the productivity which is being achieved, for example at Barrow, the improvements which we are seeing in the Astute build, the news is good. When we look at the discussions that are now going on within industry, for example between those yards, and the expertise involved in the design and development of submarines and those yards that are involved in the maintenance and upkeep of submarines, a really good collaboration is starting to develop and what we want to do is to see that accelerated. We have expertise at both ends, what we want to do is make sure that we learn the lessons to design maintainability into our submarines and that is about good communications between the two, so that is on the positive side. On the negative side, we have seen some things recently which have worried us, for example relating to Devonport dockyard and the decision which has recently been taken by KBR which does worry us about the level of engagement which is taking place and this is something which we are very focused on within the Ministry of Defence. Q232 Mr Borrow: Would you have in your own mind a degree of collaboration and cooperation that would be pre-requisite for placing orders for nuclear-powered submarines to replace the Vanguard class? Lord Drayson: We have within the Ministry of Defence a clear strategy, which we call the maritime industrial strategy as part of the defence industrial strategy, how we wish to see industry evolve both in terms of submarines and in surface ships. We have said very clearly that we do expect industry to get on with that evolution, to improve productivity, to deliver an affordable ship and submarine programme and we do expect industry to deliver on that. We have seen some good progress in certain areas; I would say the progress which is being made on the aircraft carrier is an example. However, to answer your question directly, there is an inter-relationship between the affordability and the plan to implement a submarine build programme should a decision be taken and the industry construct that would be needed to do it in the most efficient way. Broadly speaking, that means integration of design with upgrade and maintenance to remove overlap and to make the best use of the skills and the know-how which we have in this country. One of the things we need to recognise is that this is an industry which is considerably smaller than the industry which existed at the time of the Vanguard class design and start of that process and therefore we really do need to see that industry makes these changes to ensure that we have the greatest confidence in the development and build of our future submarines. I would say that it is a mixed picture: some areas offer real positive signs and some where we do think the industry needs to go further. Mr Gould: The real constitution we are trying to get is, rather than a set of three or four companies getting their benefit, their profit and their return from a piece of the industry, building the reactor, building the submarines but not maintaining the submarine, only maintaining the submarine, that actually the industry gets its benefit, as we are achieving with the carrier alliance, from the overall performance of the enterprise, so they pool resource, pool skills and they have the same intent in terms of designing for maintainability and ultimately contracting for availability. If you contract for availability, then you have to have an industrial enterprise that can take some of the availability risk from us into the enterprise, which means they have to pool design, maintenance and engineering together into a single enterprise. What the commercial construct for that is, is of less concern to me than the management behaviour which you get by having that contracting pattern. Q233 Mr Borrow: What encouragement and incentive is the MoD giving to the companies to achieve what you want them to achieve? Lord Drayson: It comes primarily from the fact that we are the customer, we determine by the way in which we behave the way that industry responds. You get the suppliers you deserve, depending on how you behave as a customer and for us, the incentive comes from us making it clear to industry that there is a connection between the order that we place and the investments and the decisions that they make, so we reinforce positive behaviour. Secondly, having the commercial incentive, so we have the level in terms of the orders themselves but also in the structure of the contract. The breakthrough which the Ministry of Defence has made in these sectors where there is this clear interdependence between the supplier and the customer is coming up with new contract structures which incentivise industry to perform, in other words to deliver equipment, such as a submarine, to time and to cost and if the industry construct does that, it makes an enhanced profit. So you reward through performance incentives for good delivery, that good delivery on cost and time comes from investment in skills and so forth and that is the incentive that you bring. Q234 Linda Gilroy: I would remind members that I have a declared interest in respect of DML in Devonport. Obviously I have had some concerns about the events of the past week, I am not quite sure how clear other members of this Committee will be about what has been happening there Minister, so may I invite you to flesh out a little bit more what you have said about having concerns about the recent behaviour of KBR and the extent to which that reflects on what you have just been describing as to how you achieve the positive behaviour and culture that you have been striving for. Lord Drayson: What I have been talking about is this recognition of an interdependence between the supply chain, the industry and the Ministry of Defence and in the case of Devonport, Devonport is clearly a strategic asset of the United Kingdom, it is responsible for the re-fuelling of our existing Vanguard class of submarines, the maintenance therefore of the UK's nuclear deterrent and I am concerned at the way that the spin-off of KBR, who are part owners of the DML facility has been undertaken recently. The fact is that we expressed to the company, to KBR, our concern that, given the performance of KBR as part of Halliburton overall and, given the importance of DML to the UK in terms of nuclear deterrent, we needed to assure ourselves in the Ministry of Defence that any changes in the capital structure had no negative impact on the MoD and the nuclear deterrent. We were assured by the company that we would be provided with the financial information to enable us to reach that conclusion before the company proceeded with the IPO and the start of this spin-off process. I was very disappointed to see that the company did not provide that information and has gone ahead with the IPO process. This has significantly undermined our confidence in the company and this was clearly put to the management of the company yesterday. We need to expedite this financial review, but there are serious issues that need to be resolved to the satisfaction of the Ministry of Defence because this is very important to the national security interest. Q235 Linda Gilroy: From the point of view of how this has been perceived locally, where there has obviously been intense interest, they are behaving like an absentee landlord. I wonder whether you could just say a bit more about what the implications of that are for achieving the sort of investment that might be required in the dockyard to meet the continuing safety cases etc. Lord Drayson: This is at the heart of the information which we require to see. This is the financial information which we asked to see before the company went ahead with the IPO process. We do need to see this information: we have not seen it yet. It is very important that we do see it, because we need to assure ourselves that there is the capital structure to ensure that the investment is provided to maintain this very important facility in the future. Q236 Linda Gilroy: Could you finally tell the Committee what options are open to MoD, to the Government, if you do not receive those reassurances and what opportunities there may be in relation to the consolidation of the industry and what skills base? Lord Drayson: We have a number of options. We have a special share in the company which gives us significant rights. We are reviewing those options at present. I must say that we take this very seriously indeed and we are looking at this issue right now; we have taken no decisions at the moment. We have pressed the company and made it absolutely clear that we require this information urgently and we are reviewing the position. Q237 Mr Holloway: I hate to go back but I am not quite clear on the question that one of my colleagues asked about the cost of French or US submarines. Would they be more expensive because obviously you have the very high social costs of the skilled workforce that we have here already? Would it be that you still have significant expense in terms of servicing and maintaining foreign boats if you bought them? Why is it that off-the-shelf stuff would be so much more expensive? What is the reason? Lord Drayson: It would be wrong to characterise a nuclear submarine as something which is off the shelf. Q238 Mr Holloway: We have some common parts at the moment in terms of the re-entry vehicle and so on, so .... Lord Drayson: I am not clear about the question. Q239 Mr Holloway: All I am saying is that there cannot be a gigantic difference, if we accept that we are going to have a nuclear submarine, between one made in France and one made in the United States. How is it that a US one or a French one would necessarily be so much more expensive? That is what I am trying to get at. Lord Drayson: Do you want to talk about the differences? Rear Admiral Mathews: We need to careful that we are comparing apples with apples rather than apples with pears. For instance, the Americans design their submarines for a longer life and they have a more expensive core because it is designed for a longer life. They have gone down a different technology route to get there and we have not invested in that technology. So there are fundamental differences between the US submarine programme and our own. I am afraid I cannot comment on the French programme. Q240 Mr Jones: May I ask something in terms of the maritime industrial strategy? You are quite clear about what the role of industry should be, but how do you actually see the role of you as the customer? This morning we took evidence from trade unions, particularly the ones from Barrow, who were making the point that what was needed there was continuation of work to keep the skills set in place and clearly some of the decisions here are possibly going to lead to gaps in that procurement process for submarine work. How do you see your role in ensuring that industry has the orders there to keep those skills together? Would you consider, for example in Barrow, putting in surface ships to stop any gap in work orders that could actually result just from the process as your drumbeat goes through on the nuclear side? Lord Drayson: We do recognise within the Ministry of Defence, not just in submarines and in shipbuilding but generally, that where we have determined that there is a strategic defence need for us to maintain in this country a sovereign capability that puts on the Ministry of Defence a responsibility to understand what level of work will maintain that capability. So if we decided that a capability was necessary for our defence needs, and there are various reasons why we may have done, as we set out clearly in the defence industrial strategy, then we have to go to the next step, which is to analyse and understand the industry well enough and to get industry to understand our military needs well enough, such that there is a joint understanding with industry of what is a minimum level of business which will maintain that capability. That is not an easy thing to do. That is something which we have been working hard to do, particularly over the last years; we have implemented the defence industrial strategy. So in the particular case of Barrow and submarines, what we have learned is that yes, in the past, for example when there was that gap which we now, with hindsight, can see was too long a gap between the Vanguard class and the Astute class, that gap was in part filled with surface ship work. Now that certainly helped but we need to recognise that the type of work involved in surface ships, both from a design and manufacture point of view, is qualitatively different from the work involved in submarines and members of the Committee have visited the various yards and you have seen for yourself that they are really quite different. So although in some part you can use work for surface ships, such as, for example, we anticipate that work from the forward surface ship programme will be in part done by Barrow, it does not totally solve the problem for you. You need to recognise that. Notwithstanding that, the issue relating to submarine design and build is only maintained by maintaining those skills at work applied to submarines. Q241 Mr Jones: So how do you do that? Lord Drayson: Then it is about balancing the workload and making trade-offs between the two, given a decision about the defence need. Everything comes down from at first determining what it is within the equipment programme we decide that we need and how then we can encourage by carrot and stick the industry to right-size itself for that forward equipment programme. Q242 Mr Jones: We were told this morning that it takes nine years to train someone in submarine design and some of the other technologies involved. Clearly, in terms of the investment industry needs to make in that, they need some confidence for their shareholders that you are not going, half way through that nine-year programme, to say you are sorry but you do not really need that. How are you going to give that confidence to the industry that, for example, with submarines - and I accept all you are saying about the difference between that and surface ship work - they know that if they are going to take on apprentices and graduates to get that expertise the work is going to be there over the longer term? Lord Drayson: This interdependence, which has been described by other people as the chicken and egg situation, is that on the one hand it is about the Ministry of Defence providing clarity of the forward programme and then sticking to it, but on the other hand industry then seeing that the quid pro quo for that clarity is that industry invests to improve, through continuous improvement, the affordability of that forward programme and not sit on its laurels and take the forward programme without making significant improvements. So we need to see both things reinforce each other and go forward together. Q243 Mr Jones: I understand that but the big elephant in the room which perhaps you do need to talk about is the Treasury. Have you actually got the Treasury signed up to that type of thinking which is committing MoD spending quite a long way into the future, if you are going to go to business and say you can give them this commitment? Is Treasury signed up to that? Lord Drayson: You have put your finger absolutely on the importance of the Treasury being on board with this. Q244 Mr Jones: That was not the question I asked. Lord Drayson: The answer is yes. The Treasury is rightly concerned at making sure that we are generating best value for money for the taxpayer. This is an iterative process with industry. The Treasury signed up to the defence industrial strategy as a signatory to the defence industrial strategy and the Ministry of Defence is keeping the Treasury fully informed of the process of the programmes as we take them forward. Mr Jones: I should be very wary if I were you, Minister. Q245 Mr Hancock: In your letter that I received today, you talked about the first anniversary of the maritime industrial strategy and your disappointment that the consolidation that you were seeking within the industry had not been forthcoming with quite the speed you had anticipated. That is a fair point and I have heard you talk about it before. You also said that part of the problem there was that the order book from the MoD had never been rosier for the industry than it is at the present time, but that is a very short-term view. Does it not then make it difficult for you to be able to push the price down of say the Astute submarines to an acceptable level which would allow you to have the continuity of the programme that you need when they see very much that they have you over a barrel, very much like Devonport would claim they have you over a barrel over their refitting and refuelling of the submarines? Lord Drayson: I think we have each other over a barrel. We are the only customer that this industry can go to and they are the only supplier that we can go to as the customer, so there is a useful interdependence; someone called it a Mexican stand-off. Q246 Mr Hancock: But do they need you more than you need them? Lord Drayson: We both need each other. It is taking more time in the maritime sector than we have seen in other sectors where there is not that rosy position in the short term relating to orders. Nonetheless, I have seen, as I indicated, some good signs: what we have seen on the aircraft carrier, what we are seeing taking place on Astute. We learned a lot, the Ministry of Defence and industry together, the hard way on the Astute programme, going back to 2003 and we are now in a position to look at the prices for boats two and three based on a real understanding as boat one comes to completion. It is about making sure we get the right limited liability in terms of the risks of the programme in respect of the costs. So we depend upon each other and it is my job as Minister of Defence Procurement to make sure that the Ministry gets the best value for money it can, consistent with ensuring that we sustain the capability where we have determined that those capabilities are in the defence interest. Q247 Mr Hancock: How could Parliament and the country know that, when we get the White Paper and the preferred option possibly is to replace the Trident boats, we can actually afford it, that the price quoted at the beginning of 2007 is actually going to be a price the nation can afford? The repercussions of not being able to meet that cost would be pretty horrendous for the Navy and probably for the MoD generally. What steps are you able to take, what lessons have been learned? It is obvious from your own words that the industry itself does not accept that they have too much of a responsibility to force the price down? Lord Drayson: I do not accept that. I really have seen a recognition take root in industry, particularly over the last six months, that the Ministry of Defence means it; I really have seen that. We have seen improvements in performance, measurable improvements in performance. Mr Gould: Taking Astute, we have done what we said we would do in 2003, which is use Astute one to re-establish the industry, re-establish the capability to build submarines at Barrow. That has now been done, that has been externally reviewed and the conclusion is that we have actually achieved that, which puts us in a position of knowing that we and the industry understand what a good challenge but a reasonable cost for industry of building an Astute submarine is. I am optimistic that we are close to agreeing prices on two and three. The important thing is to keep that going. So we keep that going through future orders, we have had significant overhead reductions driven by the management at Barrow to demonstrate that they can actually improve the running of the business, we have a much better approach now from Rolls-Royce and associates on how we are going to maintain and manage the nuclear-steam-raising plant throughout its life. They are investing in people, investing in capability, interested in future design changes to make it easier to build and easier to maintain. Indeed we have, with DML, the management company in Devonport, some good cooperation starting in how we can build on what we are doing with Rolls-Royce in terms of reactor maintenance into submarine availability contracting. The important thing is not to lose that momentum. We have the momentum moving in the right direction and the only way we can assure that the price that we now understand is the right sort of price for these submarines remains at that level is to maintain that activity and that engagement by ourselves and by the key companies in the supply chain. Q248 Mr Hancock: Is there a price that is too high or is the decision to have a nuclear deterrent irrespective of that? Mr Gould: There is a price that is too high and there is a price that is too low. A question was asked previously about whether we are trying to drive the cost down below where it is reasonable to have it in terms of comparison with the US and France. There is a level of cost below which you simply cannot do this kind of work. Q249 Mr Hancock: I can understand that. But there is also a cost that the country cannot afford, is there not? Mr Gould: Yes, there is. Q250 Mr Hancock: The question really is: can we afford not to have a deterrent and can we afford not to pay for these submarines? Mr Gould: This is about industrial skills and capability. Q251 Mr Hancock: That is how you get to the price though, is it not? Mr Gould: Yes. What is the right level of price for this industrial capability for these products? It is not for me to decide whether or not we can afford that. That, with respect, is more for you. Q252 Mr Hancock: I would remind you that I did raise the issue about the 30-year lifecycle and you changed your mind then because I was actually quoting from the Strategic Defence Review of 1998, paragraph 62, where you said it was 30 years. The Rear Admiral said he was sure it was 25. You changed your mind. So the price for the existing boats that we have has decreased because we are going to have to pay now, if we extend the service, to keep them in the water for the period that they were originally designed for. Rear Admiral Mathews: We promised a note on that and my understanding is that the original design life set at the staff requirement was 25 years, so I am unaware of where that figure has come from. We will get you a note on that. What we are facing here is that this is a long-term business, long-term time constants and therefore we need long-term decision making. Where we are with industry is that they have recognised that, they have recognised that the route that we went down with Astute was not the right way because we set off with competition and that has led to a set of behaviours and positions in MoD and industry in not the best collaborative way. In looking at the future programme, we have to recognise that we need to work together here. We have downsized the industry, we have downsized MoD, we have a limited set of skills between us and the only way we are going to do this is by working together. So industry have already started to grasp that and they have done a number of things. Mr Gould has already talked about taking out the cost of the overhead at Barrow, but they are also looking at how to reduce costs in building Astute and we have made some significant cost reductions in the future programme. At DML we have taken out quite a lot in terms of the nuclear overhead charge; we have had a programme there called the submarine upkeep improvement programme which has taken out significant amounts of money from the annual expenditure there and with Rolls-Royce we have changed the relationship into a performance-based contract, so we are moving ahead here with industry. What we have not achieved yet is joining those three up to work collaboratively together with us and that is where we need to go next. Q253 Mr Hancock: To get to that point on the Astute submarines did you downgrade the specification of the next two boats as opposed to the first boat? You say you are getting the costs down. I want to know whether in getting the costs down all the give has come from one side or have you, at the Ministry of Defence, degraded our spec in any way? Rear Admiral Mathews: We have looked at what we can do in terms of flexibility of specification, yes, and requirement, what we really need, because we have to make these boats affordable. So yes, there have been some changes in requirement, but the key user requirements are still there and we intend to meet those. Mr Hancock: It would be interesting if we could know what they were and what the costs were. Q254 Chairman: Can you let us have a note about what the reduction is please? Rear Admiral Mathews: Yes, we can. Q255 Linda Gilroy: We have talked quite a lot about the significant behavioural and structural improvements that you have been looking for, but in the event that the UK opts for renewal of a submarine-based deterrent, how are you preparing to manage a project of the likely scale of the Vanguard's successor? Lord Drayson: If that is the decision which is taken, we start from the good position that we have the infrastructure and the know-how in place for the existing system and we have the recent experience, as we have discussed this afternoon, of the Astute. What we have to do though is also recognise that we are going to need to recruit into the project team additional people with expertise. We judge that in that we shall be competing with the civil nuclear industry in some areas, but we judge that it will be possible for us to do this. We also take into account that, notwithstanding that we have been operating a system which is submarine based for some time, we take into account the challenge that the size of the industry we have today is considerably smaller than the industry that we had at the start of the Vanguard programme because of the number of submarines that were being built at that time compared with the number of submarines that we are building now. Notwithstanding that, we are confident. Where does that confidence come from? It comes from initiatives which we have been putting in place within the Ministry of Defence to strengthen the Ministry of Defence's general competence across defence procurement in terms of project management, the range of skills that we need in terms of commercial project management skills, in terms of defence procurement generally. All of these are as applicable to a project such as a major submarine project as they are to other projects in addition to the skills which are needed which are peculiar to a nuclear submarine. Q256 Linda Gilroy: When there were Polaris and Trident, dedicated organisations were maintained to manage the project and those no longer exist; there have been big changes in procurement of course since then. Can you just say a bit more? Will it be an IPT, will it be a special model of managing procurement, if it goes ahead? You have said that you are confident that you will find suitably qualified and experienced staff, but where will you find them to manage a project on that scale? Mr Gould: It is clearly a massive enterprise doing something like this, which is why when we did Polaris and then Trident we had special organisations to do that. In many ways, those were precursors of IPTs because they were big organisations which brought all the necessary internal skills together to manage over a long period of time an extremely complex and challenging programme. That is actually what IPTs do; it is a question of scale more than anything else. The difference is that quite a lot of the things that we did in-house, especially during Polaris but also during the Trident programme, we do not now do in-house. What we shall have to do is actually recognise this is a national enterprise and what we have to create in terms of an IPT is something that is much more like the carrier. I am not talking about commercial arrangements but the behaviours where we bring ourselves and people from outside industry together into a joint team to execute a programme of this size. What is absolutely clear is that, if you are going to execute a programme of this size, you must make sure you resource it properly, not just in terms of money but in terms of the internal skill. By "internal" I mean people we recruit or bring in on secondment from outside industry as well to resource the programme properly. Q257 Linda Gilroy: So accepting that no decision has yet been taken, but given the likely in-service date of the potential Vanguard successor, should there not be at least some sort of shadow project management team set up and running already? To what extent does the need to have a decision relate to having that in place? Mr Gould: It clearly helps to have a decision if you are going to set up a project team. Because of what has been happening on investigating options and so forth and because of what is being done on the nuclear programme generally, quite a few of the elements of that sort of team are really in existence, but clearly we will have to grow very considerably to execute a programme of that size. Q258 John Smith: Just responding to the exchanges this afternoon, is it not the simple truth that if you look at the skills bases and retaining the skills capability, the moment we put in a defence industrial strategy that we are going to retain sovereign skills in submarine building, then we effectively commit ourselves to a replacement of Trident which is submarine based? Lord Drayson: No, I do not accept that. Q259 John Smith: Or alternatively we are going to find a use for nuclear-powered attack submarines, whether we need them or not. Lord Drayson: No, I do not accept that. Right at the start of the defence industrial strategy, it says that whereas in the past we have had an industrial policy for defence, that policy set out principles by which we would take procurement decisions but it did not put them in an order of priority. The defence industrial strategy, for the first time, put the decision framework in an order of priority and it said that the first priority will be the defence need. So what comes first is what the country judges its defence need to be in terms of strategic nuclear deterrent. After that decision has been made, what is the country's defence need in terms of submarines? From that, given that decision, you are then down to what it is that needs to be done to make sure that the country has the capability to implement that. Q260 John Smith: But it says that for the foreseeable future the country will retain the sovereign capability. In all this discussion about the skills and the so-called drumbeat, surely the only conclusion you can draw is that if you do not replace a submarine-based Trident system then you will not be able to maintain that continuity and that sovereignty. Lord Drayson: You have to put this in the context that the defence industrial strategy identified those areas of defence equipment that the defence need determined we needed to have a sovereign capability to fulfil from this country. To discriminate between those areas of defence equipment where we had satisfied ourselves that we would be able satisfactorily to procure those items of equipment outside the United Kingdom and those pieces of equipment where we have judged that it is not possible or not in the defence interest of the country to procure them outside of the United Kingdom, we said that there was a relatively short list, and we spelled them out in the defence industrial strategy, of those items of equipment which we do not believe it is possible for us to procure outside the United Kingdom and that is what we mean about sovereign capability. Therefore, if one requires that equipment as the defence need, and it could be for a particular piece of equipment that we decide we do not have that defence need, in which case we do not have the need for that sovereign capability. It is important for us to be very clear the order by which this decision is taken. It underpins the whole approach to our defence policy with industry. Q261 Mr Jones: I accept that the defence need comes first in any of these debates and that is one of the refreshing things in the defence industrial strategy. However, there is a also a crunch date coming there for industry in terms of their investments, in terms of skills and knowing when to ramp up and what long-term needs are. When is that crunch date for industry then in terms of links to the defence need? Lord Drayson: The crunch date with regard to what? Q262 Mr Jones: A date by when decisions on the submarine capacity building, for example, in this country need to be taken in terms of investment in skills. There is no way you are going to have BAE Systems and others just waiting for the next five years, just saying it might be next year or it might be the year after when these decisions are taken. When is that crunch date for that capability, because the alternative is that they turn round and say they do not want to be in this business, it is not worth their while being in it. Lord Drayson: In terms of making sure that if the decision is taken that we need to replace the nuclear deterrent and if the decision is taken that that is submarine based, then to ensure that we have the capability to deliver that in time for when the existing submarine-based deterrent comes to the end of its life, then we need to take a decision on that next year. Q263 Mr Hancock: At least three of us in the room have a direct constituency interest in the outcome of the naval base review. I am interested to know how much of an issue the replacement of the deterrent is in reflecting how that decision is going to be made, particularly considering the suggestion that Devonport have an irreplaceable opportunity here when it comes to their role in servicing these boats. I really want to know whether the naval base review is being done on a fair cost basis of what can be saved, what can be achieved and the good of the Navy, or is it simply being done to facilitate KBR and DML being able to service nuclear submarines in the future. Lord Drayson: I can be very clear on that. The naval base review is being carried out very clearly to address what the needs are that the Royal Navy has going forward from here in terms of the maintenance and upkeep of the fleet. It is not about those industrial considerations that you are talking about. It is what it is that we need in terms of the maintenance of the fleet, to match that with those needs and to make sure it is then done as efficiently as possible, consistent with having an industry which can be healthy and can prosper to meet those needs. Q264 Linda Gilroy: I would just follow on from that by asking whether there is some relationship nevertheless between being able to drive out costs in both areas, coming from the synergies that can be obtained by co-locating certain activities. Lord Drayson: I am sorry; I do not really understand the question. Q265 Linda Gilroy: I took from your answer just now that you were saying that there is no relationship between the two. Perhaps I could very simply ask whether there is in fact a relationship because there are savings to be made that can be achieved by co-locating activities on submarine work next to naval support work. Lord Drayson: You are absolutely right that there is an inter-relationship in that we have existing facilities around the country which are carrying out various parts of the supply chain relating to submarines. Those facilities are also connected in terms of where they are located on a naval base and therefore there is an impact across the two. It is important for us to be clear as to the purpose of the naval base review which is a separate objective to the objective which we have in terms of the maritime industrial strategy but, being smart about joined-up government is important. The way in which we manage those two is that we understand that inter-relationship and we manage it effectively. Q266 Willie Rennie: Although Rosyth does not have a naval base I shall not turn down the opportunity of asking a question. How radical are you prepared to be with this naval base review? Lord Drayson: Radical. It is absolutely right for us to have a proper look at what the Navy needs, how we can most efficiently divide that to the Navy and how we can do that in a way which is, firstly, taking into account the needs of our people in the Royal Navy in terms of where base porting is, how the fleet operates, what it is that makes the Royal Navy as effective a fighting force as it can be and how we can make that as sustainable as possible and then how we can do it in a way which allows us to develop modern facilities in which industry is incentivised, because of the environment which we create, to invest and to maintain into the future. What we want is something which is for the long term, delivering absolutely what people need within the Royal Navy to enable them to do their job properly and, secondly, that is sustainable for industry so that industry can make a healthy profit in working to supply these services to us but consistent with providing real value for money in the way in which it does it. Q267 Willie Rennie: Could it involve the closure of one of the Navy bases? Lord Drayson: We need to look at all of the options and it would not be right to pre-judge that by saying anything is off the table. We are looking at all of the options. You asked me directly and I did give a straight answer: radical. That does include looking at the potential closure of one of the Navy bases, but we have not made any decisions about that as yet. Q268 Chairman: Can we move on to Aldermaston? It has been a recurring theme of the evidence session this afternoon that in essence the decision has already been taken. If you look at newspaper reports of the Prime Minister talking to the Cabinet a couple of weeks ago about the strategic nuclear deterrent, all the implications are that he has made his own private decision even if there has been no formal government decision. Is it not a bit unpersuasive to say that the Government have just not made up their mind? Lord Drayson: No. It is absolutely right for me to set out the situation as it exists, which is that we are now looking in detail at the options and no decision has been taken at present. I can understand why people look at the Aldermaston decision next year and I do believe that in some quarters people have become confused about what the Aldermaston investment is for. I can understand where the worry has come from and I shall ask Nick to give some more detail on this. In essence it is very important for us to understand that the investment in Aldermaston is about ensuring that we make the proper investments in both the infrastructure and the scientific capability of the country to ensure that we fully understand, given the developments which we know take place in terms of nuclear physics and the technology which is available to us, that we invest in those tools as they develop, for example computational power, to make sure that we fully understand the existing nuclear deterrent, that we are doing everything we properly need to do to characterise it, to ensure that it is effective and to ensure that it is safe. The investments in Aldermaston are into those facilities, the Orion laser project is all about using laser technology to make sure that we fully understand the hydrodynamics within the warhead because under the treaty which we have signed we cannot carry out tests to ensure, as the warheads age, that they are operating correctly. We therefore have to do the physics, the computational analysis to ensure that they are. The investment which we are making in Aldermaston, both in terms of people and facilities, is addressing that issue. Q269 Chairman: I wonder, when Mr Bennett expands on that, whether he could possibly tell us why this could not have waited until there was a formal decision on the strategic nuclear deterrent, which seems to be any moment now. Mr Bennett: Because the investment at Aldermaston is unrelated to decisions on a future strategic deterrent. The work which is in place there is essential to maintain the current deterrent. If we wish to maintain the Trident warhead through until the mid 2020s then the work which is in place at Aldermaston underpins that; it underpins that entirely. It does not underpin currently a future deterrent. Q270 Chairman: But it underpins that, so far as I can remember, according to Dr John Reid when he was Secretary of State, and it provides for the future level of skills needed in order to keep our options open to renew the nuclear deterrent. Mr Bennett: Yes, that is quite correct. The way in which we go about ensuring ourselves of the surety and performance of the current stockpile is what we call science-based surety. There is a programme, as the Minister has said, which puts in place across a number of strands, hydrodynamics, plasma physics, materials and high-powered computing, the means of understanding the way in which the current warhead works. You need all of that and if you were in the future to wish to develop a new warhead, then you would need the skills that will produce to allow you to do it; in essence the capabilities that Aldermaston will be putting in place will allow us, should we ever wish to, to develop a new warhead, but they are absolutely essential to the maintenance of the current one. The two are actually indistinguishable. Lord Drayson: The important point is that the existing laser, for example, that we have been using up to now to enable us to replicate the conditions to be able to do this work to ensure the warhead, is 25 years' old. You can imagine the way laser technology has moved in 25 years, therefore we need to replace and update this laser. It is a very major investment and whether or not we make a decision to replace the existing deterrent, we have a responsibility to make sure that the existing deterrent we have today is safe and is effective in the context of the Nuclear Test Ban Treaty and therefore we have to make this investment. Q271 Chairman: So suddenly we introduce a brand new Orion laser and you can understand how this misunderstanding that a decision has already been taken might arise, can you not? Lord Drayson: In describing this area in my introduction, I absolutely understand the concerns people may have, which is why it is very important for us to explain very clearly what this investment in Aldermaston is for. Q272 Chairman: What do you think the Chancellor of the Exchequer meant in that speech back in the summer when he said we would retain the nuclear deterrent? Lord Drayson: I think the Chancellor was --- Q273 Chairman: Was he repeating manifesto policy? Lord Drayson: It is the policy of the Labour Party, on the basis of which we fought the last general election in terms of the manifesto commitment. Q274 Mr Havard: We had some evidence this morning from Greenpeace and they say that upgrading Aldermaston could lead to a resumption of nuclear testing by another route using exotic technologies and its access to US expertise and facilities to develop a new weapons-testing programme and that the purpose of the current investment is in fact to develop a new weapons programme. That is what they say you are doing at Aldermaston. One of the things I asked about earlier is this idea of a virtual arsenal, in other words you do not have the boat, you do not have the missiles, you retain the capability to revitalise the nuclear programme should you wish, some would say like the Japanese are and they decided yesterday not to do that in response to North Korea. I mention that now because it seems to me that what Mr Bennett is saying is what I understand the position to be and what was actually declared when you made the investment recently, which was to say that you would keep not only questions of current safety, but the minimum capability to design a successor, should it be required, and keep all the options open. So in terms of the skills there are at Aldermaston, there are all the skills required to do all of these things along this continuum. Should you wish to go to a position where Aldermaston, like Porton Down, which does not produce aggressive weapons in terms, say, of biological weapons, but is there to defend against them, should you wish to use Aldermaston more for a defensive process or a verification process and looking at those sorts of aspects, all of those skills are there because you need the same skills to do that end as you do to develop a new programme. Is my understanding right? So it is truly a case that Aldermaston is almost, as you said at the start, separate from the argument. Lord Drayson: I think that is right. We have a responsibility as a nation to make sure that we are doing everything we need to do to ensure the safety and effectiveness of the existing nuclear deterrent and that requires an investment in Aldermaston in terms of skills and facilities and for us to invest to upgrade those where we have the potential to use developments in physics and computer science to do so. That is the basis upon which that decision was taken, the reason it was taken, but it is absolutely true to say that those skills and that know-how does have relation to the capability within this country in terms of the potential ability in the future should it be required to design a new nuclear warhead. We have to take that decision relating to the maintenance separately anyway. Q275 Mr Hancock: I agree entirely with that concept that you have to test the existing warheads to be sure of their capability, their suitability and their safety. You would have had to have planned some time ago to bring these current acquisitions into play and I should be grateful if you could explain to me over what timeframe these decisions were made to buy this new equipment that you should have had, that you were thinking about, when you started to adjust the warheads in the late 1990s? Mr Bennett: The programme that we put in place was started by the previous Chief Scientific Adviser some three and a half to four years ago and that led to the establishment of the current programme round about two years ago. Up until that point we had been satisfied with the process that we had there, but we were reaching a point where the majority of the facilities at Aldermaston were over 50 years' old and we were entering a regulatory regime where we were going to need either to refurbish those or replace those or we would be unable to keep those going. This is not something which came upon us suddenly: we had reached the point where finally we had to do something about it otherwise we would have found ourselves in a position where we would not be able to maintain the current programme. Q276 Mr Hancock: Are we talking about the facility or the kit inside the facility? You said that the facility was now 50 years' old, but that is the organisation itself, is it not? We are talking about you having in place equipment to test the existing missiles which are now currently on boats at sea, the UK's deterrent. I am interested to know when the decisions were taken, how it was agreed and how much it cost to finance the upgrade of that to carry out that same process. Mr Bennett: I am sorry, but I am still not quite clear as to the exact question. Mr Hancock: I want to know when and how much it cost. When were the decisions made? We heard this morning that a lot of the investment in Aldermaston was to re-establish the buildings, that some of those needed a lot of ... and I entirely accept that. I want to know about the specific equipment which has been purchased or is in the process of being purchased. When was that decision made? Chairman: Are you talking about the laser? Q277 Mr Hancock: The laser and --- Mr Bennett: Europe's largest computer. That was taken in 2005. That was when the programme was approved by Ministers. Q278 Mr Hancock: Was there a plan before that? Lord Drayson: Yes. Mr Bennett: Yes, there was. Q279 Mr Havard: It followed through from the decisions made in 1998 as I understand it. That is what I am trying to establish. Aldermaston is required to dismantle things as well as build things. It is their role to keep things safe in the interim. It has to do all of these things. Even if you decided to junk the whole process tomorrow, you cannot take it down to the dump, can you? You have to do something with it, so you require these skills to do that. In a sense the institution of Aldermaston might be capable of doing one and all of these things and some might be more desirable than others but nevertheless it has to be capable of doing them all and therefore is almost coincidental, though related, to the decision about whether you are going to continue and develop. Is that correct? Lord Drayson: You have made a very important point, which is that the need would still be there. Even if a decision were taken to dismantle the nuclear deterrent we have a responsibility to the country to do that safely and we have to have the expertise and capability to do it. That capability would depend upon Aldermaston and we have to make the investment to ensure that the know-how and the capability are there and up to scratch. That is why that investment is needed. Whatever decision is taken about the replacement of the deterrent or not we do need to have that capability at Aldermaston. Q280 John Smith: Are you concerned about the closure of the physics department at Reading University which was announced yesterday given the number of recruits you take? Lord Drayson: Speaking more generally, the number of physics departments which have closed in the country is a concern to us. This country depends upon having a significant and growing pool of scientists and engineers, physicists, chemists and so forth, therefore we need to look at the way in which we encourage young people to want to go into these disciplines and then make sure that the support is there for them. We have a number of other sources of physics graduates apart from Reading, but it is true that we believe it is a pity that the physics department at Reading has closed. It is not affecting us in a dramatic sense, but speaking generally, if I may. Mr Gould: As I understand it, recently recruitment of physicists has not actually been the main source of difficulty in recruitment at Aldermaston. Some of their other disciplines have been more challenging. Q281 Chairman: What skills are most at risk and hardest to find? If a civil nuclear programme is pursued, what will happen to skill retention at Aldermaston? Mr Bennett: It is interesting that the most difficult skill we have to recruit at Aldermaston is actually project management. In terms of managing a significant infrastructure programme and delivering that to time, bringing that in has proved something of a challenge and we have covered that by Aldermaston doing a partnership deal with a project management specialist company while we continue to try to grow and develop those skills. Across the rest of the organisation it is actually extraordinarily healthy and retention rates are significantly higher than the industry average; a large number of people queuing up to apply and trying to join the organisation. Q282 Chairman: Would the civil nuclear programme drain skills away from Aldermaston? Mr Gould: There might be some impact, but actually it is a very different operation. The civil nuclear programme being run by the power generation companies will use what is now pretty mature technology: third generation reactors are mature in terms of their design. We are really talking about engineering and not the kind of physics which goes on at Aldermaston. There might be some overlap, some competition for disciplines, but actually there is not really a great deal of pull to the civil programme from Aldermaston. Mr Bennett: We should be clear that it is not just physicists either. Across the materials and the computing and other fields a significant number of other engineering and scientific skills are required, so please do not just focus on physics. Q283 Mr Havard: I am trying to concentrate on the functions it is capable of doing. The question of what it is doing and what it would be expected to do or not and how that relates to treaty obligations and other things is a separate but related set to questions and at some point we do have to get into that, because we have assertions made that some of it is not consistent with ... That is not for today. As far as the actual facility itself and its capabilities and skills are concerned, we have cleared that issue. You would require it whether you were doing away with it or developing it. Mr Bennett: You would. Lord Drayson: May I make a general point that it is not just in this area? We are seeing a real pressure on project management skills. The level of growth taking place in the country, the projects, major infrastructure projects which are taking place, things like the Olympics and so forth, are having an effect in terms of the availability of top level project management skills which, along with top level systems engineering skills, are two areas of capability where we need to do more in terms of the development of numbers of graduates in the country. Chairman: Thank you very much indeed for that evidence session; it was most useful. It was most helpful of the Ministry of Defence to come along and give evidence today. |