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This report analyses the Annual Report and Accounts 2006-07 of the Ministry of Defence (MoD) which comprise the Annual Performance Report and the Consolidated Departmental Resource Accounts. It also draws on the MoD Public Service Agreement Performance Report: Quarter 1 2007-2008 received just before the Committee's evidence session with the MoD's Permanent Under Secretary of State, and the MoD Public Service Agreement Autumn Performance Report 2007-2008 published shortly after our evidence session.
The MoD's assessment of its expected achievements against its six Public Service Agreement (PSA) targets, which run until the end of March 2008, has deteriorated since the previous year's Annual Report and Accounts. At the end of 2007, the MoD did not expect to meet the target relating to generating forces and expects "only partly" to meet targets relating to recruitment and retention, and defence equipment procurement. The failure to meet the target for generating forces is a consequence of the continuing high levels of deployment of the Armed Forces. We are deeply concerned that the Armed Forces have been operating at or above the level of concurrent operations they are resourced and structured to deliver for seven of the last eight years, and for every year since 2002.
Achieving manning balance in all three Service continues to be a challenge and neither the Royal Navy nor the Army is expected to achieve manning balance by April 2008. Shortages remain within many specialist trades in all three Armed Services and, in particular, within the Army Medical Service.
We are very disappointed with the failure to meet harmony guidelines in the Army and the Royal Air Force. This is another clear indicator of the pressure on our Armed Forces from the continuing high level of operations. We find the continuing failure to meet harmony guidelines unacceptable and we expect the MoD, in its response to this report, to set out what impact the failure to meet harmony guidelines is having, particularly the impact on the retention of Service personnel.
We continue to be extremely disappointed and concerned to learn that all three Services missed their targets for UK ethnic minority recruitment.
The MoD continues to experience substantial forecast cost increases on equipment programmes. The Astute submarine and Type 45 destroyer programmes have experienced forecast cost increases totalling some £500 million since the Major Projects Report 2006, which are attributed to work to bring the programmes under control. Further cost growth is affecting the Nimrod MRA4 aircraft programme and the MoD needs to deal with this as a matter of urgency. Such cost increases put further pressure on the future defence budget which is already heavily committed.
Delivering equipment programmes to the planned in-service dates continues to be a challenge for the MoD. Further delays have been experienced on the Type 45 programme, and there is likely to be further delay on the A400M transport aircraft programme which our Armed Forces so desperately need. The MoD needs to work closely with the contractors on these programmes to identify ways to reduce the risk of any further slippage.
The Comprehensive Spending Review 2007 settlement for defence announced in July 2007 provides "an additional £7.7 billion for defence by 2011, and a 1.5 per cent average annual real terms increase". The increase is to be welcomed, but cuts in the defence programme, including the equipment programme, are likely to be announced in the coming months. We look to the MoD to be realistic about the number of equipment programmes, the number of platforms within equipment programmes, and the phasing of equipment programmes, that can be funded. We plan to monitor this issue closely.
As part of the Comprehensive Spending Review 2007, the MoD has to deliver substantial savings of £2.7 billion. The MoD has announced that it is to streamline its Head Office in London with the loss of around 1,000 civilian jobs. There are signs that civilian staff morale has deteriorated. It is vital that the MoD manages the 'streamlining' exercise very carefully in order to avoid the risk of losing its best staff and to ensure that the MoD Head Office continues to operate effectively during the period of change.
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