Select Committee on Defence Fifth Report

Conclusions and recommendations

1.  It was unhelpful of the MoD to provide the written evidence we had requested only a day before the evidence session we had scheduled. We expect better cooperation from the Department in future, and accept the Permanent Secretary's assurance that lessons have been learned and that such failings will not happen again. This is essential if Parliament is to undertake its role of scrutinising the work of the MoD effectively. (Paragraph 4)

2.  We are very concerned to learn that the MoD's assessment of its expected achievements against its six 2004 Spending Review Public Service Agreement (PSA) targets, which run until March 2008, has started to travel in the wrong direction. In its previous Annual Report and Accounts published in July 2006, the MoD reported that it was on course to achieve all six PSA targets. However, at the end of 2007, the MoD did not expect to achieve the PSA target relating to force readiness, and expected "only partly" to meet the PSA targets relating to recruitment and retention, and defence equipment procurement. We note that the MoD considers that not achieving the force readiness target is a consequence of the "high levels of deployment". We recommend that, in its response to our report, the MoD identifies the key factors which have led to the deterioration in its expected achievements against its PSA targets and sets out what action it is taking as a result. (Paragraph 12)

3.  The MoD does not expect to meet the PSA Target relating to generating forces by the end of March 2008. The performance on both of the performance indicators underpinning PSA Target 3 has continued to deteriorate. We note that the MoD considers that this reflects the pressure on the Armed Forces which have been operating above the level of concurrent operations they are resourced and structured to deliver. This causes us deep concern. We fully acknowledge the pressures on our Armed Forces and the commitment they have demonstrated. We recommend that, in its response to our report, the MoD and the three Service chiefs set out how they plan to reduce the pressures on our Armed Forces and when they expect to see improvements relating to generating forces. (Paragraph 20)

4.  We note that the MoD does not expect, for different reasons, to achieve manning balance in the Royal Navy / Royal Marines and the Army by the end of March 2008. We recommend that, in response to our report, the MoD sets out how it plans to achieve manning balance in the future for the Royal Navy / Royal Marines and the Army. (Paragraph 27)

5.  The MoD continues to experience shortages within some specialist groups in all three Armed Services, including substantial shortages within the Army Medical Service and elsewhere. The MoD have put in place measures to try and reduce the number of manning pinchpoints. We note that the MoD also expects that force level reductions in Iraq will reduce some of the pressure in these specialist groups. We recommend that, in its response to our report, the MoD provides us with an update on the position relating to manning pinchpoints and its assessment of the success of the measures introduced to reduce their number. (Paragraph 31)

6.  We are concerned that there are signs that voluntary departure in the Armed Forces, in particular the Army, is increasing and that in the RAF personnel are not extending for a further engagement to the extent that had happened in the past. This may well reflect the pressure that our Armed Forces continue to experience. We look to the MoD to monitor this issue closely. (Paragraph 36)

7.  We note that the Army and the RAF are failing to meet both individual and unit harmony guidelines, and that the percentage of RAF personnel exceeding the individual harmony guidelines has risen sharply during 2007. We find the reported performance against Unit Tour Interval harmony guidelines for the RAF much less precise than for the other two Services, with some RAF squadrons just reported as "heavily tasked". We look to the MoD to identify how the setting and measuring of Unit Tour Interval harmony guidelines for the RAF can be improved. (Paragraph 43)

8.  We are very disappointed with the failure to meet harmony guidelines in the Army and RAF. This is another clear indicator of the pressure on our Armed Forces from the continuing high level of operations. The MoD expects the position to improve with a reduction in the current operational pressure. We certainly hope so, as we find the continuing failure to meet harmony guidelines unacceptable. In its response to our report, we expect the MoD to set out what impact the failure to meet harmony guidelines is having, such as the impact on the retention of Service personnel. (Paragraph 44)

9.  We continue to be extremely disappointed and concerned to learn that all three Services missed their targets for UK ethnic minority recruitment and that the RAF performed particularly poorly against its target. Our concern is strengthened by the fact that we considered this in our report on the Annual Report and Accounts 2005-06 and the figures appear to have worsened. The fact that some 60% of ethnic minority Service personnel come from outside the UK, serves to heighten our concern. We acknowledge that the three Services have put in place arrangements to improve recruitment. We look to the MoD to ensure that the planned recruitment activities of the three Services are adequately funded so that the expected improvements in UK ethnic minority recruitment are delivered. We expect the MoD to address this matter both in response to our report and in its command papers to be delivered in the spring. (Paragraph 51)

10.  We are disappointed that the MoD only met two of its nine diversity targets in relation to civilian personnel. We recommend that in response to our report, the MoD sets out how it plans to improve its performance in this area, particularly given that the MoD has announced that there are to be substantial civilian job losses. (Paragraph 54)

11.  We note that the latest Annual Report and Accounts state that for the second year running the MoD "met or exceeded its Public Service Agreement targets for equipment procurement, despite them being more demanding than those for 2005-06", and that the Defence Procurement Agency met all its Key Targets in 2006-07 for the second consecutive year. The Defence Procurement Agency and the Defence Logistics Organisation merged on 1 April 2007 to form Defence Equipment and Support. We hope that the new organisation will maintain this momentum. (Paragraph 61)

12.  We are concerned to learn that the Astute submarine and the Type 45 destroyer programmes have experienced further forecast cost increases, totalling some £500 million, since the Major Projects Report 2006. While we note that the Permanent Under Secretary says that much of the cost in the papers we received relates to the "toxic legacy" of earlier years, we note his admission that costs have risen by some £500 million since the end of March 2006. He attributes this to work to understand the cost base of the Astute and to resource the Type 45 programme more efficiently with subsequent renegotiation of fixed price contracts which he says there is good reason to believe will now control the costs of both programmes. It is, nevertheless, disappointing that the MoD has failed to limit further cost growth on these programmes which had already experienced forecast cost increases totalling some £1.7 billion. (Paragraph 62)

13.  Yet again there have been problems with the Nimrod MRA4 programme which is experiencing further cost growth. We note that the MoD recognises it has to "attend" to these problems now and we look to the MoD to do this as a matter of some urgency given the current pressures on the defence budget. We look to the MoD to undertake a review of the Nimrod MRA4 programme in order to ensure that best value for money is achieved in maintaining this important capability, both in quality and quantity of platforms. (Paragraph 63)

14.  It is disappointing that there has been further in-service date slippage relating to the Type 45 destroyer programme and that further delays are likely on the A400M transport aircraft programme. We are particularly concerned about the delays on the A400M programme as new transport aircraft are desperately needed by our Armed Forces who are already having to use ageing transport aircraft. We look to the MoD to continue to work closely with the contractors on these programmes to reduce the risk of any further delays and, where possible, to identify ways to recover some of the forecast delays. We look to the MoD to undertake a review of the A400M programme given the problems experienced to date. (Paragraph 67)

15.  We note that the MoD's Permanent Under Secretary considers that progress has been made over the last few years to improve the way the MoD procures and acquires defence equipment and that the Defence Equipment and Support (DE&S) organisation, formed in April 2007, is becoming more capable. We welcome the recognition by the Permanent Under Secretary that much depends on making sure that the necessary skills exist at all levels. We are examining the progress made by DE&S in our current Defence Equipment inquiry. (Paragraph 69)

16.  We congratulate the MoD on the progress it has made against the 2004 Spending Review Efficiency Target. We note that the MoD expects to meet all four targets which underpin the overall Efficiency Target by 31 March 2008, and to exceed three of these four targets. (Paragraph 74)

17.  We welcome the news that the MoD is expected to save some £50 million by combining its office supplies requirement with those of other Government departments. We note that the MoD is planning further collaboration with other Government departments across a range of categories and look to the MoD to make quick progress in this area so that potential savings can be delivered as soon as possible. (Paragraph 77)

18.  We have no objection to the budgets of former agencies being included in the MoD's main vote, because in our view that is a straightforward way of dealing with public money. We continue however to be concerned to ensure that Defence Equipment and Support (DE&S), which is responsible for procuring equipment and managing it through-life, should not reduce the scope for proper accountability and parliamentary scrutiny. We note that the MoD intends to report on the activities and performance of DE&S in its Annual Report and Accounts 2007-08, but it remains to be seen whether this course of action, rather than the publication of a separate annual report from DE&S, will best meet our objectives. We will consider this matter closely when we examine the next MoD Annual Report and Accounts. (Paragraph 82)

19.  We note that in 2006-07 Defence Agencies have generally performed well against their targets with over 40% of the agencies meeting all their targets. However, the one exception is the MoD Police and Guarding Agency which met only 40% of its targets, a similar level of performance to that achieved in 2005-06 and 2004-05. (Paragraph 86)

20.  We are concerned to learn that "a major gap" in the funding of the MoD Police and Guarding Agency has been identified and that it is unlikely that the funding gap will be closed until the end of 2009-10. In its response to our report, we expect the MoD to provide us with a full account of why this funding gap has arisen and what effect it is expected to have on the services expected by the Agency's customers. We also look to the MoD to set out the reasons why the Agency has continued to perform so poorly against its targets and the action being taken to improve performance and plug any security deficiencies that may have arisen as a consequence of the funding gap. (Paragraph 87)

21.  We note that the C&AG qualified his audit opinion on the MoD's 2006-07 resource accounts because of an excess vote on Request for Resources 2 (net additional cost of Operations) and that the MoD has identified improvements in both the forecasting and accounting for Request for Resources 2. We look to the MoD to ensure that the improvements identified are implemented. We acknowledge that it can be difficult to predict exactly how much ammunition is to be fired during operations and we accept that a reasonable contingency is needed in the MoD's estimate of its forecast expenditure. (Paragraph 96)

22.  We note that the total value of losses and special payments in 2006-07 are just over 1% of the MoD's total expenditure and that the advance notifications of losses and special payments have continued to fall. We welcome the continued reduction in advance notifications of losses and special payments and look to the MoD to build on the action it has taken to date to minimise losses in the future. (Paragraph 99)

23.  We are concerned to learn that the Joint Personnel Administration (JPA) system, which was rolled-out to all three Services during 2006-07, has experienced problems and that a substantial number of Armed Forces personnel have had incorrect deductions from their salaries. We have written to the MoD separately about the problems experienced and the progress in resolving them. We look to the MoD to ensure that the remaining problems are resolved as quickly as possible and that the training for the users of the system is improved. This is a matter which we plan to monitor closely. (Paragraph 104)

24.  We welcome the announcement by the Secretary of State in July 2007 that the MoD will be placing orders for two aircraft carriers, a key programme which the Defence Committee has closely monitored. (Paragraph 107)

25.  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". We welcome the increase in the MoD's budget for the next Spending Review period. However, the defence budget will be under substantial pressure in the period covered by the 2007 Spending Review, given that several funding commitments, such as the future carrier programme, a pay increase for the Armed Forces, and further investment in accommodation for Service personnel have been announced. These will need to be met from the average annual 1.5% real terms increase and the cumulative efficiency savings which are referred to in paragraphs 108-109 above. In order to fully appreciate how significant these pressures are, we would like to see a clearer description of what resources from these 'savings/efficiencies' are available to meet these pressures and urge the MoD to seek ways of spelling this out more clearly in future reports. (Paragraph 110)

26.  We note that the costs of replacing the current nuclear deterrent will amount to some £1 billion over the three years of the Comprehensive Spending Review 2007 period. The MoD told us that the undertaking in the White Paper, that these costs are "provided additionally" and will not impact upon conventional capability, has been met. (Paragraph 112)

27.  We note that the MoD is currently preparing advice to ministers about the defence budget for the three years 2008-09 to 2010-11. The MoD acknowledges that there are pressures in the defence programme and that there are likely to be cuts in some areas, including cuts to the equipment programme. 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 the progress and the outcome of the current planning round closely. (Paragraph 117)

28.  The Comprehensive Spending Review 2007 settlement for defence is reported as being a 1.5 per cent average annual real terms increase against the MoD Comprehensive Spending Review baseline. But this is based on the general rate of inflation and takes no account of the reportedly higher rate of inflation which applies to defence products, in particular advanced equipment projects. We look to the MoD to press ahead with its plans to develop a robust price index for defence products which will assist the MoD in both its financial planning and in its negotiations with the Treasury in future spending reviews. We consider that a robust price index for defence products is vital for allowing real comparisons to be made and to enable the Committee to undertake more effective scrutiny in this area. (Paragraph 123)

29.  We note that the MoD has to achieve savings of £2.7 billion by 2010-11 and that it plans to achieve these savings by introducing leaner processes and new arrangements which deliver better value for money. Leaner processes and value for money improvements should generate savings which can be used elsewhere. However, the MoD must ensure that, in achieving these savings, the speed and quality of the support provided to the front line is not diminished. (Paragraph 128)

30.  We note the assurance given by the MoD that the £50 million annual savings that are expected to be delivered from the implementation of the 'streamlining' exercise of the MoD Head Office will not be returned to the Treasury and used to fund the costs of operations (Paragraph 133)

31.  We call on the MoD to address the concerns about the militarisation of civilian posts and the related issues that have been raised with us by Prospect in full in its response to this Report. (Paragraph 139)

32.  We share the Permanent Under Secretary's concern that the MoD needs to be more highly skilled and look to the MoD to set out in its response to our report what steps it intends to take to achieve this. (Paragraph 140)

33.  We note that the MoD is to streamline its Head Office in London with the loss of around 1,000 civilian jobs. The aim of the 'streamlining' is to deliver savings of £50 million a year and also, we are told, to make the MoD more agile and better able to respond to the needs of those on operations. We remain to be convinced that improved agility and responsiveness will follow from the reduction in staff. We look to the MoD to keep staff fully informed as the 'streamlining' exercise is implemented and to provide adequate support for those civilian staff who are to lose their jobs. (Paragraph 141)

34.   We consider there to be a real risk that some of the MoD's best staff will leave and look to the MoD to identify ways to prevent this from happening. We are concerned to learn that civilian staff dissatisfaction with the MoD as an employer has increased over the last year. The MoD must monitor closely staff morale during the implementation of the 'streamlining' exercise and ensure that the Head Office continues to deliver the services which Government, Parliament, the Armed Forces and the public expect. (Paragraph 142)

35.  We find it disappointing that the original timetable for the publication of a revised version of the Defence Industrial Strategy has slipped and is now not expected until early in 2008. We hope that this does not indicate that the impetus given by Lord Drayson, the former Minister for Defence Equipment and Support, is starting to wane. It is crucial that the MoD come to speedy decisions on the current planning round and the implications for the equipment programme so that the revised version of the Defence Industrial Strategy can be published and industry given the clarity it requires about future work. In its response to our report, we expect the MoD to inform us of the date when the revised version of the Defence Industrial Strategy is to be published (Paragraph 146)

36.  We note that the 2007 Comprehensive Spending Review has set down a new funding arrangement for Urgent Operational Requirements (UORs). The arrangements appear far from straightforward and we will be interested to see how they work out in practice when they are implemented. We look to the MoD to ensure that the new arrangements do not, in any way, undermine the success of the UOR process seen to date. (Paragraph 155)

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