UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To
be published as HC 1198-i
House of COMMONS
MINUTES OF EVIDENCE
TAKEN BEFORE
DEFENCE COMMITTEE
DefenCe
Equipment
Tuesday 18 November 2008
Mr Mike Turner, Mr Ian Godden, Dr
Sandy Wilson and Mr Bob Keen
Evidence heard in Public Questions 1 - 107
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Oral Evidence
Taken before the Defence Committee
on Tuesday 18 November 2008
Members present
Mr James Arbuthnot, in the Chair
Linda Gilroy
Mr David Hamilton
Mr Brian Jenkins
Robert Key
John Smith
________________
Memorandum submitted by Defence Industries Council
(DIC)
Witnesses:
Mr Mike Turner CBE, Chairman
of the Defence Industries Council and Joint Chairman, with the Secretary of
State, of the FDIC; Mr Ian Godden,
Secretary to the Defence Industries Council and Chief Executive of the Society
of British Aerospace Companies; Dr Sandy
Wilson, Chairman of the Defence Manufacturers Association; and Mr Bob Keen, Head of Government
Relations BAE Systems, gave evidence.
Q1 Chairman: We start this first evidence session on defence equipment. May I declare an interest at the
beginning. Mr Keen, I should declare
that you were my Private Secretary when I was in the Ministry of Defence. You are welcome to this evidence
session. You will each have your own
different answers to this question. If
you had to suggest priorities to the new Minister for Defence Equipment and
Support and you each had to produce three priorities for him to consider, what
would those three priorities be? I am
not necessarily talking about programmes - maybe initiatives, capabilities,
concepts or programmes. What should, in
your view, those three priorities be?
Mr Turner: Overall, and this is what we said at the NDIC to the Secretary of
State, there are really three main areas of defence and defence expenditure on
which to focus: clearly, the welfare of
the Armed Forces; secondly, the capabilities they need for today's operations,
the current operations; and, thirdly, the capabilities, systems and equipment
they need for future operations, five, ten, 15 years hence to defend the
defence interests, the security interests, of the UK in those out years. There is no doubt over recent years, and
understandably the attention has been on the first two, the welfare of the
Armed Forces and current operations, that there has been a focus and a great
deal has been done in those areas and, frankly, needed to be done. The big concern that the defence industrial
base has is the third area, the future equipment programme. Will this country be able to able to play a
role in the world, five, ten, 15 years out?
I think it is no secret that there is not sufficient money in the
defence budget for the future equipment programme and we have an incompatibility
between a Strategic Defence Review of ten years ago and the role that rightly this
country should and wants to play in the world alongside the United States and
the amount of money available for that third category. As I say, it is understandable that the first
two categories get the attention in the current times, but we are concerned
about the long term. The defence
industrial base of the United Kingdom not only supports the Armed Forces, and
without the defence industrial base we could not have the Armed Forces that we
have doing the job for this country, but the skills, technology, R&C,
innovation, apprentices, exports that all flow from that. We have a world class defence industrial base
and only focusing on the short term and not the long term is of huge
concern to us.
Q2 Chairman: But if you give three priorities and those three are the ones you
give, would you give them in that order?
Mr Turner: I think I would put the capabilities for current operations first,
welfare second and the future third, but they are all very important. The first two are getting it; the last one is
not.
Mr Godden: I would add, perhaps on a different tack, that the reform of the
defence procurement and the issues around TLCM, etc. should continue to be a
priority on the operational side. Mike
Turner was talking mainly about the resources going in for the programmes,
equipment and services associated with the Armed Forces. I would say that the reform of the defence
procurement initiatives should continue as a priority. In fact, it could possibly be accelerated.
Dr Wilson: Following on from what
Ian Godden has just said, I agree entirely with that and I think TLCM is
key. I think the process is only part
way through and has to be driven quite hard in future to the point where we get
proper programme boards with industrial representation on them and it is at
that point that we start to get true transparency on future requirements. I remind you that transparency was one of the
big tenets of the first Defence Industrial Strategy. I think everybody in industry thought that was
going to be the opening of a rather better regime and relationship between
industry and MoD. The transparency,
sadly, has not materialised yet and I think TLCM is an excellent way of
ensuring that it does.
Q3 Chairman: When you say that transparency has not materialised yet, and we will
come on to that in a bit, would it not be a better thing to say that the
transparency did materialise and then went away?
Dr Wilson: I think transparency in times of budgetary constraint is extremely
difficult. That might answer the
question.
Q4 Chairman: Not really.
Mr Keen: Most of the priorities that I would suggest to the Secretary of
State have already been mentioned: to emphasise the long term nature of the
challenge and the need to balance resources with equipment programmes going
forward. It seems to me the central
challenge that the Secretary of State has is particularly to do it, as far as
the equipment programme is concerned, in a way that maintains the industrial
capability that Mike Turner has been talking about. That is essential, both in terms of
delivering capability to the front line in the future and also from the point
of view of generating the technology and skills in this country that the DIS
recognised were important, not least because of the need to maintain
operational sovereignty in the future.
From my point of view, I think that is the priority. Taking your point about transparency, that
takes a number of forms. We are being
consulted on a number of programmes as a company at the moment. I suppose if
you take a step back and look at what the DIS was trying to achieve in terms of
transparency, the sort of generic openness that the DIS was talking about, I
think that has proved a challenge in a time of financial constraint. I think the MoD have felt more constrained in
opening up the kimono, as it were, to industry through that period.
Q5 Chairman: I want to get personal here.
I had the impression that when Lord Drayson, with his knowledge of
industry, was in charge of the Defence Industrial Strategy, his approach was to
involve the defence industry at every opportunity that he could in order to get
the best industrial strategy that fitted into all the parameters. I had the impression that when Lord Drayson
stopped that stopped. Would you agree or
disagree with that?
Mr Keen: I am not sure I desperately want to personalise it. Around the same time, it is the case that the
financial challenge was becoming very apparently.
Q6 Chairman: It has always been bad, has it not?
Mr Turner: To help, Chairman, with John Reid and Lord Drayson, we did work
together hand in glove to formulate a Defence Industrial Strategy, and it was
about the defence industrial base of the United Kingdom. Sector by sector we spelt out what should be
onshore, what operational sovereignty should be maintained onshore UK to
support the Armed Forces, and then basically what we would go offshore for or
compete for through life. The issue quickly
became apparent that, having a DIS, when we go to our boards and get a strategy
approved, we also get the financial backing to execute the strategy of the
company. It was quite clear that the Government
did not give Lord Drayson, the MoD, the financial support necessary to execute
that strategy, and that is the limbo-land we have been in ever since. We have a DIS and have it spelt out in DIS 1
sector by sector with a Strategic Defence Review some ten yeas old now, which
is the background for that, but we do not have the financial wherewithal to
execute that strategy and that is where we are and that is where we have been
for some time,
Q7 Robert
Key: Gentlemen, can I invite you to focus on
the situation in which we find ourselves today?
Mike Turner, you have just mentioned the word limbo? Currently we are waiting for the outcome of
the short examination of the equipment programme; we are waiting for the
updated version of the Defence Industrial Strategy and we are waiting for
decisions on a number of key programmes.
Does industry feel that we are in a state of limbo at the moment?
Mr Turner: Yes, we are undoubtedly and we believe that for the next 18 months
at least we will have delays, which inevitably in the long term will cost
money, but it is something we have to live with over this period. It is extremely difficult for industry to
plan as we hoped we would be able to when we had a DIS, but that is reality. That is the politics that we are facing today.
Mr Godden: I think the limbo started last year. Whilst the UORs have been very successful and
have continued throughout this period, with those exceptions, I certainly in my
position feel that we have been in limbo since September 2007. Therefore, there have been 15 months of
fairly serious lack of progress, mainly as a result not of personalities but of
budgets. Whilst personalities have had
an effect, that has not really been the driver for it; I think it has been a
budgetary issue in discussions behind the scenes on such. In addition, I think there is a realisation
that the defence industrial base is not only a matter of ensuring we can continue
to operate our equipment but also its role in exports, innovation,
manufacturing and skills has been added.
That as a government policy has added some difficulty I think for the
debate. It has not just been purely
budget; it has been the expectation on other matters which have been in many
respects attempted to be brought into the Defence Industrial Strategy in DIS 2
versus DIS 1 and the combination of budget and those extra pressures, let us
say, have caused a limbo period, which I hope we will come out of but I
certainly do not yet feel we are out of.
Q8 John
Smith: I wondered to what extent you think
the current state of play in the continued development in the defence
industrial base is directly related to the priority that Mr Turner spoke
about, and that is the urgent operational requirements, and the extent to which
our Armed Forces are currently committed on two fronts? Is it not inevitable that the focus of the
Government is going to remain on capability and the wellbeing of our forces and
that the strategic overview is going to step back a bit? Is that not inevitable?
Mr Turner: I think so. If there is not
sufficient budget, clearly you focus on today and that is what is
happening. What we are trying to do is
focus on tomorrow as well. We do not
want just to sit back and watch this country in five, ten or 15 years' time
have no capability of playing a role in the world for its defence and security
interests and, frankly, that is what we are facing.
Q9 John
Smith: When you mention insufficient budget,
what do you think the budget should be?
Mr Turner: I have always put on a figure of about £1.5 billion a year more.
Q10 Mr
Jenkins: Always?
Mr Turner: Not always,
Q11 Robert
Key: Returning to the partnering issue, the
short examination of the equipment programme we hope is going to come to a conclusion
in the not too distant future. Has
industry been sufficiently involved in that short examination?
Mr Turner: All the companies have been asked a number of questions about the
impact of this, that and the other. Clearly there is a concern about jobs in
the current climate, not surprisingly, but the feeling we get is that
programmes will be stretched out; some will clearly have more favourable
funding than others. We do not see any
major programme cancellations in the current climate. We think the equipment examination will come
to a conclusion in the next few weeks, but there will be no major
changes. As I say, some programme will
be more favoured than others, but with limited funding available what we want
to do is work transparently with MoD to make the best of the situation we are
in until we can get to a new situation.
Mr Godden: My view is that there is a good dialogue taking place company to
MoD at a level of programmes, but in terms of the overall programme and the
overall industrial strategy on behalf of the nation, that is the thing that is
in limbo and not really being discussed in the meantime.
Q12 Robert
Key: I have always thought that there is a
difference between asking the questions and having a dialogue. It seems to me that you are saying you have
not really been having a proper dialogue over the future of our defence
industrial base.
Mr Turner: MoD has to be careful because every time they ask a question, it
gets out in the press - Typhoon is going to be cancelled, the future of BVRAAM
(?), that it is going to be cancelled, and Lynx. You have seen it almost daily in the
newspapers, so they have to be careful.
Fundamentally, they do not have enough money and that is the bottom of
everything we are facing at the moment.
They have to take some decisions to spread out the limited amount of
money they have, certainly for the next 18 months.
Mr Keen: I think there has been a dialogue, as Ian Godden said, but
certainly as far as a number of the programmes in which we are involved, I
guess we will not know the extent to which we have been exposed to the MoD's
thinking until the equipment examination is published. Our sense at an individual programme level is
that we are being consulted and that we are being given the opportunity to talk
about some of the industrial implications of some of the options that they are
considering, which would be significant in some of those cases. Hopefully, when we see the results of the
equipment examination, we will see the MoD having taken account of the sorts of
representations we have made on individual programmes.
Q13 Robert
Key: The Permanent Secretary told us two
weeks ago that he anticipated the review would be completed within weeks rather
than months. Is that your understanding,
too?
Mr Turner: Yes, it is.
Q14 Robert
Key: Meanwhile, what impact is this having
on your industry?
Mr Turner: It makes it difficult to plan.
The DIS was all about long-term planning assumptions, what we are going
to keep onshore United
Kingdom and this short-termism that we are
experiencing. It will be a bit clearer
after the next few weeks but industry is going to have to manage for at least
18 months to two years and decide in the longer term what the UK Government may
or may not decide to keep onshore UK, and that is what we are very
concerned about. I think industry is
going to have to do its best in this period but it is an 18 months to two
year period of uncertainty we are facing.
Q15 Robert
Key: How are you going to finance that? That is a long period for you to wait with
your employees who are highly skilled and highly paid. How long can you hang in there?
Mr Turner: It is known that MoD will fund to some extent the long-term
programmes and, as I say, I do not think any major programmes will be cancelled
but industry, companies, will have to take a view on whether they are prepared,
on the basis of optimism in the longer term, to keep some resources in place.
Dr Wilson: This is not going immediately to be a problem generated by the equipment
examination; this problem of companies funding teams and capabilities over an
extend period has been going on for the last 18 months quite
significantly. I think many companies
could point to very significant spend which has come off their bottom line in
that period to keep teams going until MoD makes up its mind about what it
actually wants to do. It is quite an
invidious position to find oneself in and one has to make a commercial judgment
on it. As Mike Turner has just said,
sometimes you will decide enough is enough and you will pull out of it;
sometimes you will stick with it. In
order to do that, we do need some view of the long‑term plan. The other thing about the equipment
examination is that I think the Secretary of State stated that it would provide
the basis for going into PR O9, so I do not think equipment examination should
be viewed as giving all the answers. I
think we will then go into a period of many months of continued debate about
options and we will see clarity emerge through the year in PR O9.
Mr Godden: Can I add one other point which is that certainly my observation
from recent trips to Washington
is that there is a new dynamic in the shareholder perspective that you talked
about. The UK has always been perceived as a
good base to invest in for the long term.
I think there is a renewed worry that has come, partly because the issues
on the US budget are beginning to come into focus now having had a period of
long growth and high established positions, but there is now a nervousness from
the shareholders from outside this country who have very strong positions in
the country and have invested in it that, fine, a year and a half (if you take
my premise that we have been in limbo for, say, 15 months) is probably
acceptable but if this carries on, they will look at the UK as an industrial
base and say, "Is this worth investing in in the future?" My worry is about
that as well, shareholders from outside this country saying, "Whereas
previously we have invested for the long term, will that be affected by the situation
that we have at the moment?"
Q16 Linda
Gilroy: This is about maintaining skills
bases. You have just been discussing
that. Some of those are more fragile
than others and it is not just industry that makes decisions about these
things; it is individual workers who have scarce skill resources. In this situation of limbo, are there
particular programmes which are more vulnerable to that skills base
haemorrhaging with the passing of time than others, and, if so, what are they?
Mr Turner: Clearly the industry over recent years has been quite optimistic
about the long term, particularly the DIS.
You have seen that the number of apprentices who have come into the
defence industrial base is quite huge actually. Just bear in mind that in the defence
industrial base of the UK we
have more SMEs in the defence industry in the UK
than Spain, Germany, France
and Italy
put together. We have a huge SME base in
this country dependent basically on the defence budget and the primes feeding
through this work. There is no doubt about
it now that the SMEs are getting quite concerned about the situation. We are seeing signs of apprentice numbers
falling, and understandably so in the current climate. In terms of programme areas, I think you know
about Lynx, you know about FRES for the land forces, and you know about Typhoon
development and engineering. There are
many areas where we are very concerned about the ability to keep the skill base
together and indeed your point of young people wanting to come into this
industry.
Q17 Chairman: Could I pick up something you said about what you expect to come
out of this brief examination, namely no major programmes to be cancelled but
things to be stretched out - in other words, moved to the right and presumably
salami sliced?
Mr Turner: No, I think it will just be stretched out to the right. Some things will be accelerated and some
things delayed even more because clearly there are priorities for current operations. People need to bear in mind in the long term
it costs money. Assuming those programmes
do continue to fruition, in the long term it costs significantly more by doing
that.
Q18 Chairman: That is what I was going to ask you about. Are you able to quantify how much it costs to
delay programmes or to reduce the unit numbers or to reduce the capability of
programmes?
Mr Turner: There is one programme I am aware of at the moment where over the
next two or three years we could probably save £400 million, reduce the
expenditure by £400 million. I know
that that will add £600 million to the bill, 50 per cent.
Mr Godden: I think also in the context of TLCM that we were talking about
earlier there is a risk because to implement that programme you actually probably
have to spend a bit higher up-front in order to get the lower positions
later. I think some of that is at risk
in the current situation. It is not just
a matter of delaying the programmes but also the idea of the TLCM being a
longer term value for money is at risk from this current situation.
Q19 Chairman: In our last equipment report we as a Committee said that it is
expensive to salami slice and to move things to the right and it is time
consideration was given actually to taking a programme and saying, "This is
unaffordable". What was your reaction to
that and what now would your reaction be to such an approach?
Mr Turner: We do not like it. The
reason we have come out clearly and said we do not now want a DIS 2 sector by
sector is because we think it would be counterproductive for the UK in
the long run. The Armed Forces of our
country depend on a defence industrial base being there; they go hand in glove. Maybe we have made a bad job of making that
point. We seem to have a public that
supports the Armed Forces but we do not have the linkage to the defence
industrial base. We think in the current
budgetary climate if people were forced to take decisions sector by sector it
would be disastrous for the long-term defence industrial base of this country,
therefore the UK Armed Forces and therefore for the UK's role in the world. We would rather not have that happening at
the present time. We like the principles
of DIS; we like Ministers and the Secretary of State saying that is what they
are going to stick to, partnering through that capability management. Frankly, that cannot happen until we are
through this situation we are in for the next 18 months to two years and
sorting out the budget. Without the
budget, we cannot do anything.
Q20 Chairman: So the Defence Industrial Strategy is currently unaffordable?
Mr Turner: Through life capability management depends on having sufficient
money up‑front. What people do not
understand is that for every pound you spend initially buying the equipment,
you spend £3 to £4 through life, so it is very important when you design and
develop these programmes that you think of reliability and
maintainability. I have been in the
defence industry 40 years. We have
talked about it; we have never done it.
When I went into Airbus and reasonable aircraft, when you design and
develop an aircraft for civil use, you think about reliability and
maintainability through life. We have
never done that in MoD. That is why DIS
was so important. It focused on through
life capability management through partnering, but it does mean investment
up-front. In the current climate, you
cannot do that. I remember in the
Seventies we had a programme called the Hawk aircraft. Because MoD did not have sufficient money, we
put £3 million of our own money, Hawker Siddeley Aviation then, because of the
export market. We wanted to export Hawks
and very successfully there are 1,000 exports now but we realised other air
forces did not have the capability of the Royal Air Force and we had to build
reliability and maintainability in at the beginning, and we did it. That does not happen, nor will it happen in
the current climate where there is no money.
Mr Godden: If I could reinforce that, we have seen it in the car industry with
Japan; we have seen it in the civil aircraft industry where that had to be adopted
by both Boeing and Airbus; we have seen it in the rail industry; it used to be
that trains were built, tested for 1000 miles and then repairs for ever
more. We have not fully established that
principle within this industry, and that is because of the budgetary constraints
year by year that prevent that sort of extra cost put in to reduce that tail,
which is the largest part of the expenditure.
Mr Keen: I would make a slightly different point. You ask if the DIS is unaffordable. In many respects the defence budget is
unaffordable without the DIS. If I think
about the maritime sector, for example, where we have made good progress in the
DIS, we have established BBT; we have a terms of business agreement which
hopefully will be turned into a contractually-binding document at any time. The essence of that is that in return for an
absolutely clear position from the Government about future workload, industry
has said it will transform the industry.
Part of that transformation is baking in very significant savings to the
defence budget. From my perspective, I
think where the DIS has been implemented in a number of areas, we are
actually seeing the long-term benefit of the strategy for the defence budget; similarly
in individual partnering arrangements where the sort of transparency I was
taking about earlier enables industry and the MoD to look at particular
programmes and actually drive costs down for the programme. From my perspective it is not an either/or
choice. The DIS is absolutely essential for
the future defence budget of the UK.
Chairman: We will come back to the DIS because it is essential to all of
these issues.
Q21 Mr
Jenkins: Could I recap? I have been listening here to an interesting
conversation. When we started off with
the priorities, you said that priority number one would be the safeguarding of
troops on the front line and getting equipment that way, the welfare of the troops
and personnel, and we have a commitment to a long-term programme. That is exactly what the MoD would say to
me. That is exactly what the MoD are
doing. Do we agree that that is exactly
the right approach?
Mr Turner: No, it is not. If you read
any document that MoD puts out, it talks absolutely clearly about current
operations, as you would expect, and the priority of current operations. What it then says about the future equipment
programme is highly questionable. There
is no commitment. It talks about having
to consider the future equipment programme, the equipment examination. There is no commitment.
Q22 Mr
Jenkins: I think you misunderstand me. Priority one, priority two and priority three
that you give would be exactly the same as priority one, priority two and priority
three that the MoD would give.
Mr Turner: I am very happy with one and two, and they recognise priority
three, but it is not being enacted. That
is my problem. One and two are but three
is not.
Q23 Mr
Jenkins: Because all they want is more
money?
Mr Turner: There are always savings you can make. I think we have pointed to areas where you
can do that, and industry will, through partnership and outsourcing, make those
savings in concert with MoD, but, frankly, for the Strategic Defence Review of
ten years ago and the UK's role in the world, the role we hopefully want to
play in five, ten or 15 years' time, there is not enough money.
Q24 Mr
Jenkins: But we now know the short report
outcome is simply going to be rebalancing the equipment programme to better
support the front line. That is what the
outcome will be. Great, that is what it
is going to be. You know what the
implications are for the industry. Will
you tell us exactly what it means for our defence industry, apart from sitting
there thinking: if it pays more money,
everything is going to be fine and we will be back to the good days. I tell you, there were never any good old
days. I can go back to the legacy
programmes where things were pushed to the right and you were still sitting
there telling us: we need more
cash. What will we be faced if we do put
a lot more money into the front line troops?
This is not like Keynes; in the long term we are dead and it looks as
though in the short term we are dead, so we have to make sure the troops get
the best equipment to do the job.
Mr Turner: I think in Iraq
and Afghanistan
what the Government has done over the last few years is good. The problem we have is looking this five,
ten, 15 years out. They were the good
old days actually. We were able to play
a role in Iraq and Afghanistan
because of the good old days. Frankly,
with the money that is now being given to MoD at the present time, in our view,
we will not be able to play that role in five, ten or 15 years' time. If you look at 12 Type 45s, now six; if you
look at 21 Nimrods, now maybe nine; future frigate programme, Typhoons, FRES -
how are we going to play that role in the world?
Q25 Mr
Jenkins: It is going to be difficult but there
would be a repositioning of our programme and our equipment. I was in a ship a couple of years ago that
had more fire power than the British Navy in the Second World War - one ship -
so we have moved on a little bit; the equipment is much more impressive.
Mr Turner: Absolutely, and that is why six Type 45s are very capable but they
do not cover the globe like 12 Type 45s.
Q26 Mr
Jenkins: One of the things that I am getting
the feeling for is that as an industry you would prefer the Government or the
MoD, and they have to face up to this, rather than to delay a programme and
push it back with continued uncertainty, to cancel - cut, cut, cut - and then
concentrate on the programmes we have left to work with. Am I getting the right message?
Mr Turner: We do not want that to happen.
Mr Godden: If that is done, I can see a time in five to ten years when we will
sit back and we say, "We regret getting rid of that operational sovereignty",
be that in rota craft, in military aircraft or naval. We will sit down ten
years from now and say, "We exited that capability". That is what we are
facing. If you do not want a broad
capability, fine, cut the programmes, cut any of those programmes but you will
remove the capability in that sector for ever from this country. That is what we are facing.
Q27 Mr
Jenkins: Some of the legacy projects which I
remember looking at years ago were so old that they were planned for my
grandfather to fight or fly in. They
were still in a box to be delivered in X years' time. What is the point of buying this old
technology when there is no demand and it is no longer needed and keeping in
the box? If they are going to rebalance
this programme, what are you as an industry going to do get rebalanced to meet
this front-line capability?
Mr Turner: Industry will respond to what MoD wants in terms of the future
equipment programme. You talk about
Nimrod, Astute and Typhoon; yes, they were conceived many, many years ago, if
not decades ago, but they are still relevant today and they are weapon system
platforms, highly capable of being developed, spiral development, and we are
getting something in DIS that we need to be doing. Ian's point is well made. Once you stop doing these things onshore, you
become dependent on foreign powers; you lose operational sovereignty and that
has gone. By the way, we lose the capability to export; there were £7 billion
of exports last year, highly successful, and we now face the prospect of losing
all of that. That is why we are speaking
out.
Q28 Mr
Hamilton: I am puzzled. I picked up on your opening remarks about the
relationship between Lord Drayson and John Reid and I think that is really
important; it is important you understand who you are talking to and get a feel
for what going to happen in the future.
The two you missed out of course are Trident to which the Government
have committed to and the aircraft carriers.
If you go back to the point that you are making, how many Typhoons can
you within our Trident programme? A
balancing act has to be done. If the
Government is not going to increase the budget for the MoD, with the long-term
problems that we face and the problems this country is facing with the pound,
is it not the case that it might be better looking at some of the major
projects which are going to cost billion pounds and at an alternative where we
can have what you are looking at?
Mr Turner: I do not think so. I think
we all believe in this country that we need a nuclear deterrent and we need
capability to play a role in the world.
We do not want to see the United States as the only country
left in the world able to play a role.
We think it is very good the have UK Armed Forces. It is all very well having diplomatic skills
but without the big stick, who takes any notice? If it is only the United States that has the
diplomacy and the big stick, what role do we have in the world? I think that is bad for the world going
forward, and it is certainly bad of the defence industrial base; it is bad for
the UK Armed Forces and we need to point that out to people. You cannot have UK Armed Forces without a UK
defence industrial base. There is a lot
of nonsense talked about buying off the shelf.
Remember that £1 to £4: £1 off the shelf, £4 through life. Once it is gone, as Ian has said, it has
gone. I believe across the piece you
need the nuclear deterrent, but then you need the conventional forces to play
a role in the world. We face losing
that.
Mr Godden: I have a very simple view that in traditional terms we require
land, air and sea if we have a full capability.
Off the shelf, as we have discovered in certain areas, means very often
more expensive without the capability to twist it into the type of equipment
that our forces need. There is an idea
that off the shelf is cheaper. I have
not seen any evidence of that in my 15 years working in the US, in the UK
and in France. It just does not happen that way. With the idea that you can remove one
segment, say land or sea or air, and then buy off the shelf from France
or the US, I just think we are deluding ourselves.
Q29 Mr
Jenkins: I do not know if I asked a question
about off the shelf. You are answering
your own question. I never posed that
question. I am making the point that
there are two major projects, Trident and the aircraft carriers. Those projects are worth billions of
pounds. There is an argument and an
ongoing debate about feet on the ground.
The point that you make is that at the end of the day it is more
important that we cover air and sea and land.
I think that is right. You dismiss
the fact that Trident is also important.
I assume the aircraft carriers are also important.
Mr Turner: I believe, we believe, we need a nuclear deterrent for this
country. We believe we need the carriers
to play a role in the world. Yes, then
you need the frigates to protect the carriers; you need the aircraft to go on
the carriers. All that at the moment is
in jeopardy.
Q30 Chairman: Ian Godden, can I put to you a paragraph that has been put to us in
evidence and ask you what you think about it?
In practice timely and cost-effective means off the peg. Our foreign policy would be in a vastly
improved position if we had not wasted so much of our defence budgets
re-inventing the wheel. Our service
people would not recognise their improved lot were they not forced to make do
with whatever material the British arms industry deigns to produce decades
after it was first needed. What do you
say about that?
Mr Godden: Give me the evidence. It is
a very nice statement. Give me the
evidence. I have not ever seen it. Give me an aircraft that is of the capability
we require. I think this is actually an
issue about Europe because the European joint
programmes such as Typhoon are an attempt to avoid the conundrum of a low
volume for a country such as ourselves, and we all argue that at this stage we
are a small country in terms of the total capabilities. Europe does
not exist in the full sense of defence equipment in the way that Airbus and the
civil programmes have created a European defence industry. In that period when we do not have a European
scale and volume, it is very tempting to make statements like that but all the
evidence of buying so-called off the shelf such a GSF demonstrates what
happens. It is a very interesting
statement. I have yet to see the
evidence that proves it.
Q31 Chairman: Surely the number of different armoured vehicle manufacturers in
Europe suggests that we will never actually come together as a European
continent to produce something in the cost-effective way that a single country,
the United States,
is able to do. How do you solve that?
Mr Turner: It is almost impossible with politics. I spend a lot of time in the States and they
always have a go at Europe not being able to get its act together and some of
the criticism is right about Europe; we do not spend enough on defence in Europe to help around the world. I always say to the Congressmen and the
Senators, "Could you imagine if you were a Senator in California
agreeing that this one should go to Michigan?" You will never agree it. I am afraid we start with the realities of
politics in Europe that each country wants to
work with other countries but they want the jobs, skills and innovation in
their own country. That is the reality. We were very fortunate to get Typhoon coming
together with the nations that we did but it is really hard work. On FRES, on armoured fighting vehicles, we
should somehow have got Europe together; we
have failed. We failed to produce for
the UK Armed Forces therefore a new family of armoured fighting vehicles that
is desperately needed. I have said
many times in Europe, "Why can we not get
industry together on the land side to produce a family of armoured fighting
vehicles?" The world is crying out for
armoured fighting vehicles. Whilst many
countries will not war fight, they will peace keep and they do need decent
vehicles. Here is a great opportunity
for Europe and for the UK
and we have failed.
Q32 Chairman: Would it be right to say that possibly the only person that could
have achieved that was you?
Mr Turner: We looked at acquiring more companies on land in Europe. You know we bought in the UK and in the United States, but we are very
concerned about defence. It is bad
enough in the UK but you look
at defence budgets across Europe. I am afraid governments in Europe
are not committed to defence expenditure.
Clearly there are no votes in defence in countries in Europe like there
is in the United States
and it was not in our economic interests to do so.
Dr Wilson: One of the reasons that the
last pan-European armoured vehicle programme came apart was that each country
demanded a different requirement within the broad sphere that was being
considered. The old MRAV programme split
up into what can now be traced to VVT-I, Boxer and even Peranha came out of
that because it was postulated as an alternative to that vehicle. Everybody came at it from a different point
of view. One of the things we currently
find in operations is that working with our closest allies is quite difficult
in many respects. Logistically we
require different things. In communications,
a subject close to my heart, there is a lack of inter-operability. So things that have been developed purely for
the UK
now have to be widened so that they can actually start to work across the
various countries' indigenous systems.
The great problem is fundamentally at the country level, at their ministries
of defence, at their armies as a direct point, to start getting common
requirements that we will stick to over time.
The way to enable that is to do precisely what was said in the original
Defence Industrial Strategy, which was to have open system architectures so
that at least if things differ, you can plug and play different parts into an
overarching framework that starts to make sense. We are not there yet in the UK, and we are certainly nowhere near it in Europe. If we want
to find commonality and we want to get the economies of scale, we have to start
at that point.
Q33 Linda
Gilroy: The merger of DPA and DLO is about 18 months
old now and it was formed with the objective of creating the fit-for-purpose
integrated procurement and support organisation, which underpins a lot of the
goals that you have as industry. In our
earlier questions we have been exploring how the brakes seem to have been put
on things. Can you give us a flavour of
the extent to which progress and movement have been made in the right
direction?
Mr Turner: We fully supported the coming together of DPA and DLO. It was the right thing because of the through
life capability management, thinking at day one about through live, that £1 -
£3 to £4 equation. I think MoD should be
congratulated on the speed with which they did that and brought it into
effect. I think the rest speaks for
itself. We are now stuck. We have the right organisation in MoD; we
have the right principles in partnering and outsourcing and with through-life
capability management. We do not have the budget.
Q34 Linda
Gilroy: Just now you were saying this is a
ball-park figure of £1.5 billion to invest generally. How much of that would be needed to get the
through life capability management that we all want to see?
Mr Turner: In my view, that is the amount of money per annum that the future equipment
programme needs. The organisation that the MoD now have in place, the combined
organisation of initial procurement and through life, would make sure that that
money was well spent, not only on initially getting the equipment into service
but in thinking through life on spiral development, supporting, reliability and
maintainability. I think that would be
sufficient.
Mr Godden: In terms of a merger of interest, it takes 18 months typically in
any corporate entity or any government entity to put the two things together
and develop. I think it has made the
right move; it has progressed, etc.. I
think, however, in the organisation the issue is not so much a big budget issue
but the fact that the pressure on the organisation on the very things we have
talked about earlier, which are UORs, the whole concept of developing and
revising the equipment review and so on and the issues around government policy
on skills and technology, has acutely distracted the organisation from getting
on with that programme. I think it
has done excellently; it has worked hard at it, but it could be accelerated
with a bit of stability in terms of what is happening to the overall
picture. That is my observation of it.
Q35 Linda
Gilroy: It is poised to deliver?
Mr Godden: It is poised to deliver and we need to encourage it to accelerate
that delivery and get on with it.
Mr Keen: I would agree with all of
that but I think it is worth saying that there is quite a lot of work going on
to embed some of the through-life capability management principles into the way
the new organisation does its business.
There has been a good lead, from our perspective as a company, given by
the capability area in MoD, the next stage of which is the establishment of a
series of programme boards which will bring together the various stakeholders
and interests in a particular capability area.
I do not think we should ignore the work that has been going on, having
established the organisation, to embed some of those principles into the way it
operates. As Ian says, clearly that has
been clouded by the general background against which they have been operating.
Q36 Linda
Gilroy: The whole point of it presumably is
to invest to save over time. Are you
saying that the invest to save bit and the horizon that you are scanning is
looking as if it is going to be put into front-line urgent operational
requirements rather than into having the complete programme that was envisaged
to get DIS to deliver on the strategic defence role?
Mr Keen:
I think there is a slightly broader issue as well, which is
understanding the trade‑offs between various ways of meeting a
capability. That is the sort of
discipline that the programme boards will bring. There is a long way to go but I think it is
an important development.
Q37 Linda
Gilroy: Can you give us any tangible
benefits that industry has seen as opposed to these rather broad conceptual
things?
Mr Keen: I think it is the broader stuff.
In particular programmes where we have been dealing with one IPT across
both acquisition and support, I would guess we could offer specific advantages
that have accrued, but it is in the general sense rather than the specific.
Q38 Chairman: These are benefits that you have not seen yet because of the
trade-off between UORs and ---
Mr Godden: You have to watch that you do not over-generalise here. I can point to one or two examples where it
has happened and it is happening but I am talking about a broad summary. The danger of saying "a broad summary" is
that we will miss out the two that are happening out of ten, or whatever. I think we have to watch that we do not
over-generalise here. There are good
examples of where progress has been made faster than others.
Mr Turner: If you take Tornado where the long-term agreement between MoD and
BAE Systems not only to maintain but upgrade the Tornadoes through life, you
pick points in the life of the Tornado in future where you will have upgrades
of capability fitted into the maintenance programme. There have been use savings there to
MoD: huge reliability savings, maintainability
savings, cost savings and also planning through life on the Tornado
programme. That is a really good example
of where it has worked.
Q39 Linda
Gilroy: We saw that, Chair, when we visited
RAF Marham and there was the gain share concept embedded in that, which seemed
to be a very good incentive.
Mr Turner: Exactly.
Q40 Linda
Gilroy: Are the lessons from that not being
learnt?
Mr Turner: I think on existing programmes like Tornado and Harrier, yes, this
issue comes down to the future programme and getting an agreement. We have some in principle, as on the naval
side and the military aircraft side and on the helicopter side. Without the long-term funding commitment, MoD
cannot go beyond statements in principle:
this is what we want to do. You
can have the strategy, back to the original DIS, but without the money to put
it into effect, you cannot do it. All
the intent is there and I am pleased that MoD now talks about partnering and
outsourcing and transparency. John
Hutton and Quentin are very committed to that.
The problem they face is this future equipment programme.
Q41 Chairman: Did not the Tornado savings get put in place before the merger?
Mr Turner: Yes. We were talking about
it with the DLO for many years, yes, before the merger but bringing the DPA and
the DLO together made the budgeting and planning of it all that much easier
because we had the wall between them before.
Mr Keen: I do not think it derived
from the merger but the underpinning principles of the programme of partnering
are clearly consistent with the sort of principles that the new organisation is
trying to embed in the way they do business.
Q42 Chairman: Consistent with but the merger was not necessary for those savings
to be made?
Mr Turner: It made it much easier.
Q43 John
Smith: That was the one example you gave of
the specific benefits of the merger and it predates the merger. What examples can you give of direct benefits
to industry of the merger of DLO and DPA?
Mr Godden: You have to be careful here.
It takes 18 months to get these things embedded. You cannot give historical evidence of
something that is happening right now.
Q44 John
Smith:
You were unanimous in your welcome of the merger. You said it was great and everything is going
to work out well.
Mr Turner: We have agreements in principle in a number of sectors now: on helicopters, land, air and maritime. The problem we have is that, having the agreements
in principle, we have now basically stalled in putting those into long-term
partnering agreements with the benefits that will flow. Having
the combined organisation on the MoD side makes that easier, as with the
Tornado: yes, it was thought of before
but actually enacting, executing and running it is much easier with the
combined organisation that we now have.
Q45 Chairman: Ian Godden, I am going to be extremely unfair here. I apologise for this. You said we must not
get too general and we must look at the specific issues. John Smith has asked you to give us one
example. You said you could give us one
or two examples. Can you give us one
example?
Mr Godden: I think Mike has just given the examples.
Chairman: Mike Turner has given the example of something that was happening
beforehand.
Q46 John
Smith: It pre-dates it.
Mr Turner: Since we have the combined organisation, each sector has in
principle an agreement for the long term, a long-term partnering agreement, which
is great news for the industry. If it
ever gets the funding to execute the strategy, I think we have a very sound
defence industrial base in maritime, air, helicopters and on land; it will be
in place. A lot of work has been done in
principle to put these agreements in place for the long term.
Q47 Chairman: That is a rather large "if", is it not because you have said that
the entire problem with the Defence Industrial Strategy is not the Defence
Industrial Strategy itself but whether it is funded?
Mr Turner: Correct.
Q48 Chairman: that is the problem with the long-term maintenance agreement?
Mr Turner: Yes.
Mr Keen: The struggle I am having is
with the couple of examples I can think of that have happened. The most particular one is the long-term
munitions agreement that has been put in place over the summer. To be honest, putting hand on heart, I am
struggling whether that is as a result of the coming together of the two organisations. The problem is that there is an amalgam of
different issues coming together here.
There is the DIS and the reorganisation.
Part of the reorganisation is the embedding of through life capability
management. It is quite difficult to
pick out individual elements that have been put in place as a result of the
reorganisation. I suppose in the land
sector generally, as Mike has said, there is an armed fighting vehicle
partnering agreement, which is progressing as well. I would guess that the coming together of the
acquisition and support bits of the organisation is definitely helping to bring
a more holistic approach to that, in principle anyway, although, rather as Mike
has said, we have not actually seen some of the tangible evidence of it.
Q49 Chairman: All right, and I do not suppose we should over-play this point
because industry welcomed the merger; this Committee welcomed the merger
because in principle it seemed to be going in the right general direction. Let me ask you one specific question. Why has a through life management of submarines
seemed to take rather a long time?
Mr Turner: It is the same issue. I am
now Chairman of Babcock and very familiar with the issues of putting a
long-term agreement in place on the maintenance of submarines, for the reasons
we have given many times this morning - money.
Dr Wilson: Can I give you just one example at a quite low level of the
bringing together of DPA and DLO?
I will wear my other hat of General Dynamics here and comment. We now have an IPT which is dealing with both
the continuing development and the through-life support, which was not the case
three years ago. You can argue that that
has come out of the merger. We have been
able to do a number of things there, including a trade-off between how much we
put into the support line and how much we put into the on-going development
line, and we can actually see synergies between the development line and the
support line developing things which will actually make support less expensive
in future years. Even there, however, I
think ultimately the absolute amount of money that can be made available will
affect the effectiveness of that new arrangement. However, it is there and it is working and
that is at an everyday working level, so there are things like that that are
going on.
Q50 Chairman: That is helpful.
Mr Wilson: But money
still will determine whether the most optimised support solution will be there
and the most optimised spiral development will be there, and we will wait and
see what happens in the forthcoming PR09.
Chairman:
Linda Gilroy has not finished yet.
Q51 Linda Gilroy: Moving on to the staffing side of DE&S, what is the industry's
view on the plans to reduce the number of staff by some 25 per cent by
2012? Is this creating additional
pressures? How does it seem from your
point of view?
Mr Turner: It is a bit
of a management consultant thing from your background, Ian.
Mr Godden: My feeling is
that it is right to do them both and that that is absolutely the case. On occasions it will conflict obviously, as
any cost reduction exercise or any productivity improvement exercise would, at
the same time as re-organising, and at the same time as fighting two wars. There is a lot of pressure on but I do not
see the evidence that says that the cuts themselves are getting in the way of
the programmes. I think those two are
such that they can be combined. There
are plenty of examples of other large organisations that are able to do two at
once. In fact, there is an argument for
saying we need about 150 to 300 very good people to drive these sorts of
programmes through. That is the sort of
level we are talking about. We are not
requiring 10,000 people to do that and therefore as long as that core of people
who are associated with Change programmes are in place and are stable and their
futures are certain, then it is at that sort of level that is required to
improve the programmes, so I do not see those as necessarily in conflict at
all.
Q52 Linda Gilroy: We have heard in evidence that there are some tensions between the
good people being sent to the urgent operational requirements to meet
them. Alongside this very significant
reduction in staff, 25 per cent, it is one in four of every staff, are the
right people in the right places to do the jobs that need to be done?
Mr Godden: Personally I
have not seen evidence where that gets in the way. All I know is that the uncertainty it creates
is more the issue than the actual resources.
I think the uncertainty of any reduction programme lives on and lives in
the minds of people more than the actual resource issue itself, and that is
what I think we need to get the other side to.
Mr Turner: There are two
general areas of comment. I think
industry has proved through outsourcing the benefits in terms of cost reduction
and reliability improvements and we would like to see more of that. I think there is a willingness now on the
MoD, because of the evidence, to do more of that, so clearly that would benefit
manpower on the MoD side. Secondly, we
are concerned on some programmes at the level of man-marking that takes place
and we think there could be savings there, so we hope that is all being taken
into account.
Q53 Linda Gilroy: I do not recognise that; what is man-marking?
Mr Turner: As you are
undertaking programmes and as you are executing programmes in industry and
companies, you have maybe too many MoD people alongside you.
Q54 Linda Gilroy: It is an issue of second-guessing?
Mr Godden: It is like
the oil industry from which I came where the large oil companies like BP used
to second-guess all the contractors and then the contractors used to
second-guess the sub-primes and you had man-marking basically going on all the
way down the line. BP eliminated that
and removed a large chunk of that man-marking and discovered it actually
improved things.
Q55 John Smith: An issue that has come up for us time and time again, and it might
be related to this, is whether the skills within what was the agency exist to
be able to oversee long-term partnering contracts, which are very complex and
which are still fairly new to private industry.
We were assured that there were training programmes in place and big
developments had been made. Is that your
perception on the industry side?
Mr Turner: I think Amyas
Morse has done an excellent job coming in as the Commercial Director of MoD
with the training programmes and bringing more commercial people in. Clearly in the bad old days of fixed price
design, development and production, "throw it over the fence", you did not need
it. In the enlightened world of
partnering we are now in you do need that, but the real help in that is what
Linda mentioned about gain-sharing, the fact that both sides can benefit, it is
a win/win situation. If you get the
right structure in these partnering agreements costs come down, industry makes
an acceptable return and both sides and the Armed Forces, which is the end
result, win on that, so, yes, significant strides have been made and I think
Amyas Morse and the guys in the MoD should be congratulated on that.
Mr Godden: I agree with
that entirely. I see it every day,
secondments out to industry, secondments the other way, plus Amyas and his
programmes, and that has had a big effect and will for the future.
Q56 Mr Jenkins: As you know, the MoD only
"partly met" its Public Service Agreement target of delivering equipment
programmes to cost and time. In fact,
the NAO found last year that "procurement performance declined". Do you have a view on why this performance
declined?
Mr Turner: There is the
legacy. To give the helicopter view,
there are two leading countries which have the highest level capabilities in
Armed Forces in the world and those are the United
States and the United Kingdom. If you compare the UK's
overspend and delays with the US's
it is a fantastic result. In any
comparison between what the UK
overspends and the length of their programmes compared to the United States, the UK is doing an amazing job. What we are now benefitting from, and still
suffering from as well, is the legacy programmes, but the change away from
fixed price design, development and production on complex programmes without
the right risk mitigation being taken up-front, the investment up-front, before
industry enters into the commitments and politicians stand up in Parliament and
give in service dates and commitments to budgets, that is a huge step
forward. On the Carrier, for example,
that has been well done. We had refused
and the MoD had gone along with our refusal to commit to dates and budgets
until risk mitigation had taken place and proper risk registers were put in
place. I have lots of evidence and I
have the scars from Nimrod and Astute when that was not the case. I think we are still suffering from those
legacies. The way the MoD now conducts
itself in risk mitigation upfront is absolutely right and we should be proud
compared to the US
of what the MoD has achieved.
Q57 Mr Jenkins: Because it is said that
the MoD and industry had a so-called "conspiracy of optimism"?
Mr Turner: Sir Peter
Spencer.
Q58 Mr Jenkins: You think that time is
more or less past?
Mr Turner: I am afraid
in the past when there was so much budget available people, largely within the
MoD, said, "Yes, we can do it for that," and industry, by and large, to stay in
business, went along with it.
Q59 Mr Jenkins: If I remember the term
they said, "If we offered them the true cost they would run a mile so we offer
them a lower price and then we get them hooked." It is like that advert on the telly, "We put
a juicy worm on the hook and when we hook them we put them in the keep-net."
Mr Turner: I was party
to the Nimrod in the mid-1990s and we wrongly believed that we could do it for
that price. We convinced ourselves, I do
not know on what basis but we did, having spent only a few million pounds
up-front that, yes, it was possible to do that.
We were wrong and it is only in time as you spend what is recommended,
which is some 15 per cent of the total programme bill up-front, that you understand
the technicalities and the risk registers and you do it properly. It is good that that has happened. Companies do not do that.
Q60 Mr Jenkins: There is some nagging
doubt because you are now saying that was in the bad old days and the MoD now
are all-singing all-dancing, they are much better, and that that should not
happen. But of course in the old days it
was a partnership of two, was it not? If
the MoD has got its side right what have you done to improve your side to make
it difficult not to con the MoD like you did in the past into the future?
Mr Turner: Frankly, what
we said was that we were no longer playing that game. We were not going along with a monopsony
customer saying, "This is the programme and these are the terms and if you do
not take this programme on those terms you do not get the job." Frankly, the UK defence industrial base, my own
company at the time was so small, and we did not have the assets we now have in
the rest of the world, but we had to take it or we were out of business. Eventually we said, "We cannot go on like
this. We cannot go on taking these
complex weapons programmes on fixed price design, development and production
programmes even if it means not staying in business in that particular area. I am sorry, we cannot do it," and I am
pleased to say that the MoD came along with that, and rightly so.
Mr Godden: I think there
is another factor at work here. If we go
back to the supply chain and say that we have in this country anywhere from
3,000 up to 7,000 companies involved in the supply chain, there is an issue
about how efficient that supply chain is.
As Mike Turner said, if you do comparisons between the UK and the US we come out, in a relative
sense, very well. In an absolute sense,
if we compare ourselves with other industries, and we have a nice direct
comparison with the civil to defence side in aerospace, we would say that the
whole supply chain and the SME community and the primes have got work to do in
terms of developing a much leaner, more efficient supply chain that will match
the needs of the programmes, so I think on behalf of the industry I accept the
challenge. We have established a
programme, Supply Chain 21, which is an attempt to overcome some of those
difficulties for which we get criticised.
I think there is that element to it as well.
Q61 Mr Jenkins: I understand that complex
projects do get difficult, but whilst we now, as you just told us, have a more
intelligent customer in the MoD, to do with merging and the way we work with
industry, is it solely legacy projects that brought down the performance last
year? It is last year that procurement
performance declined; why?
Mr Turner: You will
probably find the odd one that is a current programme having some difficulties,
even when the right level of risk reduction has taken place, but I think if you
look carefully at the Major Programmes Report it was the legacy programmes,
yes.
Mr Godden: I would also
say that there has been a lot of focus on value for money but if you talk to
the Ministry of Defence itself, I think it understands that the value of time
has been somewhat under-valued, and it goes back to this budget issue that you
start with at the top end which is you push to the right because of budget
constraints, that delays your programme, and you start going into that cycle. The value of time is something that I know
that Amyas Morse and the current Ministry of Defence team are very keen to
establish a programme on and to develop that timeliness in terms of
decision-making, in terms of the risk/reward, getting to the risk/reward
boundary as quickly as possible and agreeing that. I think those are programmes that would help,
in addition to what Mike Turner has said.
Q62 Chairman: Would you describe the MoD over the last six months as having been
more decisive than previously?
Mr Godden: At the top
level I started off by saying we are in limbo so how can I come back and say
that, so the answer is no, at the top level, but obviously on individual
programmes I think it is happening faster.
Mr Turner: We should
give them great credit on UORs. They
have responded for what the lads need out in Iraq
and Afghanistan
in a magnificent way and so has industry, but the rest of it, the Future
Equipment Programme, is paralysed.
Q63 Linda Gilroy: Somebody mentioned Supply Chain 21, I think it was Ian just
now. Could you just set for the record
what that involves and what it brings to the table?
Mr Godden: Effectively
it is a programme of establishing lean timeliness and efficiency into the whole
supply chain. The Ministry of Defence signed
up in Farnborough this year to that whole programme, which is an industry-wide
programme, essentially self-help, funded partly by work going on in the regions
and partly by work going on from central government, but largely funded by the
primes themselves in terms of their programmes of lean manufacture, lean design
and the whole concept of eliminating duplication in the chain. There are 300 companies that have signed up
out of 3,000 that are actively working on that. It is a very large programme. A bit like I said earlier about 18 months,
this was established approximately 18 months ago. I myself am proud to say that the programme
is alive, well and kicking and doing a good job, but it could be faster, it could
be better and it needs to be pushed hard from all angles because I think that
will have the ripple effect upwards along with things about timeliness
downwards that we are talking about.
Q64 Linda Gilroy: One of the things we were concerned about in examining the initial
Defence Industrial Strategy was the ability of small and medium enterprises to
access the supply chain. Is that part of
the solution?
Mr Godden: That is part
of it.
Q65 Linda Gilroy: If so, is it working well enough across the piece or are there
lessons to be learned from that for other parts of the supply chain?
Mr Godden: There is
still a long way to go. It is one of
those comments where I would say we have made huge progress in the last two to
three years. I would see this as a five
to seven-year programme. If you look at
the analogies in the automotive industry in this country, the automotive supply
chain has still got a long way to go in terms of its quality and its world
standard, but at least on the automotive side we have final assembly in units
which are world-class and very effective, as we have for example in some of the
facilities in defence and aerospace, but the chain is not yet efficient, in my
opinion. Not when you compare it with
other defence, industries I hasten to add, because versus the French and versus
the US
our chain is much more efficient and better value for money but versus other
sectors we have got some way to go.
Q66 Chairman: I would like to move into the issue of defence inflation now. We have an adviser, Professor Kirkpatrick,
who suggests that defence inflation is above the average rate of inflation in
the rest of the economy and it is broadly the GDP deflator plus three per
cent. Does industry have a view as to
whether that exists and whether that is roughly the right rate?
Mr Turner: The US
defence budget planning received wisdom is that the defence industry, because
it is at the sharp end of technology, has relatively low volumes compared to
what happens in commercial industry and that inflation is significantly higher. The skills that are demanded in the defence
industry mean that defence inflation is significantly higher than general
inflation, and that is allowed for in the defence budgeting in the United States. I believe it is obvious to anybody that
inflation is going to be higher in the defence industry. Volume, skills, technologies, materials all
come together, and you are demanding the very highest level of capability which
costs money more than the average and that is why, if you look at the defence
industrial base, we pay people well in the defence industry in the United
Kingdom compared to general industry.
The good news in the US
is that it is recognised. They worry,
even today, about the good times returning and people leaving the defence
industry to go into other commercial industry at the expense of the defence
industry and they are concerned therefore to make sure that the defence
industry in the US is properly funded and inflation is properly funded in the
defence industry and that profits are allowed in the defence industry. They get disappointed if you cannot make 15
per cent profitability in the United
States.
I think you could study forever about whether it is two per cent, three
per cent, five per cent. I just know it
is higher and for very good reasons.
Q67 Chairman: Is that because you pay yourselves more?
Mr Turner: We do and
rightly so because the skills that are needed in the defence industry are
higher, I would argue, than any other industry.
You go round the nuclear submarine at Barrow or a Type-45 or an armoured
fighting vehicle the skills and the systems that come together and all the many
types of technologies that come together to make that capability for our Armed
Forces are second to none.
Q68 Chairman: Is that not creating long-term serious problems for the defence
budget in this country?
Mr Turner: Not if it is
recognised as it is in the United
States.
Q69 Chairman: One of the problems is that the Government says that until 2011 it
will be putting into the defence budget an increase over and above inflation of
1.7 per cent and yet if the defence inflation is actually three per cent then
on an annual basis it is in fact cutting the defence budget.
Mr Turner: Yes.
Q70 Chairman: Does that not make it quite important that industry should actually
play its part in trying to keep defence inflation down by for example paying
its people less?
Mr Godden: Can I add two
factors here. One is if you look at
medical equipment it is very similar.
Medical equipment is inflating much higher than general inflation, so it
is something to do with the equipment and the capability of that
equipment. If you look at a Typhoon
versus a Spitfire do you see it as a like-for-like? No, it is not. There is a capability inflation that is going
into this which is something to do with the need for extra capability. If the professors have said they have done
like-for-like on a Spitfire versus a Typhoon, that is not the case, so there is
distortion there and the answer to your question is that the industry itself
does not know any more than the professors who have studied it. If they have come out with three per cent
that is what industry believes it is.
That is partly to do with capability and partly to do with requirements
being put on the equipment itself as well as the things that Mike Turner
mentioned.
Mr Wilson: As to
on-going inflation, if I might just make the point, I do not think, from the
data I have seen, that the defence industry is inflating salaries at any
greater rate than the corresponding general civil industry.
Q71 Chairman: So you would disagree with Mike Turner?
Mr Turner: I did not say
that. Sandy's point is that in the defence industry
people get paid a certain level above the average. What has happened in recent years is that the
pay increases in the defence industry are in line with general industry but the
gap is still there, and so it should be.
Mr Wilson: I think that
was the point well made. I think the
other point is really if one wanted to simplify this most defence products are
really bespoke craftsmen products compared to mass produced products. The volumes are so small and even large runs
of armoured vehicles are actually quite small compared to their equivalent
trucks, cars and what have you in the civil sector, and so there is necessarily
a premium simply because the volumes never get up to the levels in the civil
business. If you put in traditional
learning factors for going through production, you would see that you need to
go many times more in order to get really significant reductions.
Q72 John Smith: I must say that I am very sceptical about pleading a special case
for unique inflationary pressures in any industry, defence, health, or anywhere
else, and by your own admission holding up the American defence industry in
terms of its record on procurement and its record on efficiency is not a very
good example. Yes, there is a much
bigger defence budget in the USA
and there is much less competition within the USA for the delivery of defence
products, and I think they pay the price for that. I am concerned that it just becomes an excuse
for inefficiency and for the industry not addressing the cost increases and the
cost overruns. You can take other
industries that are far more technically advanced and require far higher
technical skills but they are driving down costs dramatically. The obvious area is computing/information
technology.
Mr Turner: That is for a mass world market. I
sit on the Prime Minister's Ambassadors Apprenticeship Network and we compare
apprentices across the whole industrial base of this country. An engineering apprentice in defence costs
each company about £30,000 to train and develop over a four-year period so the
cost that industry invests is significant and we attract young, bright people
into the defence industry because of the rewards many years out that they will
get by being in that industry. I think
the skills that they bring are second to none.
I cannot think of any other industry that requires what you need on a
nuclear submarine or a Type-45 or a Typhoon or an armoured fighting vehicle,
and it is right that the people who train, and industry invests significantly
during that four-year apprenticeship period, and go through university get the
rewards to which, frankly, they are entitled.
Without those rewards we would not have the defence industrial base of
this country.
Mr Keen:
I agree with all of that. I would refute any suggestion that we were
not seeking efficiencies in the company.
If you look at the sort of investment that we have made as a company in
lean manufacturing facilities in BAE Systems, it is massive. In the efficiency that you see at Warton on
Typhoon, as compared with what you would have seen there 20 years ago, there is
an unbelievable difference, so I think we are driving out efficiencies. More generally I would argue, as Mike has
said, that there are some particular complexities about the defence
industry. I understand your scepticism
but I think the reality is that we are like no other industry. That said, I think there is an issue that we
have to address and I think we have to address it in a number of ways. We have to address it with the MoD in driving
costs down at every opportunity (and we have already spoken about the sort of
things we are doing on partnering) but I think also we have to try and
contribute to the work that I know the MoD is doing trying to understand what
defence inflation is. I think we can
probably help there.
Mr Godden: I think we
are mixing a couple of things up here because we have just published our annual
review of last year and over the last four years the productivity of the
defence industry has gone up between four and six per cent. That is people productivity, et cetera. Secondly, just to reinforce Bob's point, when
I go to the SELEX facility in Edinburgh,
which I was born next to, and I look at that facility versus five years ago,
versus ten years ago, versus 15 years ago, that is a world-class facility that
has been invested in. It has one of the
best supply chain systems and lean manufacturing systems anywhere in the
world. I have been to Japan and I have been to the US and I have been to France. We have a world-class, productive, highly
capitalised investment in SELEX, for example, so there is a mismatch between
what we are being challenged on here versus what is going on. I agree that we need to study this inflation
issue if it is a big issue for the Government and we should do, but I do not
think there is any answer that says we are an unproductive (and getting worse)
industry; quite the opposite because that is the implication of saying
that. The inflation then must be
something else and I am saying I think it is a capability inflation
myself. That is my own personal opinion;
unproven.
Q73 Chairman: I think that was actually factored into Professor Kirkpatrick's
article. Sandy Wilson?
Mr Wilson: I come back
to John Smith's point about the obvious comparison between the UK
defence industry and the worldwide computing and communication industries. Offshoring is a major factor in keeping costs
low because hardly any of that volume production is done in the UK. Even the development is now done offshore in
many cases and that is something that is just impossible to do in the defence
industry. We really need to take that
factor into account. It is not open to
us to go and have a whole pile of critical software developed in India. If it is not critical yes we can; if it is
absolutely mission-critical we cannot because it is absolutely essential that
that core capability is in the UK
and no-one else knows what it is.
Q74 Linda Gilroy: I too am very sceptical about what you are saying. I think that the areas that you work in like
computer-aided design should be able to deliver huge savings in the
programmes. They must have done.
Mr Turner: It has done.
Linda Gilroy: I still think
there is the whole monopoly/monopsony-type culture in the industry that does
not drive hard enough to match the undoubted defence inflation there is with
the savings that can be made. I think
that we would have to try and unbundle the two sides of it. We do know that in the MoD budget they have
made a lot of savings with your help and that that has been rededicated to
front-line capability. Therefore, you
cannot just take a straight line of what the increase in the MoD budget is
without recognising that there have been some major efficiency savings. I just do not get the impression that you
guys are dedicated enough to try and combat that as an issue, given the
tensions that there are, because the gap in the rewards that come to people who
work, quite rightly, and get well-rewarded in the dockyard at Plymouth, for
instance, against what young men and women who are going out to put their lives
on the line in Afghanistan and Iraq are getting is wrong. That is a very visible example of the
tensions that exist that we were talking about earlier in the equipment
programme as well. There needs to be
more passion injected into trying to achieve that, which I know from what you
have said in your introductory remarks you recognise and you care about.
Chairman:
That was a comment, rather than a question.
Linda
Gilroy:
Sorry!
Q75 John Smith: I just want to come back, it is not my intention to claim that the
industry is unproductive or inefficient; far from it. I think you have a very good story and a very
good track record. I do not think there
is anybody on this Committee who does not support you in your bid for
additional budget funding for the good work that you do. I am fairly sceptical about the argument
about inflation and I think in the long run it may be counter-productive for
you to be arguing a special case on your costings rather than showing what a
good job you are doing.
Mr Godden: What I would
like to do out of that is to promise to study that with you because I agree
with you that it needs reconciliation because it has got a number of factors in
it.
Q76 Chairman: May I say that that is welcome because I think that, whatever the
scepticism of my colleagues, there are some points that we have to understand
here and we need to get to the bottom of what is the effect of this small
volume, what is the effect of the materials that are used and the cutting-edge
nature of the defence industry, and so if you can work with us to get to the
bottom of that that would be most helpful.
I am glad you are working with the Ministry of Defence.
Mr Turner: Chairman, it
is all very well having these discussions but the bottom line is today we have
a world-class defence industry in this country, one of the few industries
left. If we carry on debating these
things such as inflation - we know how efficient we are and that we give value
for money and if you compare with anybody else in the world, capability for
capability, value for money, what we bring to the UK economy, what we do in
support of UK Armed Forces, in ten years' time I will not be here but people
will be sitting around here saying, "Where did it go? What went wrong? What did we do wrong?" I tell you now this industry is in decline
and unless people pay attention to the budgeting of defence in this country and
the defence industrial base we do not have a future.
Chairman:
We have to pay attention to that on the
basis of our own knowledge and of the facts that we get by debating it in these
fora and so your help in getting to the bottom of it would be much appreciated.
Mr Jenkins: Before
we leave that area, I am glad you brought up the automotive industry and the
increase in capabilities because there has been a tremendous increase in
capabilities and a dramatic fall in the cost of cars in this country. They are not offshored, they are built here,
designed here and planned here, in the main.
In the world out there technology has been driving prices down and has
produced additional capabilities but when the argument is made, "We have to pay
high wages because when with the good times come back people will leave the
industry," what happens then, as the wages outside go up so does the rate of
inflation go up in the economy, so you would be exactly on a par with the normal
economy. There is no reason why your
inflation rate should be any higher because of outside wage rates going
up. That is the first thing. The second point on small batch production,
small batch production was used to set the original price, it is not about the
rate of inflation because that was a given to start with. I think we should put those two things on the
record. Your argument that servicing
offshore costs may lead to a fall in inflation in Britain now that the GDP
deflator might be slightly lower may be an argument, but it is going to be so
marginal as to have virtually no effect, I believe.
Chairman:
I think we ought to move on from a debate on
the issue of defence inflation.
Mr Hamilton: Chairman, could
I just ask for one bit of information.
When Ian sends that information to you, could you also indicate across
the board what type of wages we are talking about. I take the point that Linda makes, the
comparisons are not between industry, the comparisons are in the area in which
the industry is working. I know from my
area where there is a small engineering firm, Taggart's, that the people are
well-paid and it is a good company, but the comparisons are not with areas like
Glasgow or London, the comparisons are with local wage levels, so if you get
that information that would be quite helpful also.
Q77 John Smith: I was going to cover the effect of current operational requirements
on strategic planning but I think that has been dealt with right from the start
in your opening comments. There is just
one area of the impact of current operational requirements and that is: is
there any evidence that equipment is being used to such an extent now that its
life is being shortened? You are talking
about us not progressing with future equipment requirements. It could be creating an even bigger gap
because the life expectancy of the equipment, especially air frames, is being
impacted upon by current requirements.
Is there any evidence of that and does the industry have a view?
Mr Turner: I think the usage
on helicopters and the need for continued urgent action on helicopters is
well-known. On the fixed wing, the
Harriers, yes it is a concern that they have a stated life and that is being
used more rapidly than was originally planned.
At the present time we are building two splendid aircraft carriers and
we all support that, and it is the right thing for our country to have, but we
will have no aircraft to put on them and that is a big issue for us going
forward. One good thing that comes out
of the UORs is there is a debate that goes on between the MoD and the Treasury
about this additional equipment, in response to UORs how much should come out
of the defence budget and how much should be funded by the UORs. I have no evidence that the MoD is suffering
because of that but I do not think we have a Treasury that is that helpful to
the defence budget, and I think there is a concern that, yes, the MoD is
getting new equipment on the back of Iraq and Afghanistan and therefore that is
good but some equipment is not having the attention it will need for different
kind of campaigns five, ten 15 years out.
We hear about piracy again today and yes, we have six splendid Type-44s
and two aircraft carriers and seven or eight Astute submarines but we need
frigates. Where is the money for the
frigates?
Mr Jenkins: Saudi Arabia to defend their oil route or China to defend their routes.
Q78 Chairman: Moving on then to the
Defence Industrial Strategy, was I right in hearing Mike Turner say that it is
extremely difficult for industry to plan as we were able to do when we had a
Defence Industrial Strategy? Is that one
of the things that you said earlier in the day?
Do you believe the Defence Industrial Strategy is dead?
Mr Turner: It is on
hold. First of all, the principles are
magnificent but also we saw before us long-term planning taking place in
helicopters, on land, air and sea, against which industry could then plan
resources, apprentice intakes, investments and all the rest. We welcomed it and I remember the board
meeting where we said good, at last we have a future in the United Kingdom, because that was
very much in question. Now I think I
think it is in doubt. We are very
pessimistic about the future because we have the DIS, we have the principles,
we have the strategy; we do not have the money.
Mr Godden: In terms of
DIS I mentioned earlier the limbo of 15 months, I think that is what we had,
and our preference is to stick with DISv.1 as a set of principles and allow the
Government and the civil servants to work out what needs to be done in the
current situation for all the pressures and then come back to the subject,
whether that is early next year or later, of the extra principles that need to
be built into DIS, in the hope that we will not dilute DISv.1 but we will
enhance it. The issue for us is there is
no point in publishing a DISv.2 that either does not reflect the sector
strategies or the specifics around adjustments to the thinking at this stage. Our view therefore is that it is a balance
between being in that limbo period and therefore the uncertainty for
shareholders about what is happening versus the pressures of the moment. Industry has taken the decision that does not
wish to add to the pressures of either the Government or of the Ministry of
Defence at the moment until it has sorted out one or two matters, so that is
really where we are. I have worked very,
very hard for the last year and I am disappointed that we do not have a DISv.2
but I accept the principle that we are unlikely to have it until next year or
perhaps beyond.
Q79 Linda Gilroy: Some people are arguing for a Strategic Defence Review. What are the pros and cons of that from your
point of view and what would that do to the process that we are
discussing?
Mr Godden: We have an
incompatibility today between George Robertson's SDR and the money available
for the Future Equipment Programme, so one of those two things has to give.
Q80 Linda Gilroy: So do we need one and what would that do to your programmes?
Mr Godden: Against the current
budget we need one. I would hope for the
sake of the UK Armed Forces and the defence industrial base and all it brings
for this country, that budget will give.
If not, SDR will have to give. I
think SDR was right for this country and its role in the world but it is in
jeopardy.
Q81 Linda Gilroy: Is there a danger if that comes about that that just parks the
issues even further and results in further uncertainty and limbo?
Mr Turner: That is where
we are.
Mr Godden: We are not
calling for an SDR but in a sense we need some guidance at this point and, as
Mick Turner said, it is either budget or guidance, one or the other.
Q82 Linda Gilroy: Do you think you can have the guidance that you want but if the
guidance then becomes something that affects the underlying principles of the
Strategic Defence Review is there something short of a Strategic Defence review
that can give you that clarity?
Mr Godden: DISv.2 was
supposed to be that in a way, it was an interim.
Mr Keen:
Just a couple of additional comments. I am not disagreeing with anything either of
my colleagues has just said, but I do go back in relation to the DIS to the
work that is actually already taking place on a daily basis. We are actually implementing the DIS in a
number of important sectors in the defence industry. That is not to say we are doing it everywhere
and there are key areas for the future, particularly in the air sector, where
key decisions have got to be made about the industry and about the skills and
technology that we are able to maintain over the long term and the extent to
which that will enable to us deliver operational sovereignty, I would say it is
a mixed picture. There are some huge
decisions yet to be made and the industry really is waiting for some of those
big decisions to be made, but we are also making progress.
Q83 John Smith: The budget has come up right throughout this session. There is much speculation in the press about
a looming fiscal stimulus to the British economy. Where are you in the queue outside the
Treasury on this point?
Mr Turner: As you would
expect, we have made a strong case to be at the top of that queue. When you look, as I have said, at skills,
technology, R&T (we represent ten per cent of the UK's R&T spend)
apprentices, jobs in regions, high-skilled jobs, systems jobs, exports, wealth
creation, in terms of a stimulus to the economy we should be number one. We get the feeling we are not on the list.
Q84 Chairman: Why is that?
Mr Turner: Priorities.
Q85 Chairman: Of Government?
Mr Turner: The
Government decides where money is spent.
Q86 Chairman: But a new Strategic Defence Review would be of no benefit if there
were no extra money, would it?
Mr Turner: A new
Strategic Defence Review might say we are not going to play the role in the
world that the SDR said. I would regret
that but at least we would understand as an industry where we needed to invest
or not invest.
Q87 Chairman: If there were a new Strategic Defence Review would you trust the
result that came out? Would you not
think that any government in the future would be buffeted by financial
fortunes?
Mr Turner: We do
not. The evidence in the past, if we
look at DIS which we liked (but, as I said, any board that agrees a strategy
without funding you have got to question whether that is a way to go forward)
so, yes, we would have to test a new SDR if there was one and say do you really
mean it, do you therefore rewrite the DISv.2 sector-by-sector onshore UK and
are going to fund it? Yes, we would have
to hold people's feet to the fire to see if they really meant it.
Mr Godden: We had a
debate on this earlier this year with the Ministry of Defence and the
Government about market attractiveness and given that the defence budget is not
growing in Europe, what is the next best thing to growth. If growth is not available, and that is what
we are being told at the time that it is not available, what is the next best
thing? The next best thing is certainty
and that certainty is therefore the thing that would be sought in a Strategic
Defence Review of equipment. Whether
that means no growth, slightly higher growth or lesser growth or decline, the
next best thing is certainty. At the
moment, unfortunately, because of the uncertainty on budget the certainty on
the other matters is not coming through, so I think that is our position and
always will be. The Government has to
decide on the industry and the operational sovereignty and the requirements for
the defence industry base in this country and we would hope, as we did with
DISv.1, that we would be actively involved in that debate, but in the end the
policy on defence is a Government policy and that then determines the certainty
of what we can invest in with shareholders' money.
Mr Turner: Very
importantly the industry has come to the view that we do not want certainty
today. It would be the wrong thing to
push for a DISv.2 and sector-by-sector certainty today because we will get what
we believe is the wrong answer for the defence industrial base of the country,
for the Armed Forces and for the country, so we would want to defer it. Keep the principles but defer the
sector-by-sector.
Q88 Chairman: Was this not the answer last year when DISv.2 was caught up in
planning round 08?
Mr Turner: Exactly the
same.
Q89 Chairman: And it is exactly the same this year?
Mr Turner: Yes.
Q90 Chairman: Might it be exactly the same the next year?
Mr Turner: I fear the
worst.
Q91 Linda Gilroy: You are talking about on the one hand do you need a Strategic
Defence Review to resolve that uncertainty or do you have a sector-by-sector
review of DISv.1? Surely - and tell me
if I am wrong - when DISv.2 was evolved there must have been discussions about
what sovereign capabilities needed to be included and presumably there was at
least one, if not more, programme within that that was on the margins of
whether it needed to be sovereign capability or not sovereign capability?
Mr Turner: Exactly, and Lord Drayson and the team in MoD sector-by-sector,
complex with weapons, for air, land and sea decided what long-term capabilities
the UK Government wished to see onshore.
The wheels came off when the money was not there to support those
sector-by-sector long-term programme assumptions. That was the fundamental problem. We travelled in hope for some time and I know
the CSR settlement last year put an end to that. There was not sufficient money given to MoD
to implement the industrial strategy of DIS.
That is the limbo land we are in and we will stay there.
Q92 Linda Gilroy: I think what I am saying is in that debate and discussion about what
should and should not be included in the DIS there would have been a long list
and a short list which would have been whittled down bit by bit and at the
edges there would have been one or two programmes that just made it and
presumably therefore relating to the underlying principles of the Strategic
Defence Review, the threat analysis, et cetera, was slightly more marginal as
to whether they needed to be sovereign capability or not. Which were those programmes?
Mr Turner: I think Lord
Grayson and the team looked hard right across all sectors of what was needed on
shore and, in concert with the DTI and Treasury at the time, they came to the
view that these capabilities for operational sovereignty reasons and security
reasons were needed UK onshore and it was believed could be funded onshore UK
rather than going to buy off-the-shelf with the long-term negative consequences
of that in terms of cost and operational sovereignty. In the event that has not proved to be the
case and for some time we did push as an industry for a DISv.2 to reflect the
reality. The situation as of today is
that we do not think that is sensible because we will lose far too much
compared to DISv.1.
Mr Godden: I think there
is a risk here in the debate about specific programmes. If you want an industrial capability in a
country there are two factors: one is the funding of specific programmes for
specific platforms for specific services and pieces of kit; and the second is
the research and development which underlies it. I think we all regret missing out on Stealth
as an example where in a previous era we did not invest enough. If you look behind the scenes the research
and development budget this year has been cut by seven per cent. To me that is about the capability for the
future as well as the current programmes that we are all debating and to me
that is as significant, if not more significant as a signal of what the current
climate is doing to the long-term capability.
It was a seven per cent cut and there was a cut the year before.
Q93 Chairman: The DIS itself said that money spent on research and development was
what gave a very strong indicator about your battle-winning capability in 25
years' time
Mr Godden: Yes.
Q94 Chairman: You consider that the research and development budget has been cut
by seven per cent this last year?
Mr Godden: Yes.
Q95 Chairman: Over the last 20 years, say, would you be able to give us an idea of
what you consider to be the level of UK MoD research and development spending?
Mr Godden: I have not
got it with me but I can certainly give it to you.
Q96 Chairman: I am not asking you for it now.
I saw a recent parliamentary answer on research (but not research and
development) which suggested that research as such had been pretty constant, but
it sounds then as though development is the area which has dropped off. Would that be right?
Mr Godden: All I know is
what the research and development is. I
cannot comment on research but I can clarify that and I know that if you look
at the research and development budget of about £2.5 billion, and you strip
that back to take out prototyping and so on, you get down to numbers that are
closer. Do not quote me as exactly
accurate because it depends on definitions, but let us say it is half a
billion, I know that half a billion is being cut so that is what we are talking
about there, and for me that is as much an indicator of the long-term interest
in maintaining capability as the discussions about Lynx and about future
Typhoons and so on.
Chairman:
I would entirely agree. I think it is an absolutely crucial issue of
capability as a country over the coming decades.
Q97 Linda Gilroy: If you are going to be able to offer us a note on that in relation
to the protect and prevent strands of the National Security Strategy, what else
is happening in terms of research and development and trying to make that cross
into other government departments? I
guess this will partly be resolved by the new committee on the National Security
Strategy?
Mr Godden: Yes.
Q98 Chairman: Can we get on to
the UK and the US and
also exports. The Trade Co-operation
Treaty has yet to be ratified. Are you
hopeful that it will be? Do you mind
whether it will be?
Mr Turner: I think it is
very important for future co-operation across the Atlantic
that it is ratified. We were
disappointed, as I know the MoD and Government were, that it was not ratified
before Congress broke up this time. We
are optimistic that by the summer of next year, yes, we will get there.
Q99 Chairman: Will it make much of a difference to the British defence industry?
Mr Turner: A lot of
difference. The fact that companies and
governments can share research and development money across the Atlantic in an open way would be a very good thing and
there would be benefits to both taxpayers and to the Armed Forces of both
countries. Yes, it is very important.
Mr Keen:
I think the benefits will increase
progressively. We may see at the outset
that the areas in which we are able to make a difference will be relatively small
because I think it just makes sense to take it in bite-sized chunks, but
ultimately, as we go forward, it will make a huge difference.
Q100 Chairman: There was a recent article in Jane's
Defence Weekly which suggested that the UK industry and the MoD were
developing ITAR-free programmes. What
does that mean in practice?
Mr Keen:
Well, I guess it means if in particular
areas the MoD are concerned about access to US technology they will drive a
capability that is free from US technology.
Q101 Chairman: So it would be ITAR-free?
Mr Keen:
If it were the case.
Q102 Chairman: It would be helpful to US industry to see what progress
could be made on this Treaty?
Mr Keen:
I think so and I think you had Dr McGinn
give evidence to you from the AIA last year setting out how supportive that
association is of the ratification of the Treaty, and certainly from the time I
was in Washington a couple of weeks ago that support is still very
evident. I think the industry over there
is supportive and we have just got to take advantage of that and hope that Vice
President-Elect Biden, who was the Chairman of the Senate Foreign Relations
Committee and was supportive of the Treaty in that role, gives us support
within the Administration in an effort to put it high enough on the Congressional
agenda.
Q103 Chairman: The Administration has never been the problem there?
Mr Keen: No.
Q104 Chairman: Can I get on to exports. I
will ask this in as neutral a way as I possibly can because there are two
stories on it. What was the effect of
the removal of DSO from the Ministry of Defence and marrying the new
organisation into the Department of Business,
Enterprise
and Regulatory Reform?
Mr Turner: We were very
concerned, as you know, as an industry when the Prime Minister took the
decision to move it. However, we are
pleased with the result. We have worked
hard with government to make the transfer as seamless as possible and to keep -
this was the important thing - the MoD involved. All the evidence to date is that the MoD are
very much still involved in supporting the export of UK products, so it has
gone far better than we dared fear at the beginning. Is that fair?
Mr Godden: Yes.
Mr Keen:
I think it is fair enough. I am fresh from the DSO Defence Advisory
Group of which I am a member yesterday, as indeed is Ian Godden, and I think it
is very clear there that Richard Panagian, the new head of the DSO, is
absolutely clear that the key test of how the arrangement works will be the
extent to which they deliver ministerial support particularly from the MoD, and
more general support from the MoD, so I think it is absolutely on his
agenda. The other important factor
against that background is the fact that John Hutton has made it very clear
over the last couple of weeks that he is going to take a personal interest in
supporting defence exports. I think that
is a hugely important commitment to industry.
Mr Wilson: I think there
has been a very positive development on exports with regard to the MoD in the
last year. In the first DIS there was
hardly any mention of it and in some of the documentation that we have seen
from review, using exports to maintain the UK's capability is actually there
in black and white. It is very
attractive to us to see that support for export because they have realised the
on-going benefit it would give to keeping the industrial capability which will
then deliver through-life capability to real programmes in the UK. I think that is a very significant change and
is to be welcomed and maintained.
Mr Turner: It is always
helpful of course if you have products to export! Hawk has proved, if you get it right at the
beginning, what it can do for the country.
It would be useful to FRES and it would be useful to have Typhoon fully
developed as a multi-role fighter. It would
be useful to have frigates to export and that is why again the campaign to
improve the situation is so important.
Q105 Chairman:
Can I ask you a question about
some of the things that we do try to export.
Might there be a criticism perhaps of the Ministry of Defence that the
equipment that the Ministry of Defence buys is so sophisticated, so difficult
to operate, so expensive, that other countries cannot afford to buy it and
therefore that damages our export markets and also therefore the Ministry of Defence's
own capability?
Mr Turner: It is how
seriously you take defence and your Armed Forces. Clearly we have a history of wanting our
Armed Forces to play at the highest level and you have to give them the highest
level of capability. I remember the Horizon
Frigate Programme where we were unable to come to a conclusion in Europe because the requirements of the Royal Navy,
rightly, were that they were possibly going to fight with these ships. Other countries, dare I say, did not have the
same view and therefore we have to have capability that supports our Armed
Forces. The good news on the Future
Frigate Programme, if we ever get there, is that we are looking at a modular
construction where you have units you can put on the hull that will be for the
Royal Navy and a lesser capability for export markets, and I think that is the
kind of thinking that we need. Today we
have an aircraft second to none in Typhoon that if we fully develop to its
multi-role capability there is not a competitor in the world for the capability
and the cost of that aircraft. That is
why I am appealing to the MoD to finish the job on Typhoon. Again we come back to the budget. That would be a wonderful export for this
country to a number of countries.
Mr Godden: Just to
reinforce Sandy Wilson's point, the exportability issue has clearly come up the
agenda. I think that is probably one of
the issues where we have, as it were, benefited from the thinking over the last
six months or so in terms of the economic impact, because there is an economic
impact. Clearly that has very little
effect in the short term, but in the medium term this is very important for the
period when we all think that there is going to be a pay-back period of some
sort in two, three, four or five years' time.
Maintaining our success at defence exportability to the type of nations
that we are comfortable with, which is a Government policy, is a very important
thing to encourage and to encourage the changes in attitude that go with that.
Mr Wilson: Can I just
come back to DIS again and emphasise how right it was. Its emphasis on systems engineering and its
emphasis on open architectures are exactly the things that enables things to be
developed for the UK and then slightly different things exported within the
constraints that the Government wishes to place on them. I think that is why we were really enthused
by the original Defence Industrial Strategy.
It got so much right that it does not just permeate the UK programme but
it enables UK industry to get to the point where we could have open,
architected systems and plug-and-play components that would allow you to adapt
it to whatever market you wished to play in, and that seemed to me at the time
fundamentally a good thing. As I have
said before today, I hope the MoD continues with that thrust and its support of
exports using that principle.
Q106 Linda Gilroy: I realise that our time has come to an end but I have a fairly small
question and it was really just to pick up on a point that Mike Turner was
making earlier about the representations in relation to the pre-Budget
statement that we are expecting and the extent to which the supply chain, small
and medium enterprise part of maintaining employment has been stated as a case
within the global case that you would have been making. Do you feel that has been made strongly as
part of your representations and can you just for the record of the Committee
perhaps give a broad-brush outline of how important that is?
Mr Turner: Just to
reiterate, we have more SMEs in the defence industrial base of this country
than Spain, Italy, Germany
and France
put together. SMEs are a very important
part of the defence industrial base of this country. They are suffering now because, frankly, the
primes are suffering on the major programmes.
We are not flowing down and are unable to flow down money to the supply
chain. We have made the point about SMEs
in the defence industrial base. Frankly,
I do not think we are being listened to.
I do not see us as part of the stimulus package and I think it is a
mistake.
Q107 Chairman: I think we will end on that point and thank you very much indeed for
a very interesting and very helpful evidence session to start us off on this
inquiry. We are most grateful.
Mr Turner: Thank you
very much.
