House of Commons - Ministry of Defence Annual Report and Accounts 2008-09

Ministry of Defence Annual Report and Accounts 2008-09 - Defence Committee Contents

3 Assessing the MoD's performance

Overall performance against PSA and DSO targets

42. Under the Comprehensive Spending Review (CSR) 2007 reporting framework, the MoD is no longer the lead Department for any Public Service Agreement (PSA) targets. However, it contributes to both the Home Office-lead PSA 26 on Counter-Terrorism and the Foreign and Commonwealth Office-led PSA 30 on Conflict Prevention. Three Departmental Strategic Objectives were agreed in the 2007 Comprehensive Spending Review. The Department's performance against these objectives was updated in the MoD first quarter External Performance Report 2009-10. Table 2: Public Service Agreement targets and performance

Public Service Agreement Targets Departmental assessment of performance in 2008-09

PSA 26: To reduce the risk to the UK and its interests overseas from international terrorism. The Home Office leads on this target, with a number of other government Departments contributing. The target reflects the four pillars of the Government's counter-terrorism strategy—prevent, pursue, protect and prepare. The Department's Performance Indicator 1.1 (Success on operations) contributes to performance against this PSA target. The Department's Annual Report does not give any information on performance against this target. The Home Office Annual Report states that the assessment of progress against this target is classified. (Paragraph 1.24)

PSA 30: Global and regional reduction in conflict and its impact and more effective international institutions. The Foreign and Commonwealth Office (FCO) leads on this target, supported by the Ministry of Defence and Department for International Development (DFID). The Department's Performance Indicators 1.1 (Success on operations) and 2.1 (UK Contingent Capability) contribute to performance against this PSA target. The Department's Annual Report states that PSA 30 performance is reported by the FCO on behalf of the Ministry of Defence and DFID, and shows 'some progress' across the year. (Paragraphs 1.19-1.23)

Data Source: MoD annual Report and Accounts 2008-09Table 3: Departmental Strategic Objective targets and performance

DSO1

Achieve success in the military tasks we undertake at home and abroad. Indicator 1.1: success on operations: assessed against the military strategic objectives for each operation or military task we are conducting, including counter terrorism.

"Some progress" achieving the military tasks required, although it is recognised that this has partly been at the cost of readiness for contingent operations.

DSO2

Be ready to respond to the tasks that might arise. Indicator 2.1: UK contingent capability and delivery of force elements at readiness.

"No progress". For a considerable time, armed forces have operated above the level of concurrent operations which they are resourced to sustain over time.

Indicator 2.2: Manning balance.

"Some progress": the RAF's manning balance has deteriorated, while the Army and Navy have seen improvement.

DSO3

Build for the future. Indicator 3.1: Procuring and supporting military equipment capability.

"No progress". The targets for variation in forecast cost and time were not met.

Indicator 3.2: Procuring and supporting non-military equipment capability.

"Not assessed": the method of measuring performance has not proved accurate

Indicator 3.3: Sustainable development.

"Some progress": three indicators showed progress, three did not

Value for money progress.

Broadly on track.

Data Source: MoD Annual Report and Accounts 2008-09

43. Despite the Department only having achieved "some progress" on three indicators, Sir Bill Jeffrey thought that the Department had seen some overall improvement in performance over the last year:

Notwithstanding some of the public comment, I think we have a good deal to be proud of in the way the Department is supporting our main effort in Afghanistan. If you look at the figures that do happen to flow from the departmental strategic objective, the readiness figure, for all its limitations, although it is not evident in the quarterly return that we sent to the committee a month or so ago, is now turning upwards and the next one you see I believe will show that since drawdown in Iraq our readiness measure against the various force elements that we do measure is improving. The economic conditions that we are now in have meant that we are much closer to manning balance than we were some time ago. It depends on what one is measuring but there are definitely signs of improvement.[35]

44. In the Committee's Report on the Annual Report and Accounts 2007-08, the transparency of the terminology used to describe progress was raised as a concern. We commented:

When targets comprise many sub-targets, when subjectivity is key to measurement, when no metrics are provided to assess what is meant when a sub-target is "partly met", there is clearly insufficient transparency.[36]

45. This year the term "partly met" has not been used, but "some progress" takes its place. There is no explanation in the Annual Report as to what this assessment means in terms of how close the Department actually was to achieving their targets. The Treasury Public Expenditure System 2008 Guidance[37] specifies "some progress" to be "where 50% or fewer indicators had improved" (see Table 4 below). However, unlike in previous years, this breakdown is not included anywhere in the Annual Report. Table 4: Progress terminology

'strong progress' where more than 50% of indicators had improved

'some progress' where 50% or less indicators had improved

'no progress' where no indicators had improved

'not yet assessed' where 50% or more of the indicators are yet to have even first time data produced on progress.

Data Source: HM Treasury Public Expenditure System Guidance 2008

46. In most cases, no indication is given as to how many sub-indicators were met under each main performance indicator. For example, in relation to contingent readiness, the MoD analyses that "no progress" has been made, and notes the variation in the percentage of force elements not showing either a "serious or critical" weakness over the course of the year, but no explicit target is provided, or any other readiness sub-indicator outlined. Similarly for manning balance, the MoD asserts that "some progress" has been made, and notes the change in the manning balance of each of the three Services, but nothing further. Therefore, the public cannot tell whether there are further sub-indicators to this particular performance indicator, or exactly how much progress equates to "some progress". Indeed, if the only sub-indicators for manning balance are the balances of the three Services, it is arguable, given the fact that while the RAF position had worsened, the Royal Navy and Army had improved, more than 50% of the indicators had improved, and therefore the Department had made "strong" rather than "some" progress by the Treasury's definitions. Sir Bill Jeffrey commented:

The headlines about progress I think have always been a difficult issue for us. There is a desire to capture in a single word or so whether we are heading in the right direction or not, and that is intended to do no more than that. The more substantial information underlies it. We are, I hope, still continuing to give the Committee our rolling assessments of the readiness levels and all the other indicators that we have become used to.[38]

47. While we accept that the MoD is following Treasury guidance regarding the use of terms such as "some progress", we are concerned that these phrases are unhelpful when used in isolation, without giving any indication within the Annual Report as to their meaning in real terms. We recommend that the MoD ensure that an explanation of these assessments are included in next year's report. Furthermore, the Department needs to make the basis for these assessments clear. A full outline of targets and sub-indicators will not be appropriate in every case—where there is operational sensitivity, for example. However, we expect the Department to provide as much information regarding the assessment of performance as is practically possible.

Operations

48. As a consequence of the continued high tempo of operations in Afghanistan, the Armed Forces have been operating for eight consecutive years above the level which they are routinely resourced and structured to sustain. Between 1 April and 30 June 2009, 18% of the Royal Navy (23% in the previous quarter), 18% of the Army (17% in the previous quarter) and 12% of the RAF (13% in the previous quarter) were deployed on operations and undertaking Military tasks.[39] In total, some 17% of regular Armed Forces were deployed.[40]

49. The MoD assesses that it has made "some progress" against the performance indicator for DSO 1 (PI 1.1) which requires the Department to achieve "Success on operations: assessed against the military strategic objectives for each operation or military task we are conducting, including counter terrorism." While some detail is provided by the Department regarding the individual operations and activities the Department has undertaken, this is largely descriptive and exact detail of assessed performance is, perhaps unsurprisingly, omitted. We expressed concern regarding the availability of information in relation to assessing the success of operations in our Report on the MoD Annual Report and Accounts 2007-08, but noted that "operational sensitivities will mean that this area of performance will necessarily remain less accessible to the public than other areas of the MoD's performance".[41] The PUS commented in relation to Afghanistan:

[…] if you see this as a military campaign it has some significant successes to its credit. I think also, as I discussed with the Committee with my Foreign Office and DFID colleagues some months ago, that we can point towards significant improvements in the way in which military and civilian efforts are articulated together. It is a challenging issue and not one that I think we are yet as good as we could be but I think we have made some progress.[42]

50. The Secretary of State agreed that progress had been made:

Most of our Forces are in Helmand Province and if you ask them and go to theatre […] you will get many of the same answers that I do, there has been considerable success over the last period of time. We have seen a substantial influx of US forces in Helmand Province. We still control the main population centres but that means that we have been able to hand-off some of the areas that we had original responsibility for to the Americans. For instance, Garmsir in the south is now all their responsibility; Nawzad, where we had troops, the Americans now take care of; and that has enabled us to perform operations like the one that was performed in the winter of last year in Nadi Ali that brought an area of central Helmand within the control and reach of the Afghan Government.[…] I think we have also made progress on the organisational side, and the degree of the way in which the civilian effort in Helmand Province is joined up with the military effort out in theatre is impressive indeed and has come a long way.[43]

51. It was clear, however, that public perception of the success of operations was a concern, and the Secretary of State recognised that there was a tendency for public and media opinion on Afghanistan to focus on the most visible aspects of the conflict:

On the Afghan operation itself, the prism through which this is all seen back in the United Kingdom is the deaths in theatre and that tends to wipe out in the public mind and does damage to people's perceptions of the success that we are having in Afghanistan. We have lost 98 people this year and so no-one should be surprised if people are not particularly concerned about where we are.[44]

Our troops can be as good as they are; their morale and their spirit can be as high as I see it every time I go out there; but if they do not believe that there is support back here at home—not only for them, which I think has improved massively over the last couple of years […] but for the operations in which they are engaged - then I think that is a very difficult situation.[45]

52. Given that the recently published Strategy for Defence identifies operations in Afghanistan as the Department's "main effort", it is important that both we and the public are able to make a reasonable assessment of the Department's performance in this area. The war in Afghanistan and the casualties incurred are inevitably emotive subjects. We recognise that the Department cannot make public all of its activity, but we recommend that the MoD needs to put more work into accurately conveying its performance on operations to the public. There are some welcome signs that this is beginning to improve.

Support to High Intensity Operations

53. In May 2009 the NAO published a report looking at the Department's arrangements for supporting high intensity operations. This report focused on four key areas—equipment, logistics, pre-deployment training and support to personnel. The key issues the NAO identified included:

A shortage of spare equipment in theatre and insufficient equipments on which to conduct pre-deployment training;
Shortages of pre-deployment training equipment at the equivalent standard to those used in theatre;
Variable performance against supply chain targets; and
Differences in the provision of welfare packages at main operating, forward operating and patrol bases.[46]

54. In light of these findings, the NAO recommended that the MoD should:

Maintain a full capability once Urgent Operational Requirement equipment is in theatre through:

i. Conducting analysis which takes into account possible scenarios under which new equipment might be used, as operational circumstances change;

ii. Allocating a sufficient proportion of equipment for pre-deployment training so that personnel are up to date and familiar with equipment before arriving in theatre; and

iii. Cataloguing spares in a timely way, wherever possible before equipment is fielded.

increase the priority given to spares purchases and the training fleet, relative to the delivery of vehicles to the operational theatre. For future fleets, it may be appropriate to increase the priority given to spares purchases and the training fleet from the outset;
provide training equipment that resembles that used in theatre;
alleviate the pressure on the supply chain by smoothing the trend in demand from theatre, where possible, and enabling greater use of lower priority deliveries;
further improve and integrate logistics information systems, including consignment and asset stock tracking; and
roll out more welfare provision to personnel in forward positions in line with its existing planning ratios and, where this is impracticable, introduce more flexibility about the balance of provision between different items.[47]

55. The Public Accounts Committee subsequently published a Report into Support to High Intensity Operations, based upon the NAO's work. It acknowledged the challenges faced by the Department in both Afghanistan and Iraq, and noted the improvements which had been made in provision of medical support, and praised progress that had been made in various areas. However, it also identified areas requiring development, including meeting supply chain targets, the availability of spares, and improvements to be made to pre-deployment training and welfare support. The PAC therefore broadly reaffirmed the recommendations of the NAO. The Government response to the report was published as a Treasury Minute in December 2009. The Department expressed its agreement with the majority of the recommendations and highlights the work that is being done to improve the identified areas of concern.[48]

56. The MoD must continue to work to implement the recommendations of the NAO and PAC as quickly and effectively as possible.

Manning

57. The Department assessed that it had made "some progress" against Performance Indicator 2.2: "Our ability to attract, recruit and retain the military personnel we need to deliver the capability to succeed on current operations and support our future readiness, assessed against what we deem to be the appropriate size and structure of the Armed Forces". Recruitment has improved in 2008-09, resulting in the Department moving closer to achieving its target of the trained strength of the Armed Forces being within 98 to 101% of the manning requirement. As of 1 July 2009, the Royal Navy was manning at 97.3%, 2.7% below Manning Balance; the Army was manning at 98% and within Manning Balance; and the Royal Air Force was at 95.9%, 4.1% below Manning Balance.[49]

58. Recruitment to all three Services improved in 2008-09, reflecting the Department's efforts in this area, including increased targeted recruitment campaigns at both national and local levels, and the impact of the current economic climate. Overall the number of personnel recruited into the untrained strength increased by 1,710 compared to 2007-08. The improvement will not be immediately reflected in the overall manning levels as personnel do not count against Manning Balance requirements until they have completed initial and specialist training and joined the trained strength; gains to trained strength were 15,330 in 2008-09, compared with 13,360 in 2007-08.[50] The Secretary of State acknowledged that there had been some budgeting concerns:

It has also given us some financial difficulties, the fact that recruitment has risen more rapidly that we had assumed. I am not being told there is a problem in the training capacity by any of the three forces[51]

59. However, the PUS assured us that the training capacity and budget was sufficient to take advantage of this inflow of personnel:

I think the figures that we are working on are manageable by the training system. What is noticeable is that all three Services are finding it easier to recruit than they were before. To take the Army as an example, we had gains in strength in 2007-08 of 8,300 and we expect the gains in training strength in the current financial year to be 9.250 and that is a figure we can certainly manage through the training capability.[52]

HARMONY GUIDELINES, VOLUNTARY OUTFLOWS AND SATISFACTION

60. Due to the high tempo of operations, the Department's harmony guidelines on the maximum amount of time service personnel should spend away from home continue to be broken by some service personnel. These guidelines are based on the routine level of activity that the Armed Forces are resourced to sustain concurrently; now exceeded in every year since 2001. The NAO highlighted to us that:

Less than one per cent of Royal Navy personnel breached the guidelines of no more than 660 days separated service over a three year rolling period. However, both the Department's Quarter 3 and Quarter 1 performance reports highlight that increasing numbers of units and personnel are approaching the limits.
Again, difficulties with the JPA have meant that information on Harmony Guidelines for the Army for 2008/09 was unavailable. The latest available data for shows that 10.3% of personnel were exceeding the guidelines of no more than 413 days separated service in any 30 month period. This is the same figure reported last year.
5.9 per cent of Royal Air Force personnel exceeded the guidelines of 280 days separated service over a 24 month rolling period.[53]

61. The Department does not have a specific yearly target for levels of voluntary outflow, but monitors performance against guideline figures derived from long term trends. Available information shows that levels of voluntary outflow have largely improved, but outflow levels remain above the stable long term goal in many cases (See Table 5 below). Table 5: Voluntary outflow levels

Stable Long term Voluntary Outflow 2006-07 2007-08 2008-09 Q1 09-10 Q2 09-10

RN Officers 2.0% 3.1% 4.3% 4.0% 4.1% 4.0%

RN Other Ranks 5.0% 6.3% 6.3% 6.0% 5.7% 5.2%

Army Officers 4.1% - - - - -

Army Other Ranks 6.2% - - 5.4% 5.1% 4.6%

RAF Officers 2.5% 2.9% 3.0% 2.9% 2.6% 2.3%

RAF Other Ranks 4.0% 4.6% 5.1% 5.5% 5.0% 4.2%

Data Source: Ministry of Defence

62. When the Annual Report and Accounts were published, no figures were available for voluntary outflow in the Army due to the ongoing problems with the JPA system. Since then information regarding Army Other Ranks has become available. However, figures for Army Officers remain unavailable. The Department commented:

Data on reasons for leaving the Army have not been available on JPA since 1 April 2007. This is due to; data being poorly entered on to JPA; problems processing outflow and incomplete Queen's Regulations on JA, which prevented the correct codes being entered. These issues are being dealt with by Army Personnel Centre, Service Personnel and Veterans Agency and Defence Analytical Services and Advice but further work is required until they are fully resolved.[54]

63. The 2008 tri-Service Continuous Attitude Survey, completed during August and October 2008 showed that overall 64% of Officers and 49% of Other Ranks said they were satisfied with Service life. Respectively, 17% and 28% said they were dissatisfied, representing an increase of 5% of Other Ranks satisfied and a decrease of 4% in the proportion dissatisfied compared with the previous year.[55] The NAO noted that the Annual Report 2008-09 does not provide a breakdown of the top sources of satisfaction and dissatisfaction, but that the Department had conducted an analysis of the top positive and negative retention factors. Top factors rated as influences to stay in the Service for both Officers and Other Ranks were pension, the excitement of the job and healthcare provision, while influences to leave included the impact of Service life on family and personal life, the effect of operational commitments and overstretch, and for Other Ranks, the frequency of operational tours and deployments and pay.[56]

PINCH POINT TRADES

64. Although overall manning levels are improving, there remain significant shortages of personnel in some key skills areas, some of which impact on operational effectiveness, creating operational pinch points. At the end of 2008-09, the numbers of pinch-point trades had increased on the previous year in both the Royal Navy and the RAF, but had improved slightly in the Army (see Table 6 below). However, the updated figures published in the MoD's Quarter 1 External Performance Report in June 2009 showed a reversal of this trend.Table 6: Numbers of Pinch Point Trades by Service

2004-05 2005-06 2006-07 2007-08 2008-09 June 2009[57]

Naval Services 12 12 11 20 27 25

Army 25 24 27 30 28 33

RAF 23 23 14 25 27 24

Data Source: Ministry of Defence

65. Operational pinch points reported by the Department include Harrier and Merlin pilots and crew in the Royal Navy, and a significant number of medical posts in both the Army and RAF; crucial trades for the operational capability of the Services. Permanent Under Secretary (PUS) Sir Bill Jeffrey described the measures being taken to address this problem:

the principal method […] is to use as selectively as we can financial retention incentives. In the last financial year we applied financial retention incentives to 4,678 personnel across the Armed Forces, targeted on the pinch point trades, and there is some quite good evidence that this highly selective way of encouraging people to stay, given how expensive it is to train them, does have an impact.[58]

He acknowledged that the state of the economy may have played a part in the recent improvements in retention. However, he hoped that improved management and treatment of personnel had also had an effect:

In the recent pinch point trades position, to the extent that we are improving retention, the financial incentives are obviously helping. What is certainly the case now is that all three Services, possibly in part because of the economic situation, are showing improved retention rates, so the overall picture, although we have still got some way to go, is a bit better than it was a year, two years ago.[59]

The Secretary of State noted the limitations of relying on financial packages for retention purposes:

[…]it is enormously difficult and there are often time lags on some of these recruitment issues to compete with the commercial sector when they target highly skilled young people. Our ability to do so on the financial package alone is very difficult. We try to target specific allowances and inducements for people to come and to stay, but it is difficult.[60]

66. Addressing the continuing problem of maintaining manning balance, particularly with regard to pinch point trades, needs to be a high priority for the Department. This is a long-term concern that directly affects the operational capability of the Armed Forces. It can only be addressed by ensuring that personnel are not only recruited and trained effectively, but that they are retained. To ensure that the improvements seen in recruitment are reflected in the long term, the Department needs to ensure that budgets are sufficient to meet training needs, and that remaining in the Services is attractive to personnel, both financially and in terms of wider Service life, such as meeting harmony guidelines.

Readiness

67. In our Report on the Annual Report and Accounts 2007-08, we expressed concern about the continuing poor performance against readiness targets. The Armed Forces have now been operating above the level of concurrent operations for which they are resourced and structured routinely to sustain since 2001. Sustaining this level of activity, and focusing its resources on operations in Iraq and Afghanistan, means that the MoD's capacity to be ready for the full range of contingent tasks detailed in its planning assumptions has suffered. Consequently, the Department assessed that it had made "no progress" against Performance Indicator 2.1. The Annual Report comments:

Throughout the year [the Armed Forces] nevertheless consistently and reliably provided substantial forces at immediate readiness for current operations, deployed them to and sustained them in theatre, and recovered them to their home bases at the end of their tours. It was not possible for them to be ready at the same time for the full range of potential contingent operations detailed in planning assumptions and, consequently, contingent readiness levels have continued to suffer.[61]

68. The Department measures performance against this objective as the proportion of Force Elements reporting no serious or critical weakness in achieving funded readiness. The recently published MoD first quarter Performance Report 2009-10 states that 42% of force elements reported no serious or critical weaknesses against their peacetime readiness levels over the period 1 April to 30 June 2009. This is an increase from the first quarter of 2008-09 (39%) but a decrease from the fourth quarter of 2008 (47%).

69. There is no longer a specific target for readiness. The MoD's written evidence outlined the system for measuring and aggregating readiness in detail and commented:

Within the SR04 MoD Public Service Agreement (PSA), the overall target for Readiness was set at 73% of FEs [Force Elements] to have neither a serious or critical weakness. That target was set by reference to previous achievements. Owing to the impact of operating above DPAs [Defence Planning Assumptions] this target was not renewed through CSR07 [Comprehensive Spending Review 2007] and there is currently no overall Defence percentage level target. However this does not mean that readiness is not important, rather that the effect of sustained operations have rendered the target less meaningful.[62]

70. An arbitrary target on readiness which does not reflect the reality of the MoD's operational requirements serves little purpose. The MoD needs to ensure that it communicates the real position of readiness effectively.

Equipment

71. The Department spent £5.6 billion on its core equipment procurement programme in 2008-09, with equipment worth £3.1 billion being delivered over the course of 2008-09. The NAO commented:

The Department is struggling to deliver its equipment programme to time and on budget, and failed to meet its targets on in-year cost and time variation for its Category A-C projects (those worth over £20 million). The forecast costs of the projects increased by £1.24 billion, of which £1.07 billion was attributable to the Queen Elizabeth Future Aircraft Carriers, and there was a total of 242 months delay to In-Service Dates.[63]

72. We will be returning to the subject of procuring and supporting military equipment and the findings of the recently published Gray Report into the Defence Acquisition Change Programme in more detail in our forthcoming Report into Defence Equipment. However, one of Gray's key conclusions was that the PUS, as Accounting Officer and a "key enabler to a realistic defence budget" should be held accountable for overall costings "in the strongest possible terms, ideally legally".[64] We put this proposal to the PUS. He commented:

I certainly regard myself as accounting officer, as being responsible, among other things, for the management of the defence programme and, as you observed earlier, that has been quite a testing issue in the last few years. […] Where I myself would have some reservation is in relation to changes that put me in a materially different position from other accounting officers, and I think that most of what needs to be done here can be addressed through the well established accountabilities of the accounting officer.[65]

73. It may be that greater accountability over budgets among senior officials would improve the situation. However, we will be discussing the complex issues of equipment procurement in greater detail in our separate Report on Defence Equipment. We welcome the publication of the MoD's Defence Strategy for Acquisition Reform, which represents an initial step towards addressing these issues.

35 Q 47 Back

36 HC (2008-09) 214, p 21 Back

37 HM Treasury Public Expenditure System Guidance 2008, available at http://www.parliament.uk/deposits/depositedpapers/2009/DEP2009-0104.doc Back

38 Q 46 Back

39 Ministry of Defence, MOD Public Service Agreement: Performance Report Quarter 1 2009-10, available at www.mod.uk Back

40 Ev 48 from the MoD specifies that 20,052 out of 172,596 fully trained military Personnel were deployed on operations and undertaking Military Tasks, as of 31 March 2009. A full break down of numbers of personnel deployed the various Military Tasks is also provided. Back

41 HC (2008-09) 214, p 22 Back

42 Q 72 Back

43 Q 128 Back

44 ibid. Back

45 Q 130 Back

46 NAO, 14 May 2009, Support to High Intensity Operations, HC 508 Back