Examination of Witnesses (Question Numbers
20-39)
MINISTRY OF
DEFENCE
Q20 Mr Curry: Let me put something
to you which always makes me slightly queasy. We were always told
that we needed four Trident submarines. I actually did not vote
for the renewal of it as a matter of fact—I would be happy
to have zero—but we are now told that we could probably
manage with three. We were told we needed 12, I remember, Type
45 Destroyers, and we are now told that we can do what we need
with six of them. Nimrods were going to be 18, if I can recall,
and now we are saying we can probably get by with 12. Am I right
to feel that either somebody has the original arithmetic extraordinarily
wrong or there has to be a lost capability in that?
Sir Bill Jeffrey: I think the
programmes you mentioned are different cases.
Q21 Mr Curry: It is money at the
end of the day, really.
Sir Bill Jeffrey: It is money
but to take the programmes you mentioned, in the successor deterrent
case we will look at whether the capability can be provided with
three boats rather than four. On the face of it it seems rather
unlikely, but the basic requirement is to provide what is known
in the trade as continuous at-sea deterrence, and we will provide
as many as it takes to meet that requirement. But in other spheres
it is undoubtedly the case that more units of equipment represent
greater capability and it is a less absolute judgment. To answer
your question, it is undoubtedly the case that broadly speaking
if you reduce numbers, as we have done in some of these big programmes,
you have less capability.
Q22 Mr Curry: If a minister said,
"Look, chaps, we are a medium-sized country and all this
nonsense about punching above weight means that we spend above
our means; we need to come to terms with what we can really afford
and just put it straight," that would be a more honest way
to do it, would it not, instead of saying, "Actually we can
do exactly the same job with much less kit"?
Sir Bill Jeffrey: That is, I believe—and
I think many senior politicians believe this as well—precisely
the kind of issue that the defence review that we will need to
address.
Q23 Mr Curry: Can we look at the
dear old Airbus? Of course, the Chief Executive of Airbus has
said that actually the fate of the whole company might depend
upon this military project. So we are not just talking about a
defence capability; we may well be talking about one of the emblematic
European projects. Where are we on this? I know that it is pretty
critical. Are we going to go ahead with it or is it going to be
like the Typhoon where we wish like hell that we had not tied
everybody up so much on the ground that they would be likely to
want to worm their way out of it, when actually it is we who want
to worm our way out of it?
Sir Bill Jeffrey: The A400M project
I would say immediately has been a disappointment to us. As the
NAO Report observes, the company themselves have acknowledged
that they under-estimated the complexity of the challenge of delivering
an aircraft to that specification for the various partner nations.
There are a number of discussions going on now which are at quite
a delicate stage commercially and I would prefer not to, in open
session, get very far into these.
Q24 Mr Curry: How much freedom would
there be in a Defence Review given that it is a collaborative
project with implications which go beyond pure defence implications
really?
Sir Bill Jeffrey: A Defence Review
will need to consider air transport, as it will need to consider
every other significant capability. There is the freedom—and
it is at a price—to walk away from the A400M Project. We
are in many respects reluctant to do so, although we do not by
any means rule it out, because we need the capability. And because
of the very substantial slippage in the A400M we have had to think
hard and quickly about other ways in which we can provide air
transport capability over the next few years including, in the
statement that the Secretary of State made before Christmas, the
acquisition of another C-17.
Q25 Mr Curry: And of course there
has been quite a sharp recent decline in the pound as well.
Sir Bill Jeffrey: There has. I
did not want to make too much of it but that is why I highlighted
the currency issue in my opening presentation.
Mr Curry: You were quite right to do
so.
Q26 Mr Mitchell: The main criticism
seems to me that your governance arrangements with the Department
were not fit for purpose to help you live within your means. Would
that be a correct impression?
Sir Bill Jeffrey: I would not
express it in quite that way. I think we have always had the means
to manage the Equipment Programme. It has in particular been a
responsibility of the post that Admiral Lambert now occupies,
and in our annual planning rounds at departmental level we have
addressed the Equipment Programme year by year. What I conclude
from recent experience and from Mr Gray's Report in particular
is that we should strengthen these arrangements, which is why
we are introducing a sub-committee of our Defence Board, which
I will chair with the Chief of the Defence Staff, the Vice Chief
and my Deputy and the Finance Director to address the central
issue of the affordability of the Equipment Programme on a regular
basis.
Q27 Mr Mitchell: The way that the
NAO expresses it is that unless the Department addresses its underlying
budgetary and governance issues it will not consistently deliver
value for money for the taxpayer—this is page 4, paragraph
3—or encourage commercial partners to operate effectively.
Are these new arrangements going to achieve that?
Sir Bill Jeffrey: I would accept
that judgment. I would say that we are addressing the governance
issue in the way I described and that the fundamental question
about what constitutes an affordable Defence Programme within
the share of the nation's resources that we are likely to have
is one that can only be addressed through the post-election Defence
Review.
Q28 Mr Mitchell: The fundamental
question, as my mother would put it, is that your eyes are bigger
than your belly.
Sir Bill Jeffrey: I am sure that
is the case.
Q29 Mr Mitchell: My mother would
be very grateful—she is dead unfortunately. Why does the
Investment Approvals Board not consider the affordability of the
overall Equipment Programme you are embarking on when it approves
each individual major investment? Why does it not look at the
overall position?
Sir Bill Jeffrey: It does need
to vouch for affordability and one of the changes we are making
is that the sub-committee of the board that I will chair will
set the conditions for affordability and make it clear what is
affordable and what is not so that the Investment Approvals Board
has an easier task. One of the underlying problems in this is
judging what is affordable and what is not beyond the lifetime
of the current Spending Review. We do not know for sure—or,
indeed, at all—what the Defence Budget will be at the moment
after 2010-11. So asserting that something is unaffordable, notwithstanding
the figures in the NAO's Report, is not as straightforward as
it might seem.
Q30 Mr Mitchell: Because you are
not able to resolve this issue in the Department it now has to
be left for a Defence Review, which, in a sense is too late because
you have entered into all the commitments. This is effectively
what paragraph 2 on page 4 says, that the decisions did not and
could not resolve the underlying issue of affordability which
would need to be addressed by the Department, working with Treasury,
as part of the Strategic Defence Review which is expected after
the General Election. So, effectively because you do not have
the effective machinery within the Department it now has to be
left for a national decision taken at a later date, by which stage
costs have built up.
Sir Bill Jeffrey: I would not
myself present it in that way, Mr Mitchell. I think what we have
been doing in the last few years, as we must, is two things. One
is to look to the extent that we could to shift money into projects
that were operationally relevant to our current operations in
Afghanistan and, before that, in Iraq. But the other—and
it is my concern as Accounting Officer and this Committee's concern—has
been to live within our budget. We have taken steps to do that.
Some of them, as this Report illustrates, are suboptimal steps
but we have done so. The underlying pressures within our budgets
are ones which, as the NAO indicates, can only be resolved conclusively
through the kind of Defence Review that is now planned by both
Parties.
Q31 Mr Mitchell: Can I just ask the
Treasury, given the fact that it is your objective to control
spending and to ensure that it is managed effectively, when was
the Treasury aware of the gap between the planned budget in the
Ministry of Defence and the forecast spend?
Mr Gallaher: We have always realised
that there is a different inflation rate within defence.
Q32 Mr Mitchell: But that has gone
on for a long time.
Mr Gallaher: Also, we get a greater
capability from the extra expenditure that we incur. But we also
have to balance it with other priorities facing our nation and
we will not detract from helping—
Q33 Mr Mitchell: That does not answer
the question. When did you become aware of this gap and that their
eyes had been too big for their belly?
Mr Gallaher: I think we have always
been in close contact with the Ministry of Defence and we know
when there are problems and issues—we will always know about
them.
Q34 Mr Mitchell: But when did you
become aware?
Mr Gallaher: I think we are always
aware.
Sir Bill Jeffrey: I could answer
that question, Mr Mitchell, because in some ways it is our expenditure
colleagues in the Treasury who deal with this day by day rather
than the Treasury Officer of Accounts. We are transparent with
the Treasury about our year by year position and our colleagues
who are responsible for controlling our expenditure have pretty
full visibility of the position.
Q35 Mr Mitchell: Then the question
to the Treasury becomes: why did you not do something about it?
Mr Gallaher: We do do something
about it; we do balance the books. We try to listen to what the
Ministry of Defence's priorities are and what their concerns are
and we take that into account in the overall scheme of spending.
We cannot just ignore the other priorities that we face as a nation.
Q36 Mr Mitchell: One of the problems,
as you have said, is that the rate of inflation on defence projects
is high and it is higher still if you delay the projects, which
means putting money into the pockets of the contractors without
a visible return. Are we in a situation where the Department can
either afford these big projects or it can fight wars and give
the troops proper equipment? Are those two incompatible situations?
If you are going to have the projects you cannot fight the wars
and if you are going to fight the wars you cannot have the projects?
Sir Bill Jeffrey: The reconciliation
of these two requirements is part of the challenge we face. We
have certainly over the last few years been heavily engaged operationally.
The additional costs of that engagement have been met by the Treasury
from the Reserve, but managing our core programme in such a way
that we meet the cost pressures that I described at the beginning
of the hearing, while simultaneously, as our ministers have very
understandably wanted to, devoting more of it to the kinds of
capabilities that are highly relevant to these operations, is
one of the challenges that we have had to work through.
Q37 Mr Mitchell: How far would I
be right in my prejudice, which is feeling that the projects are
preparing for the wrong war? In other words, here are highly technical
and expensive programmes to fight a war that we are no longer
going to fight against a technologically advanced power, whereas
we are fighting wars in Afghanistan in the burning bush.
Sir Bill Jeffrey: It is certainly
one of the conundrums of defence planning that many of our investments
are over long periods of time.
Q38 Mr Mitchell: Is this a question
of the mentality of the Department—the mentality is we are
going to fight this kind of war—whereas in actual fact we
are fighting another kind of war and therefore we are going to
invest in high technology stuff for the kind of war that is in
their heads?
Sir Bill Jeffrey: It is inevitably
a balance. We would be making a mistake—and this will be
an issue for the next Defence Review—if we simply stopped
our military capabilities on the assumption that we will carry
on doing nothing but what we have been doing recently. We have
to prepare for other kinds of conflict and the challenge that
the next Defence Review—as its predecessors did—will
have to address is how does one strike the best balance between
the longer term kinds of capabilities, which tend to be big equipment
and what the Americans call "irregular warfare" which
characterises much of what we are doing now.
Q39 Mr Mitchell: At the end of the
day, with the Defence Review, something is going to have to give,
is it not? Some projects are going to be scrapped. Is it possible
to give us a list of the costs of cancellation of each of these
projects?
Sir Bill Jeffrey: We could certainly
try to provide the Committee with some information of that kind
but the various industrial and commercial considerations that
affect individual projects make it in some cases quite a hard
assessment to make. But if the Committee would welcome some indication
of that kind we can see what we could provide.
Mr Mitchell: We would be grateful if
you could give us what list you can give. I would be grateful
anyway, I do not know whether the Committee would be!
Chairman: We will have a note on that.[1]
1 Ev 16 Back
| 
