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Ministry of Defence: Agency Changes

The Minister of State, Ministry of Defence (Lord Drayson): My right honourable friend the Minister of State for the Armed Forces (Adam Ingram) has made the following Written Ministerial Statement:

With effect from 1 April 2007, the Defence Procurement Agency (DPA), the British Forces Post Office (BFPO), the Defence Communication Services Agency (DCSA), the Disposal Services Agency (DSA), Defence Estates (DE), the Defence Bills Agency (DBA) and the Duke of York's Royal Military School (DYRMS) will cease to hold agency status. It has also been decided that the Defence Diversification Agency (DDA) should be closed later this year.

Given that many of the reasons for making these organisations agencies are now embedded in the wider department, particularly for those that are also top level budgets, agency status now adds little value.

In recognition of this, the “Enabling Acquisition Change” (EAC) report of June 2006 recommended that, in creating a new integrated procurement and support organisation, neither the new organisation (Defence Equipment & Support) nor any of its sub-divisions should retain agency status. Agency status is accordingly being removed not only from the

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DPA, which is currently a top level budget, but also from the BFPO, DCSA and DSA. Only the Defence Storage and Distribution Agency will retain its agency status in the new Defence Equipment & Support organisation.

Agency status will also be removed from DE, which will remain a top level budget. Oversight of DE by the Defence Estates Committee will also continue.

Removal of agency status from the DBA has been precipitated by the advent of MoD's new financial management Shared Service Centre, which has responsibility for end-to-end accounting processes.

Removal of agency status from the DYRMS will bring it into line with other state-maintained boarding schools.

In addition, although the Defence Diversification Agency (DDA) does not have the same formal agency status as the organisations mentioned above, the department also wishes to announce the conclusions of the consultation process into its future, which began last September.

The DDA was formed in 1999 to encourage the civil exploitation of defence technology; help inform industry about MoD’s future equipment needs; and facilitate the spin-in of civil technology to defence. However, since it was formed, the environment in which it operates has fundamentally changed.

Regarding the civil exploitation of defence technology, the creation of QinetiQ in July 2001 transferred three-quarters of the MoD’s Science and Technology base directly into a company with strong commercial incentives to exploit defence technologies in civil markets. In 2005, the MoD’s Defence Science and Technology Laboratory established Ploughshare Innovation Ltd as a direct route for diversification and commercial exploitation of its intellectual property. Ploughshare has demonstrated growing success in this role: developing new licensing agreements; managing a technology innovation fund, and creating three new spin-out companies

In terms of spinning-in new technology, the MoD’s research programme has been progressively opened to competition, encouraging a broader range of suppliers to become directly involved in the supply of defence technology. Recent initiatives, such as the formation of defence technology centres and the “Competition of Ideas”, have also provided new ways to encourage innovation. On the equipment side, the recent review of acquisition policy supports the conclusion that, the route to market for small and medium-sized enterprises in defence should be via prime contractors rather than directly to the department.

When it comes to informing industry about the department's requirements, there have also been significant changes since the formation of the DDA. The Defence Industrial Strategy in 2005 set out publicly the technologies and capabilities required to support future defence requirements. In 2006, the Defence Technology Strategy identified our priorities for research and development. It identifies the actions the defence sector must take to maintain an appropriate level of R&D investment in those areas

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key to defence capability and national competitiveness. Taken together, these strategies, and the work in hand across MoD to implement them, generate a more direct engagement with industry than was possible through the DDA.

Consultation on the future of the DDA has included discussions with industry, defence trade associations and trade unions. Our conclusion is that, given the changes over the past eight years which have embedded diversification into the department's wider activities, there is no longer a requirement for a separate organisation to facilitate the diversification role. Consequently, the department has decided to proceed with the closure of the DDA.

The DDA has been a good champion for diversification, and we would like to thank the director and staff for their significant contribution. Attempts will now start to find alternative employment for the 35 staff, most of whom are on secondment from other organisations. We will engage with stakeholders to ensure that remaining issues are resolved effectively, and that the value of information generated within the DDA is not lost. In parallel with this announcement, the department will be writing in more detail to the DDA’s stakeholders.

This decision does not lessen the Government's commitment to diversification and technology transfer. As highlighted in the Defence Industrial Strategy this remains an important objective and one which we are fully committed to meeting through the mechanisms which I have described above. These initiatives are all evidence of the continuing importance we place on maintaining momentum in this key area.

NHS: Budget

The Minister of State, Department of Health (Lord Hunt of Kings Heath): My right honourable friend the Secretary of State for Health (Patricia Hewitt) has made the following Written Ministerial Statement.

I am pleased to announce changes to the resource accounting and budgeting (RAB) regime for National Health Service trusts and the impact this will have on the financial position of affected NHS trusts in 2006-07. I am also announcing the allocation of the £450 million reserve to the NHS.

The NHS financial position has shown a massive improvement since last year. A deficit of £547 million has been transformed into a small surplus as reported on 20 February 2007 by the department in the report NHS Financial Performance Quarter Three 2006-07, which is available in the Library.

This improved performance of the NHS overall means that we are now confident that we can move NHS trusts out of the RAB regime. This means that NHS trusts will no longer have their income reduced for overspends in the previous year.

This does not mean we are writing off the deficits of overspending NHS trusts, which will still need to generate surpluses to meet their statutory duty. What

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has been eliminated is the double effect of having both an income reduction and then having to generate a surplus.

This is in line with recommendations set out by the Audit Commission in its Review of the NHS Financial Management and Accounting Regime, published in July 2006.

In line with these changes, we are reversing income deductions imposed on NHS trusts in 2006-07 under the old RAB regime as a consequence of overspends in 2005-06. This totals £178 million and benefits 28 NHS trusts, as set out in table 1 below.

In support of this change, I am also pleased to announce that we can now allocate the £450 million contingency to the NHS. This is being allocated to strategic health authorities (SHAs) on a fair shares basis meaning that the most needy areas of the country will receive a larger share of the funding in

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line with the our needs-based resource allocation formula. Details of the allocation by SHA and the effect this has on the financial position of each SHA economy, as reported at quarter three, is given in table 2 below.

The first call on this funding is to reverse the £178 million RAB deductions made to NHS trusts in 2006-07. The balance is available to begin to reverse the funding top-sliced from PCT allocations to create SHA level reserves.

As a result of these and earlier reforms, the NHS now has a financial system that ensures fairness, transparency and responsibility. Organisations can now understand clearly their financial performance and the consequences and benefits of the management decisions they make. This gives us the firm basis to go forward and continue transforming the services we provide for patients by implementing policies such as 18 weeks.

Table 1: Impact on 2006-07 forecast outturn at NHS trust level of the reversal of 2006-07 RAB income deductions applied to NHS trusts in respect of 2005-06 deficits
NHS trust nameForecast outturn surplus/(deficit) as reported at quarter threeNet RAB deductions applied to NHS trusts in 2006-07Forecast Outturn surplus/(deficit) reported at quarter three after the reversal of RAB reduction




University Hospitals of Morecambe Bay NHS Trust




Hull and East Yorkshire Hospitals NHS Trust




Mid Yorkshire Hospitals NHS Trust




Worcestershire MH Partnership NHS Trust




Cambs & Peterborough MH Partnership NHS Trust




Hinchingbrooke Health Care NHS Trust




Ipswich Hospital NHS Trust




Mid Essex Hospital Services NHS Trust




Princess Alexandra Hospital NHS Trust




Queen Elizabeth Hospital Kings Lynn NHS Trust




Suffolk MH Partnership NHS Trust




West Suffolk Hospitals NHS Trust




Bromley Hospitals NHS Trust




North West London Hospitals NHS Trust




Queen Elizabeth Hospital NHS Trust




The Lewisham Hospital NHS Trust




Whipps Cross University Hosp NHS Trust




Ashford and St Peter's Hospitals NHS Trust




East Kent Hospitals NHS Trust




East Sussex Hospitals NHS Trust




Medway NHS Trust




Southampton University Hospitals NHS Trust




Winchester and Eastleigh Healthcare NHS Trust




Avon and Wiltshire MHP NHS Trust




Gloucestershire Partnership NHS Trust




Northern Devon Healthcare NHS Trust




Royal United Hospital Bath NHS Trust




Swindon and Marlborough NHS Trust




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