Examination of Witnesses (Questions 1-19)
Mr Andrew Mathewson, Mr Robert Regan and Mr Ian Hall
26 JUNE 2008
Chairman: Mr Mathewson, we are very pleased
to see you again, together with Mr Regan and Mr Hall. As I think
you know, apart from the questions on the EDA Steering Board meeting,
we would also like to raise some questions with you on the Commission
Defence Package which is obviously before us and which we need
to consider, and then finally move on to one or two questions
on the European Security Strategy and Battlegroups.
Q1Lord Boyce: This is
an area we have covered on previous occasions and a concern about
whether the EDA can function as efficiently as it might without
having a good feel for its long-term financial position. Previously
the EDA have stated that you have resisted adoption of a three-year
financial framework. Do you think the government might be able
to agree a three-year framework in 2009? Do you think that our
position is understood by some of the other Member States, that
we could be conceived as holding back the EDA from being able
to spread it wings properly and knowing where it is going in three
years' time rather than working on an annual-type basis?
Mr Mathewson: I do not think it is quite fair
to say we resisted the setting up of the three-year framework
in principle. What we have is disagreement on the scale of the
three-year framework each time we have tried to set it but in
principle we would be happy to see a three-year framework set.
We have been making the case for a clearer connection between
a three-year financial framework and a three-year work programme.
At the moment we have a sense that the work programme is not well
based, it is not well matched against the resources and we would
like to see a longer three-year perspective that matched resourcing
to the work expected. At the moment we do not sense there is a
good connection between those two but we will still try to work
with them to develop that perspective on the basis of a better
understanding of the work programme. That view is shared by a
number of other countries. There is clearly a range of views about
the rate at which the EDA should grow and I will not pretend that
we are not amongst those countries who see it growing rather more
slowly than some of the others but most countries do want to see
a better articulated work programme and financial perspective
so that they can see how the resources are being allocated.
Q2 Lord Boyce: Given this problem
has been running for many months, probably over a year or so,
they must know the particular concern we and other countries have
yet they do not have a work programme. I find it difficult to
believe that they have not sorted this problem out yet.
Mr Mathewson: They do have a work programme
but we cannot see when we look at the work programme the connection
to the resource. There is no evident connection between the resources
they are asking for and the work programme they are setting out
to undertake, which for us is frustrating because it means we
are having a discussion about the budget somewhat in a vacuum.
We would rather have a good connection between the work programme
and the budget so we can get into the question of prioritisation.
How far up this work programme can we afford to spend and where
do we draw the line? We cannot get at that discussion. Even those
who want the more generous budget would like to see that because
they would see it as a way of arguing for more resources. Like
you, we are frustrated that the Agency has not been able to make
this connection between resourcing and work programme. We expressed
our frustration at that last week.
Q3 Lord Anderson of Swansea: There
is an impression that we had an ideological concern about a three-year
budget and what you are saying is it is a pragmatic one in relation
to a mismatch between the work programme and resources. Is this
a view which is, in your judgment, gaining? Is there likely to
be agreement within a reasonable period, next year or so, on the
three-year programme? Clearly we have an image problem in that
many think of us as minimalist in our view of what the EDA can
do. How do you rebut that?
Mr Mathewson: We are cautious rather than minimalist
is the word I would use. We are investing a significant resource
in the EDA and we want to see it delivering results. We believe
at the moment that the EDA is spreading its wings too far and
is trying to do too much. The work programme is too big and it
would be better focusing it down trying to do rather fewer projects
rather better. That is where we would like to see the Agency develop.
We are not going to set a three-year framework this year. The
Ministers agreed in the Steering Board in May not to try to set
a three-year framework this year. That was partly a reflection
on the difficulties we had setting it last year in identifying
the scale of the programme not the principle of whether we should
have one. Partly it is a reflection of some uncertainty about
what the Agency's role might be. The Lisbon Treaty, if it were
introduced, would introduce permanent structured co-operation
which might have some implications for the role of the Agency.
There was a degree of uncertainty about what the Agency might
do over the next three years. Ministers agreed in their Steering
Board in May to recommend to the Council that we do not try to
set a three-year financial perspective this year but we will be
trying in 2009 for the three years after that.
Q4 Lord Anderson of Swansea: Uncertainties
following the Irish No will presumably continue those difficulties
in relation to an agreed programme.
Mr Mathewson: Yes. As long as the question of
whether we are going to implement the Lisbon Treaty and try to
undertake permanent structured co-operation is open, then there
will be a degree of a question mark over the precise role of the
Agency.
Q5 Lord Hamilton of Epsom: If the
money was found for this budget where would it come from?
Mr Mathewson: The MoD finances the UK contribution
to the EDA.
Q6 Lord Hamilton of Epsom: We are
talking about European nation states' defence budgets which have
been in constant decline and the chances of finding extra money
seem to be as near nil as makes no difference.
Mr Mathewson: Certainly budgets are in decline.
We checked and established that every other country funds the
Agency from the MoD rather than general Community funds. Yes,
I think it is difficult for us to understand from our perspective,
with heavy operational pressure and heavy pressure on the defence
budget to deliver against current operations, the priorities which
some others attach to increasing the scale of the size of the
EDA's budget. We are not against increasing the size of the EDA
budget.
Q7 Lord Hamilton of Epsom: As long
as somebody else does it.
Mr Mathewson: But on the basis of a value for
money consideration that we are going to get something out of
it. Our approach to the scale of the budget will be: is this the
best way to spend defence resources. We hope eventually the Agency
can develop such that they can show to us this is a good way to
spend defence resources and then we can make genuine business
case decisions on increasing the size of the budget rather than
the decision in principle that this is good for Europe that we
are sometimes led towards at the moment.
Q8 Lord Hannay of Chiswick: Presumably,
in that case, if all 27 Member States asked the same question
you asked none would ever be agreed?
Mr Mathewson: I do not quite understand the
question.
Q9 Lord Hannay of Chiswick: If all
27 Member States asked and answered the question in the way you
proposed it, is this for our national good or for the collective
good, they would presumably all get the answer that you get now:
no.
Mr Mathewson: Not necessarily. Certainly all
defence capability in Europe is developed by Member States rather
than by the institution. We can certainly see ways in which Member
States co-operating through the Agency can get best value for
money in developing new capability. For example, we think the
Agency might have a sensible role to play in developing helicopter
capability, which is an area you might come back to later. It
is easier to see these judgments have been formed on the basis
of small coalitions of countries coming together on the basis
of a common objective than on the basis of a presumed genuine
increase in the level of funding.
Q10 Lord Hamilton of Epsom: In his
letter of the 19 May 2008 the Secretary of State for Defence explained
that the UK would not be participating in the Joint Investment
Programme on research into innovative concepts and emerging technologies.
Given that this programme came out of the Hampton Court initiative
launched under the UK presidency in 2005, is the UK being consistent
in deciding not to join in and would the programme benefit from
the UK's participation and considerable expertise in this area?
Mr Hall: First of all, we would not recognise
that it came directly out of the Hampton Court initiative as the
precise subject matter certainly occurred a year or two after
that. More importantly, the general principle of the Joint Investment
Programme was something which was slightly anterior to the Hampton
Court agenda and was essentially looking at central funding for
R&T in Europe which is something, as I will explain in a minute,
there are some difficulties with. We would not say that by not
participating in ICET we are not fulfilling our part of the Hampton
Court agenda by any means at all as it was far, far broader than
just this one initiative on which it has been interrupted. In
terms of the Joint Investment Programme, specifically in the ICET
(Innovative Concepts and Emerging Technologies), there are two
issues. Firstly, rather like the Force Protection Investment Programme,
when we actually looked at the subject matter, when we looked
at the topics being covered, they were of relatively marginal
interest to us given the other priorities which we had at the
time. There is also the other issue about how it is going to be
taken forward through this centrally funded initiative. We have
now started to get some feedback on the earlier joint investment
programme, the Force Protection Joint Investment Programme, and
that has allowed us to make somewhat of a judgment as to whether
or not we should be going forward in this direction. The things
which are becoming clear are the Joint Investment Programme. Firstly,
it is a model which tends to depend very much on what we would
class as financial inputs rather than defence outputs. By defence
outputs I mean research which can be exploited for military capability
purposes or perhaps can be aligned with a procurement programme.
It seems to be based on financial inputs rather than outputs.
Somewhat disappointingly as well there is a very heavy management
overhead associated with this activity, far greater than we had
expected from a programme of equivalent size. Very, very importantly
there is the risk of not achieving our national objectives and
I will explain what I mean by that. Under the Joint Investment
Programme system effectively all the topics are thematic. There
is no pre-selection of what work is going to be done before one
engages in the programme and can make some money. As a result,
nation states who participate do not know whether their research
needs are going to be addressed by the particular programme; they
may or they may not be, depending on how the programme commences
and progresses. However, there is one significant problem and
that is that if in whole or in part the needs are not addressed
by the Joint Investment Programme we then have to spend more money
doing more research, research we should have done in the first
place in order to address our needs. That money has to come from
somewhere and has to compete with other high priority needs. In
terms of the second part of your question, as to would the rest
of Europe benefit, certainly the other nations are free, if they
wish, to employ UK firms or UK universities; however, the way
the rules have been joined up for the Joint Investment Programme
is that it is restricted to those Member States who contribute.
A lot of UK expertise would, by the way it is actually constructed,
be ruled out. If the UK did actually join the Joint Investment
Programme would it benefit the other states? The answer is probably
yes. However, if one reversed the question and said would it benefit
the UK, I think we would have to say very clearly it would not
be of net benefit to the UK.
Q11 Lord Hamilton of Epsom: Are the
bilateral things going on here between nation states, between
us and European countries, on things of interest to those two
countries which, therefore, simplifies the whole thing, mean we
are focused on what we really want to do?
Mr Hall: Both in the Force Protection Joint
Investment Programme and, to a lesser extent, on this one, the
subject matter which is being covered is being covered both nationally
and, from the perspective of those parts of it which interest
the UK, with other international partners both within and without
Europe.
Q12 Lord Anderson of Swansea: It
seems a very hard-nosed view. The question of the criteria imposed
appears to be: will our own research needs be met and if it does
not benefit us we are not going to play even though we will be
shutting out our research institutes and universities. Surely
smaller nations with smaller research bases could benefit and
do we, as a matter of principle, say that we will not participate
even though those smaller countries may well benefit and we have
much to offer? Clearly partly this depends upon cost. What sort
of estimate do we make of the contribution we would make if we
did decide to participate?
Mr Hall: In terms of taking your last point
first, in terms of the costings they are fairly prescriptive in
the Joint Investment Programme system in that the maximum which
any country can invest is one third of the total programme and
the minimum is 5%.
Q13 Lord Anderson of Swansea: What
would we estimate to be our likely cost were we to participate?
Mr Hall: We would not go up to that stage of
actually estimating what our cost would be.
Q14 Lord Anderson of Swansea: There
must be some ball park figures in general. Are we talking of hundreds
of thousands?
Mr Hall: I misunderstood the question. The ICET
is 15.5 million EUR throughout its life and, therefore, the cost
we would incur would be between 5% and 33% of that, so we are
looking at up to about 5 million EUR as the cost.
Q15 Lord Anderson of Swansea: Over
what period?
Mr Hall: Over the two to three year period of
the project.
Q16 Lord Anderson of Swansea: Less
than £1 million a year.
Mr Hall: Yes.
Q17 Chairman: How far is this a problem
of asymmetry in scale of R&D in Europe in that we have a much
higher share of defence R&T than our population share of the
European Union presumably?
Mr Hall: It is a very significant factor. Often
it is said that research and technology and research and development
in Europe is fragmented but we would disagree with that; we would
see it as being polarised. If one looks at research and development,
80% or thereabouts is conducted both by France and the UK; the
next 10% of the EU is conducted using German funding; the remaining
9% is the Netherlands, Spain, Italy and Sweden with the remainder
of the EU nations being 1% or less. That actually sizes the issue
quite nicely. We also have done some research looking at the effect
of spend on equipment quality which is achieved by research and
development and that does show quite a strong stratification within
Europe along the lines which I have just mentioned. We have to
be very careful not to think that there is more R&T capability
in Europe than there actually is. Picking up on one of Lord Anderson's
points that I did not quite address, you were talking about working
for the benefit of the smaller nations. It is true to say that
the smaller nations probably would get benefit from the Joint
Investment Programme-type of approach and we would certainly not
seek to stop them from engaging together with themselves or with
perhaps the more medium-sized nations in doing that. What I would
say is we do actually give quite a significant expenditure to
Community research and technology more generally under the EU's
Research and Development Framework Programme through our contributions
to the general EU budget. The totality of that programme is some
50 billion EUR over seven years so I do not think, in any sense,
the UK is not doing its bit in supporting European research and
development. I think when we do look at military research and
technology we have to be aware that of essence it is customer
focused, and the customer is military need effectively. You cannot
readily apply the models that you do for generalist funding and
subsidy of research to the military sphere.
Q18 Lord Hannay of Chiswick: Your
raising the general R&D framework programme is quite useful
because all work that has been done on seven R&D programmes
have shown this country benefits a great deal more from these
programmes than the amount of money we put in budgetarily because
we have a very strong research framework so in a way, you may
have got the ball into your own goal. I have dealt with that over
many years and that was one of the strong rationales for increasing
the R&D spending: this country was a leader in research and
did very well out of it. Is there not surely a contradiction between
proclaimed policy, which is that we want all the Member States
of the European Union to spend more on defence and to be more
effective when they spend more, to be more modernised, to be more
capable of conducting various missions whether nationally or otherwise—and
most of them are members of NATO—and applying a straight
zero sum calculation to whether or not we participate in programmes
that might enable them to do that?
Mr Hall: I do not think we would necessarily
say that for them to be able to increase their military capability
means they necessarily need to participate in research and technology
programmes. The vast majority of countries in Europe do not have
a strong, or in many cases even an existing, defence technology
industrial base. One really has to question what use is going
to be made of the research which is carried out. My personal assessment
is that for many of the countries they would be far better spending
the money on what I would call more traditional military applications
than on research and technology. The fact is that with the best
will in the world they are too small to make a difference at all.
In terms of where the major difference would be made, I think
it is with the larger countries in Europe who proportionately
spend both less on defence and less on defence R&T than the
UK and France does. It is perhaps one or two countries in Europe
amongst the big six who by increasing their spending on research
and technology could make a big difference. It certainly is my
assessment that these large multilateral activities are in many
respects a distraction from the real issue. If I could pick up
on the other point you made about the R&D framework programme,
it is very true that certainly in terms of basic research and
in terms of cash the UK balance of payments has, in many respects,
slightly more money back than it has paid out. Here one has to
take into account the UK budget rebate as well when one does that
calculation. The trouble is the EU framework programme is essentially
a grant-type arrangement similar to the UK's grant-type arrangement.
It is certainly not what we would pass as customer focused research,
and research which would be carried out would not be directed
towards meeting the needs of the UK military customer. It has
more what I would call a subvention tone about it rather than
a customer focus.
Q19 Lord Crickhowell: I hesitated
at the start to come in at this point because we are on the material
we look at on the defence package and the scrutiny but I think
we can avoid duplication of that because we really have covered
pretty effectively and solidly now with Mr Hall's evidence the
commentary in paragraph 17, 18 and 19 particularly which has been
provided in the Explanatory Memorandum by the Ministry of Defence
on that point. It is pretty powerful set of arguments. Following
up the point that has just been made, you do say that it is the
case that a small number of Member States possess similar technical
capabilities to the UK, e.g. in complex weapons, and it is with
these countries rather than at an EU level that joint efforts
need to be focused to avoid duplication. Furthermore, the pooling
of resources suggested by the Commission would tend to draw resources
away from national needs and so on. A pretty devastating case
seems to be made out in that that has really been repeated by
Mr Hall at the present time. The point has just been made that
our defence industries might get something more back in terms
of finance, but it does seem to me that the case put out in the
Memorandum and in Mr Hall's evidence indicates that in terms of
defence needs there is an overwhelming case for the concentration
where it is in our national interest and by those countries, i.e.
the UK and France, whose technical expertise is going to produce
the best results. I have tried to avoid having to come back to
the issue again because I think the two things taken together
we have probably covered what we otherwise have to come back to
again later.
Mr Hall: I think that is very true. We would
see our support for the EDA as being in terms of the EDA enabling
us to co-operate with other nations, small groups of nations,
people who have a problem in the same area, in the same way that
NATO's Research and Technology Organisation does. NATO does not
try to do activities with all of its members, rather it tries
to find a sufficient minimum from which to go forward, and I think
the minimum is about four members. We have found that that is
very powerful in taking forward international collaborative activities.
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