Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 1 - 19)

WEDNESDAY 17 JANUARY 2001

MR KEVIN TEBBIT CMG, MR COLIN BALMER AND MR DAVID GOULD

Chairman

  1. Mr Tebbit, Mr Balmer and Mr Gould, this is becoming quite a regular performance. Thank you for coming. The Committee was a bit sceptical about the abolition of the Defence White Paper and I must confess that the bundle of documents that we are now looking at may not be quite as convenient to read to the punter outside and to Members of Parliament, but there is a lot of good information coming out and I think we should compliment the MoD on that.
  (Mr Tebbit) Thank you, Mr Chairman.

  2. As you know, we have regularly examined the MoD and witnesses on key documents of the MoD's annual reporting cycle, namely, the annual MoD Performance Reports, last year's White Paper, Expenditure Plans, Appropriation Accounts. Publication of the 1999-2000 Performance Report and the latest Investment Strategy, published last month, provide a further opportunity for us to examine the MoD on its progress on key aspects of its activities and its budget and expenditures. As you know, we will be meeting Mr Hoon on 7 February when we propose to tackle some of the broader policy issues. In today's session we want to focus on two of the chapters in the Performance Report, "Resources and Management", and "Logistics and Procurement". There is a substantial chapter in that document on "People" but our Personnel Inquiry is dealing with this separately and we hope to publish it in about three weeks' time. We also want to examine the MoD's performance in the round against its Public Service Agreement and how the Performance Report and the Investment Strategy documents have been evolving since the Committee's examination of these documents last year. We are also, incidentally, producing our own report in the next few weeks on our performance, which will show an impressive list of successes. But it does mean, having gone through the process myself, in looking at how you put your objectives and your success that, with our own experience, we can approach your documentation with the degree of scepticism that we show to our own. If we can do it in the issuance of our performance targets, then I am sure you are able to do it even more successfully than we can. Starting off then, Mr Tebbit, of all the Public Service Agreements for last year, establishing a fully capable Joint Rapid Reaction Force seems to have been the MoD's biggest challenge. I would like to ask what is being done to speed things up? What assurances can you give us that the new target date for 2002-03 is likely to be met?
  (Mr Tebbit) Thank you, Mr Chairman, and let me just say I am most grateful for your words about the new format and of our information and transparency policy because we do attach a great deal of importance to it. It is part of the transformation of the way we are trying to work in a much more open world. And I just say that this will be followed up quite shortly with a memorandum on our policy and a public version of our strategic context to deal with that side of the business, and we are continuing to aim to bring out individual essays on particular themes to engage debate, as we did in December on defence diplomacy. Thank you for that. As far as the JRRF is concerned, it is not, I think, a serious resource problem in terms of finance. The issue is essentially the original date for the full capability of the JRRF of 2001-02 was pushed to the right essentially by the operational pressures of Kosovo. We found we were having to engage in major emergency deployments with the very forces that we had sought to put in the new formation readiness cycle to have our sixth deployable brigade, three mechanised and three armoured, and therefore cope with the SDR guideline of an ability to deploy one brigade level operation continuously for 30 months for peace keeping and one for six months for war fighting. We had the initial operating ability of the JRRF and we declared that in 1999, but the full capability, as I say, with this ability to deploy these two major formations, both independently supportable, with their own logistics and communications, has now moved to 2002-03. What assurance can I give you? We have the six brigades formed. What we have to do is get them through their formation readiness cycles to train, to be ready for operations, and then to recover. That is a military operational question rather than a financial one. Lift is associated with this and we are now moving forward with the four C17s—they will be available within the timescale I am talking about. We have, as you know, launched our Ro-Ro contract which is not critical because you can anyway get these from the spot market, but it will give us the predictable guaranteed capability. We also have some things to do in the communications and logistics areas but this is not, as I say, a resource problem. It is the result of the 18-month delay imposed by operations.

  3. Thank you. Given the Department's difficulties in maintaining forces at the required operational readiness, as was discussed in the Performance Report, paragraph 26, you are probably going to say that you are quite confident of meeting the performance required under the new PSA target 1 which says "by 2005, to ensure that a minimum of 90% of rapidly available military units are at required states of readiness." What are likely to be the major impediments in achieving that objective?
  (Mr Tebbit) Manning is obviously the biggest difficulty we face as a whole generically in the readiness area. As you know, of the PSA targets, that is probably the one we worry about most at the moment. We have still got an 8,000 shortfall in the army, and I would say that would be the main consideration. But there is also a technical problem about readiness, and that is to say how do you capture the quality of the organisation, the morale dimension of readiness as well as the straightforward measurableness? I do not pretend that it is a straightforward issue to make sure we know exactly what we mean by this. That is one of the reasons why we find it quite difficult to give you or the Treasury or anybody else simple figures which say this is a measure of fighting power and military capability. But I think the equipment problems are going to be less significant than the issue of making sure that we have got the right level of people trained to cope. Most of the equipment issues are being dealt with and I would not see them as a particular impediment by 2005 here.

  4. We will be coming on quite soon to budgetary issues, but is the problem largely budgetary? The manning problem would be partly resolved financially, and certainly the equipment problems could be enhanced if more equipment is bought and if it is more speedily delivered. Is training partly a financial problem as well?
  (Mr Tebbit) We would all like more money obviously, but I would say that is not the only factor. Some of the difficulties we have in delivering equipment, for example, are more to do with the capacity of industry to deliver than simply a question of throwing money at it. Some of the accommodation problems that we have are also to do with the ability in the construction industry to turn round projects fast enough.

  5. There is a little bit of MoD responsibility in that.
  (Mr Tebbit) Some of it. I would like to wave a magic wand and get things done overnight—of course I would—but it does take time to correct some of the long-term bits of under-investment in our estate, for example. You cannot do that absolutely overnight. Time to initiate and then to complete a project can often be long term. There are some other things as well. Recruitment is to do with the condition of the labour market, not just a question of money. Retention is one of the big problems in the Armed Forces. Again, not just a question of pay but how we treat people, and how much disruption and dislocation they have to undergo. It is not just a question of money; it is also a question of prioritisation and making sure we are focused on the right things according to the needs of the moment, which is certainly something we are trying to do more through our performance management system being in place so that we move our resources to meet the key priority areas in year rather than simply waiting for difficulties to build up before we do anything about them. It is not just money; it is about the efficiency and the processes we apply to prioritise as well.

Mr Viggers

  6. When we took evidence a year ago Mr Balmer referred to the previous investment strategy as "work in progress". Does the latest Strategy bring that work in progress to a conclusion, or are there further improvements that you have in mind as a Department?
  (Mr Tebbit) I hope you feel it is a much more thorough one than before. The last one was the first one and it tended to be a bit descriptive of where we are. This one tries to get a bit more into how we are utilising our assets and our disposal processes rather than just the processes themselves. The need to invest is obviously a general theme across government and the MoD now, as you see, has got a capital base of £67 billion and therefore for us as a Department, with so much asset by way of fighting equipment or estate, we have, in a sense, a big opportunity but also a big challenge to make sure we use that estate and the overall investment potential well. It is much more about utilisation of the asset base and how we make it work effectively rather than a description. There is a change, I hope you will see that, in this report as compared with the last few years.

  7. What aspects of the Strategy, do you think, have seen the biggest improvements as you describe?
  (Mr Tebbit) "Improvements" is probably the wrong word. I think certainly the way in which we need to invest in order to deliver greater performance in the future is absolutely critical, and that covers the whole field of defence across the whole spectrum, for example, the systems we need to drive our logistics organisation better, so we have got a much more effective supply system. That needs up-front investment and it is a very important area. The way we are looking at our estate so as to concentrate on a smaller number of core sites and move to dispose of ones that are less important to us or can generate greater revenue. We have put a great deal of effort into making the estate work more effectively. I suspect there is a long-term trend that we are looking for of moving increasingly away, where we can, from the south and south west of the country increasingly closer to the traditional recruiting areas of the Armed Forces, which is good for stability and retention, and also enables us to make some economies of scale. For example, we are concentrating our training organisations more. We have Tri-Service training where we can whereas we had three separate establishments in the past. Those sorts of measures are very important and come through from some of the Investment Strategy here. Above all, now we have capital charging and now we have depreciation, we have to pay much more attention to making it work for us.

  8. Why will the Investment Strategy now be produced only every other year.
  (Mr Tebbit) It is not something that is going to change quite as quickly as some areas. One gets locked into investments rather firmly so it is a less rapidly moving area than some. We are committed to our Investment Strategy over a long period of time.
  (Mr Balmer) I think it is fair to say that we have not concluded that it will only be produced every other year. It so happens that there was a 18-month gap between the first and the second in publication, but we will keep under review how frequently it would be helpful to publish future versions.

  9. The previous Performance Report for 1998-99 said hardly anything about the objectives or your achievements against them, whereas the latest report sets out your Public Service Agreement targets. Do you think more could be done to explain in the Report the link between inputs, activities and outputs?
  (Mr Tebbit) You are absolutely right, and that is where it needs to go. We have not managed yet to link outputs more closely to resources as we should. I would like to do so. I would like to have done so much more quickly. I think the problem has been that we have been going through the most fundamental restructuring of our finances over the last four years with the transition to resource accounts and operating by resource rather than cash. As you know, as from the beginning of the next financial year all of our accounts and our plans will be on a resource basis. That has been such a massive change in the Department I did not feel we could do at the same time a rebasing of our finances around output costing. The system that we now have (called Capital) has the potential to do that and we will be moving towards output costing over the next two or three years. We had to do it in phases. There was quite a transformation underway. We could not do it all at once. There are some areas where we are specifically bringing in output costing earlier. I do not know if you would like to say something about that.
  (Mr Gould) The Defence Logistics Organisation started a project to produce output costs on an RAB basis round about this time last year. If you look at the target to reduce output costs by 20% by 2005, you have got to have a system for measuring that and planning that. Albeit on a high level of aggregation, that system will be in place on 1 April this year. That needs to be refined and improved as time goes on, but that will start enabling the DLO to account for its costs against the outputs set out in the customer service agreements with the front-line commands (which are their major customers) which gives you something you can begin to link into the cost of readiness. I do not want to over-stress the sophistication of that at this stage but that is actually going to happen.
  (Mr Tebbit) That is an example of how we are moving.

  10. Many of last year's Public Service Agreement targets were concerned with implementing reorganisations introduced with the Strategic Defence Review, and very little to do with delivering defence capabilities. Should the Public Service Agreements not reflect these crucial services rather than internal reorganisations?
  (Mr Tebbit) You are quite right and, of course, they do and will. If you compare last year year's Public Service Agreement with this year's, following the 2000 Spending Review, you will see that a number of the SDR-related items have been dropped now and there is a greater focus on the military capability issues, and I think that is right. We were going through a major process change with the SDR. We still have not completed it but we are moving very much to looking at front-line capabilities. I would not want you to think that that did not drive the whole of the Department's work. Perhaps I should say that this is the financial statement but the management plans within the Department are very much based on delivering military capability and military output as the number one priority. We use the balanced scorecard approach, a technique from the Americans.

  Mr Hancock: What does that mean?

Mr Viggers

  11. Paragraphs 119 to 122 describe the MoD's trial with the balanced scorecard approach. What benefits do you see from restructuring the report to reflect this so-called balanced scorecard?[1]

  (Mr Tebbit) It is based on the proposition that there is no single, simple measure that enables you to drive performance. The first thing it begins by saying is what is the strategic intent of the organisation, and so it is based very much on our key strategic principles. It is then taken and communicated throughout the organisation so the board of management (which we now have in the MoD) has a high level scorecard with 17 different measures and that is cascaded throughout the organisation so that everybody knows what they are doing is feeding into one or a number of those 17 elements in their own area. It also aligns management effort much more clearly to the key priorities and how we are performing in the year. We plan to, and we are already looking at this on a three-monthly basis in the Board with these colour codings—red, amber, green—so where we see areas that are red we consciously have to take a decision as to whether there is anything we could or should do about it, whether by moving resources or better management focus. It gives us, therefore, a more rigorous assessment of performance because we are looking at this each year and it focuses the Department quite sharply on results. It is not a simplistic tool; it has four different axes which look at the total performance of the organisation.

  12. Is the emphasis in your Performance on being ruthlessly honest and analytically accurate in your appraisal? I will tell you why I ask the question. I have some specialist knowledge of medical support and Defence Medical Services and I can scarcely recognise, as related to Defence Medical Services, the paragraphs on logistics and medical support which appear on pages 33 and 34 of your Performance Report. It simply does not reflect what is happening in Defence Medical Services, where deployable consultants in the key grades of surgeon and anaesthetist and general medicine are now running at a level of about a quarter or a third of what they should do. Is your instruction to your Department to be accurate or to whistle to keep your spirits up?
  (Mr Tebbit) Leadership takes many forms, but it is certainly not our intention to mislead. The whole purpose of this is to be transparent. You are putting your finger on probably the most serious area of weakness because we are competing with the Health Service to keep numbers up and that makes it very difficult. There are some positive signs there. For the first time we have got increases in in the Territorial Army element of our medical services and recruiting is up for the first time, quite significantly. We are putting a lot of resources into it—£120 million over the three-year period of the settlement. But it is a long haul. I think we are going in the right direction by linking up more fully with the National Health Service so that we can help them and they can help us, as it were, but, you are absolutely right, we cannot deploy as much medical capability in the field as we would need in order to sustain two simultaneous operations. If it came to it, we would be looking to our friends and allies to help us in getting them and this is one of the key priorities of the Department. So this was not intended to be simply Panglossian overall; we are seeking to be as open as we can.
  (Mr Balmer) I think it is fair to say that the final two sentences of paragraph 73 are a fairly honest description "recognising that although the manpower losses have been stemmed, we do have acute shortages which have a significant impact on the deployment capabilities." I think those are the sort of statements you were looking for us to make.

Mr Hancock

  13. What does your balanced scorecard tell you about Defence Medical Services? It must be blood red.
  (Mr Tebbit) It is an area where management action has to be focused.

  14. You have known that for the last two years, maybe longer, and it continues to get worse, it simply haemorrhages.
  (Mr Tebbit) As I say, we are putting a lot of effort into it but, as you know, the problems of medical services are not unique to the Ministry of Defence.

Chairman

  15. Do not look to me, Mr Tebbit, because my constituency hospital did not come out too well in the survey in The Sunday Times last week so I do empathise with the Ministry of Defence in its problem. In addition to Mr Hancock's question, in one of our last reports in the last Parliament we said that the Defence Cost Study and collapse of Defence Medical Services might well have gone too far to be recovered. Are we going to recover? Has the progress so far helped to bring about a degree of recovery after the failures in the last decade?
  (Mr Tebbit) We are no longer going down. Manning levels have stabilised and they are beginning to move up in some areas. As I say, we have done particularly well in TA elements, but also in the Regular elements as well. We have put priority funding into the area. As you say, recruitment remains a concern, as it does across the Health Service generally, but we are tackling that with various focused allowances. There are no quick-fixes in that area.

Mr Hancock

  16. That is not true, is it, because you have still got more people who have given you notice to leave the Medical Services than you will have people recruited into the Medical Services over the next 18 months?
  (Mr Tebbit) As I say, I think the numbers have stabilised.

  Mr Hancock: Because people have not left yet but they have put their notice in.

Mr Viggers

  17. To supplement that point, it is easy for Defence Medical Services to recruit doctors and trainee doctors, who very much appreciate the training they can get through the Armed Forces, but they are not prepared to stay on as consultants, so the critical question is how many deployable consultants do you have in key areas? And that is an area where you are falling.
  (Mr Tebbit) I agree, that is where we have to work much more creatively and we have plans to do so and are doing so with the NHS generally. The point is where we have trained people and specialists we can help to use some of the NHS people and they can use some of our people, so that cross-fertilisation is one of the things we are looking at very actively. The concept of the NHS host trust. It is, I agree, an area of serious concern.

  Mr Viggers: I want to say one point finally and that is as the former Secretary of State for Defence Lord Healey said once, "When you are in a hole, stop digging."

Chairman

  18. Could you alert the Secretary of State to the fact that Defence Medical Services will no doubt figure in the questions. We have done a number of reports on this and we are as concerned as we have ever been to ensure that medical services—
  (Mr Tebbit) You note the measures we are planning to introduce. We are having to work flat out to get it. The plan is there but it is proving very difficult to realise it.

  Chairman: I appreciate things cannot be turned round in a short period, but we would like to be assured we are moving in the right direction. Mr Hancock?

Mr Hancock

  19. Can I take you back to what you said about the MoD estate and the ability of the MoD to deal with some of those issues. You said that there was a problem in the building industry. When you consider that just to put single persons' accommodation right in Aldershot we have been told it will take at least ten years and yet there are people signing on in the M3 corridor in the building industry because of lack of work, why can you not get to grips with the accommodation problems that you are facing for many of the soldiers you are finding it hard to keep?
  (Mr Tebbit) There are two different things here. I am sorry if I may have misled you or mis-spoke. There are areas in the construction industry where delivery is still difficult. For example, we have with the DETR an initiative called Smart Construction which is trying to pioneer the principle of prime contracting in order to encourage standards to be raised, prime contracting essentially within the construction industry. I am sure you know what I mean. That was what I was referring to when I said sometimes the ability to deliver and the quality and standards are less than ideal. This is not supposed to be a criticism, but we do take some satisfaction from the fact we are working very hard with the DETR in that area. We spend an awful lot of money on construction every year—£1.2 or £1.4 billion, so we are a serious player in that field. We have many years of under-investment in the estate, particularly housing, and I would like to be able to do it overnight, but we have to have an eye to priorities. We have a programme, we have been putting a lot of money into it. In this year of the Report I think we must have spent about £150 or £160 million on the estate.


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