Select Committee on Defence Minutes of Evidence


Examination of Witnesses (Questions 160 - 179)

WEDNESDAY 7 FEBRUARY 2001

RT HON GEOFFREY HOON MP, MR KEVIN TEBBIT CMG, AND MR RICHARD HATFIELD CBE

  160. It remains this Committee's concern that that very important statement that you have just made about the independent objective advice may be put at risk and that companies who are developing new technologies in civil research may not have the confidence to believe that they are able to share that.
  (Mr Hoon) The distinction that we are drawing is between, if you like, the basic research and having the right kind of people to be engaged in the excitement of first-stage research as against the ability then of scientists to be able to make an assessment of that research when it is applied to particular projects that we are contemplating purchasing on behalf of the country. That is the division that we have set out very clearly in the way in which we are dividing the existing operation. Kevin, do you want to say something?
  (Mr Tebbit) Just to add to that, we will be keeping system integration work, the sensitive technology work, the intelligent and client/customer role, a lot of very high-quality scientists and, also, a contracting function to make sure that we are getting what we need and know exactly what it is we require, not just from the privatised DERA but from all the other elements in the private sector that are doing critical research to defence. We have already started on placing contracts—just, at the moment, a small proportion of our research block—out to competition. Interestingly, DERA won 70% of those contracts on merit, but other people won 30% of those contracts, and we would see that, I think, as a way of increasing this resource that we can use in science, that is not just limited to DERA.

  161. Secretary of State, can we turn to page 10 of the same document? Again, in the highlighted purple section on that page it speaks of the sharing of specialisations in our forces amongst our allies. I wonder if you could give us an indication of which of those specialisations will remain in the United Kingdom and which you believe could go to our allies?
  (Mr Hoon) When you say "could go to our allies", I think what we have to do, on an entirely pragmatic basis, is judge what capabilities we have available and what other countries would be prepared to co-operate with in developing. I gave a couple of illustrations earlier of the kinds of things where we perceive there to be gaps. I think it is logical and flows from what we are doing in relation to Helsinki and the headline goal that the process of making an assessment of the kinds of capabilities that each country has—and, in a sense, that is when we held a capabilities conference in November—then leads to a proper debate which is under way and which will be the next stage of the process of assessing where are the gaps. What are the deficiencies in capability that the countries of Europe (and what countries of NATO have is a parallel process in NATO) in order to be able to participate in the likely modern deployments that the Community needs? In those circumstances, the next stage of identifying those gaps will almost necessarily involve a degree of multinational co-operation because it follows, logically, at this stage, that if individual countries have not had the ability to satisfy those gaps they are unlikely to be able to do so in the short-term but are more likely, having identified the gaps, to be able to work together to remedy those problems.

  162. Has a protocol been developed to, really, get down to—once you have identified gaps—who is best able to fill them? Has any work been started on that?
  (Mr Hoon) I think it is a very good question because it is an obviously sensitive issue between countries as to how those particular gaps will be addressed. There is not a precise protocol or formula for achieving that. There are some indications of the way in which this will be tackled. The Dutch Defence Minister, for example, has made clear to the members of the Netherlands parliament that he will make judgments for the future of procurement in the Netherlands in the light of the headline goals. He will, on behalf of his country, say "Is this decision going to contribute to satisfying the headline goal in reaching a conclusion?" The United Kingdom is not in that position because our defence needs and our capabilities are far more extensive than simply those set out in the headline goal, but, nevertheless, it is an interesting indication of the way that a particular country, with some considerable military capability, views the importance of this process. I think you can look as well at, for example, the Scandinavian perspective on the Nordic Brigade, because, again, historically it has been difficult for smaller countries to participate in these kinds of multinational operations because, essentially, they have been trying to complement what already exists in terms of capability. If they can fill a particular required segment of what is needed then that is both good for the alliance or for the European Union as well as being very positive for those particular countries. I think there are a range of other areas. I think one of the things that we are undoubtedly concerned about are medical services. There is no doubt that a number of the countries who, perhaps, do not necessarily have our war-fighting ability will be very pleased to contribute medical services—which, actually, make a huge difference to our ability to conduct operations.

  163. I hope that is not an excuse not to do anything about our own medical services.
  (Mr Hoon) It is not an excuse at all, but it is realistic.

  164. Last question on the Strategic Context document. In paragraph 84 it rightly speaks about the need for superior intelligence and the importance of headquarters. Has any thought been given to how that may impact on personnel and how it structures the way in which we do business for the future?

  Chairman: Information superiority, I think.
  (Mr Hatfield) Indeed. There is a lot going on about this in our own country. America has gone into this at great length and General Shinseki has a particular programme at the moment. For us there is a sort of two-step process: there is the step of getting the most out of what we have got in the service now, and in the course of the next 10 to 15 years there will be a huge step-jump as we get in not only new information systems but the precision weapons which can be used and the ability to link it up. Work is already going on to think about how, if you like, the concept of using those forces will change when all those capabilities are in, in 10 to 15 years. There is no blueprint yet, either here or in the United States, but there is very active work and thinking about the concept which will only be possible when you have got the whole group of precision weapons and the IS, as the jargon goes, and the stuff to go with it.

Mr Hood

  165. I wonder if I could ask a question on reporting cycle documents, Secretary of State. This was another question that was in great demand, and I was lucky enough to win this one. To what extent do you find that the documents in the MoD's annual reporting cycle, particularly the Expenditure Plans, the Performance Report and the Investment Strategy, are moving swiftly enough in the direction of linking outputs to resources applied?
  (Mr Hoon) The particular documents that we have published are obviously prepared for publication and, therefore, have that character, but I think it is fair to say that part of the underlying reason for changing the nature of the documents that we publish and make available is to link that publication more closely to the work that goes on inside the department. In a sense, what we are trying to do is to open up the processes that lead to our reaching particular conclusions for greater examination by the public and, obviously, by this Select Committee. So, in a sense, what we are publishing is a distilled form of the documents that we rely on in reaching precisely the conclusions on decisions and on outputs, therefore, that we have within the department. So I think the real answer is that there is a connection but it is not that these documents are directly leading to particular outputs and particular conclusions, but they are certainly based on a wider process that goes on inside the Ministry of Defence.

  166. You are agreeing, I think, that you see them as a useful management tool?
  (Mr Hoon) This is the distinction I am trying to draw. The particular documents are prepared for publication but they are based on more detailed work that goes on inside the Ministry of Defence that, therefore, is part of the management process of reaching conclusions in the department and therefore taking decisions. So, in a sense, we cannot publish every single document that the Ministry of Defence depends on, but it does mean that you are seeing, in a sense, a picture of the wider work that is conducted.

  167. Do they enable you to prioritise your resource decisions with confidence so that you understand the effect that you will be having on defence outputs?
  (Mr Hoon) I am confident that it does because resources are an integral part of any manager's decision about the way in which we reach conclusions. Balancing the resources that we have with the decisions we take and the particular equipment that we purchase is the essence of any management decision in any organisation. Perhaps the best person to respond to that is the accounting officer, but ultimately, obviously, I take responsibility for those decisions and it is central to what we try and achieve. Kevin might want to add something.
  (Mr Tebbit) It does run very similarly to what you would recognise in a modern business. Ministers set the priorities for the department on a daily basis, but also the Defence Council. We know that we have to deliver the Strategic Defence Review, that we have to modernise the department generally, that we have to, in particular, apply lessons from operations such as Kosovo and that we have to put in place a package for our people, which is a wide thing. That is then done by the Defence Management Board. We have very detailed discussions which attach resources to those priorities, cascaded down to all sort of programmes. Indeed, later today we will be presenting a very detailed plan allocating resources to those priorities to the Secretary of State and his colleagues in the Defence Council. In driving that forward over the year we are using a thing called the Balanced Scorecard, which I have mentioned at a previous meeting, which is a modern technique used by most companies for tracking the way in which resources are being used to deliver objectives in-year. It gives us signals: red, amber or green, according to whether these are on track, needing attention or going badly. So we do have a very complex and efficient (complex because we are a big organisation, but simple in the sense that it is clear from top down through to the operating units) scorecard on how we are doing. What we cannot do yet is link our money precisely to outputs. The reason for that is simply the degree of accounting change which we are in the middle of, because of the transition to resource accounts. Once we have completed that transition—and this coming year is the first year which will be run on accruals rather than cash, which is a different currency—then we will be making progress in more sophisticated output budgeting. At present we can only really talk in terms of three big outputs: Department of State policy, the equipment programme and our operational expenditure, but that will get more sophisticated as we go along.

  168. What would you say is the most useful management information tool available to the MoD?
  (Mr Tebbit) What we are developing, this Balance Scorecard, covers the key—at the moment there are about 17 or 18—priority areas that we judge important, and that will be giving us—when I say "will be" it was started in September, so it is coming up on a quarterly basis—the main internal accounts for driving this. The Secretary of State will get reports on this on a quarterly basis, and it will be the opportunity for intervention in our Department.

  169. And then?
  (Mr Tebbit) To be still more basic about it, the most important document that we continue to work from is, of course, the Strategic Defence Review, in the sense that that sets out our programme. It has always struck me that my job, essentially, was to work within the framework of the Strategic Defence Review delivering what had been worked through—subject, obviously (and these documents reflect it) to the kinds of change of emphasis that inevitably will occur as the world moves on. In terms of a basic position, I do not think that you could do better than look at the Strategic Defence Review as a starting point for judging what we have to achieve in the Ministry of Defence.

Chairman

  170. You said, Secretary of State, that the documents you produce are just a distillation of other documentation that the public are going to be able to look at. Is there a series of documents upon which the public face of your own Strategic Defence Review was constructed? If this document is only a fraction, we saw the SDR as a fraction, are you satisfied the public is as aware as it should be and will require to be of the options you are working to and not just a three-volume, glossy document which is the tip of a very large iceberg?
  (Mr Hoon) I tried to give the Committee a sense of the huge amount of work that must inevitably underlie this kind of publication. I am sure you did not intent to disparage it by calling it "a glossy" but the reality is there is an astonishing amount of information here that has not previously been published. Like any organisation, like any company, we take decisions against a background of a very large amount of information and a very large amount of work that is done. What I was trying to get across is the sense in which we are seeking to extend the public debate about the processes of decision-making by the publication of this sort of document, which is for publication but which is based on the kind of work that goes on inside the department.

   Chairman: In fairness, there is a lot of documentation coming out—much more than there ever has been.

Mr Hancock

  171. I am intrigued by the scorecard business. None of your reports ever flag up the amber and red situations for wider participation of Parliament, do they? That is the failure, really. We only ever get the green gloss rather than the amber and red warning signs. The failure, surely, and the lack of transparency is in those two particular areas.
  (Mr Tebbit) Internal management always requires people to actually look at where management attention needs to be focused. That is not the same as saying things are red in terms of the total judgment of the thing, but where we need to give management attention to make sure it is put right. That is what you would expect us to do. I do not think we gloss over areas. I remember this discussion with you last time. We were not saying, for example, that we were satisfied with our performance on medical services, it needs to improve, and we were honest about that.
  (Mr Hoon) I was just looking for that precise point, because in preparing for our meeting I was actually conscious of a number of areas where we had indicated our concerns, and medical services was one of them. I do not think it is entirely fair to say that we do not flag up the difficulties.

  172. But you are flagging that up, Secretary of State, to justify a significant change in policy, which some of us actually do not agree is going to make the situation better.
  (Mr Hoon) I am sorry that I do not have your conspiratorial view of politics.

   Mr Hancock: I think you did a little while ago.

Mr Brazier

  173. Just before my question, could I ask Mr Tebbit, while he is here, how we are doing on letting the Committee have the other four-fifths of the list of efficiency savings?
  (Mr Tebbit) As I explained, I think, and as we have explained to the Committee on several occasions and I thought we had discussed this rather fully last time, we do not capture inefficiencies in every single detail at the centre, it is a devolved process to the budget-holders. What we gave you was an illustration. I have an internal process of audit which assures us that these efficiencies are genuinely real. That is done by the Defence Management Organisation—our internal audit process. As you know, we struck efficiencies very high last year, at £590-odd million, and this year we are on track for £500 million of efficiencies. I also said that I was not satisfied that this was an ideal way of doing our efficiency process, and we are going to be in discussion with ministers about ways of linking our efficiencies more clearly to our outputs rather than to this rather abstract counting of money, which is not necessarily telling us about how we are performing, because it is a gross figure rather than a net figure in the organisation. It tells us nothing about the overall thrust of our achievement. However, I am not aware that I said I was going to give you a paper detailing every single piece of our past efficiencies.

  174. I think there was reference to the document.
  (Mr Tebbit) I think I told you we were going to be moving forward with our efficiency process and that I would keep you informed.

  175. The more information, I am certain, the better.
  (Mr Hoon) Could I help to this extent, Mr Brazier, that I was impressed by the comments you had made previously about the efficiency process in the department, and I can assure you that we are looking at new and different ways of securing efficiency that, I hope, will be more effective as far as the department is concerned but, I also hope, will satisfy you that your previous criticisms have been taken on board.

  176. Great, a move towards transparency and very welcome, I am certain, for the whole Committee. The question I would like to ask, Secretary of State, is on the key trends in the application of resources over the next decade—specifically, the balance between the two main items, expenditure on equipment and expenditure on personnel. If, for the sake of brevity, I could throw in an example with the main question: there is a hint somewhere in your policy document that you see more investment in better and better equipment leading gradually to personnel savings in looking at the through-life costs as a whole. How do you see the balance going between personnel and equipment savings over the long time-frame you are looking at in your policy document?
  (Mr Hoon) You know that it was an objective of the Strategic Defence Review for the Ministry of Defence to spend a greater proportion of its budget on equipment than in the past. That was set out and, broadly speaking, that is what we have sought to do. However, if your question is implying somehow that there is, as a result, a lack of emphasis on personnel then I can reassure you that that is not the case. We would not allow any change in extra spending on equipment to, in any way, affect our policy for people. Indeed, what we are looking at are ways of ensuring that we continue to support people in the Ministry of Defence and to a still greater extent than ever before. There is a great deal of effort being made to ensure proper levels of pay and that we address difficulties in relation to retention and operational welfare, accommodation and so on. The extra spending on equipment is not in any way affecting our policies for people.
  (Mr Hatfield) Can I explain a point you picked up? The reference to investing in equipment in order to save people is against the background that we expect the size of the pool of the relevant age group to reduce quite significantly over the next 10 to 15 years. If we look in paragraph 18 of the Strategic Context document there are some statistics. One of the ways of responding to that, apart from increasing our recruiting effort, is to try and reduce the requirement for service manpower, in particular, to operate equipment and support it.

  177. I understand that point in general, but I had a helpful answer at the beginning of the week to a question on RAF fast jet pilots. We are now a staggering 17% short. Our biggest single equipment programme by far, the Eurofighter—is it really sound to be investing the staggering sums we are in this very important programme if we are not going to be able to fully man it until 2010?
  (Mr Hoon) We are going to be able to fully man it. Indeed, we are able to carry out the range of operations that we need to today. That is not to say that we are in any way complacent about those shortages, and there are other areas where we are concerned about key personnel and where we are taking appropriate action as far as financial incentives, for example, are concerned targeted at those particular shortages. To amplify Mr Hatfield's point, every major organisation today is looking at demographic trends, and we, in particular, recruit 25,000 young people every year. If the numbers from which we are recruiting are falling (and most big organisations are concerned about that) inevitably there will be more competition for the talented people that we want to recruit. In those circumstances, we have to address those issues in order to maintain the pool of pilots and other skills that we will require in the future. The one advantage of using Eurofighter as an example is that we do have some time in order to train people. The actual problem, though, Mr Brazier, just to make it quite clear, is not recruitment. We can train any number of pilots, it takes time but there are very many willing volunteers. The problem is keeping them.

  178. Just a final one on that and then a related question: why is it that the RAF's record in retaining volunteer reserve fast jet pilots is so pitifully small? They have a pool of seven part-time fast jet pilots. In America it is a large proportion of the total, and even our own tiny Royal Naval Reserves has 14 fast jet volunteer reserve pilots. Surely that is something which should be looked at.
  (Mr Hoon) It is something that we are looking at. It is something that I recognise we could improve and it is an ambition that we should make that pool larger. However, equally, we looked at the problem of retention as far as our pilots are concerned, and the answer to your point is that there are a range of different factors affecting retention as far as pilots are concerned. Frankly, the state of the economy is probably the single most important reason, because whilst the economy continues to grow the amount of resources that individuals have available increases, they can spend more on flying abroad for their vacations and that is increasing the demand for pilots in the civil sector.

  179. Final question: I suspect we see the hand of Mr Hatfield in this report and I look forward to reading it properly after the meeting. We had mention from the Permanent Under-Secretary earlier of the importance of getting feedback from actual operations. Is there not a danger that the growing dominance of peace support operations—as we are currently involved in now—may not bias the overall setting of priorities as against a much wider spectrum of problems and risks that we may face, which your policy document rightly points to?
  (Mr Hoon) I think it is a fair concern to express, and certainly whenever I have meetings with the Chief of the Defence Staff—and it is right to pay tribute, at this stage, to Charles Guthrie who is retiring—he has constantly emphasised to me the importance of maintaining our war-fighting skills. I doubt, with his retirement, that view of the Chiefs will change because it is an area where the United Kingdom has particular abilities, and you are right that it would be quite wrong for us to neglect those skills at the expense of others.
  (Mr Hatfield) I think it is fair to say that we have actually had experience of high intensity conflict in the last two or three years. So I do not think it necessarily follows that peace support operations take the focus away from that either.


 
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