WEDNESDAY 7 FEBRUARY 2001 _________ Members present: Rt Hon Bruce George, in the Chair Mr Julian Brazier Mr Jamie Cann Mr Harry Cohen Mr Mike Gapes Mr Mike Hancock Mr Jimmy Hood Dr Julian Lewis Laura Moffatt _________ RT HON GEOFFREY HOON, a Member of the House, Secretary of State, MR KEVIN TEBBIT CMG, Permanent Secretary, MR RICHARD HATFIELD, Permanent Under-Secretary, Ministry of Defence, examined. Chairman 153. Secretary of State, Mr Tebbit, Mr Hatfield, welcome, although it is rather ironic to welcome you to a room I have never been in before. We are both playing away today but hopefully we will not meet in this environment for some considerable time, while it is a rather splendid cabinet structure. We have seen, but did not have much time to closely scrutinise, your documents published today. Secretary of State, in your Defence Policy 2001 document, will the "informed defence community" be able to detect any nuanced shifts in policy when they have had a chance to study it? I am not asking you to do our work for us, but is there any major or minor shift or nuance shift in policy contained in this document? (Mr Hoon) I think it is fair to say there is no major shift, there is no significant and fundamental change in policy. There is, perhaps, as is always the case, a degree of emphasis in different areas, and the significance of that might be only obvious over time. There is greater emphasis on joined- up conflict prevention, for example - something we have discussed in the past - but there is certainly a greater emphasis on that in this document. There is greater emphasis on improving multinational defence co-operation. Again, that is not new to any Member of this Committee but something we emphasise more than previously. It will come as no surprise to the Committee, either, that we set great store by the importance of learning lessons from the Kosovo campaign - something that you have emphasised to us that we should do. Again, that is emphasised. So there are a number of points here that certainly will allow the informed defence community to look thoughtfully at the trends; they are trends emerging from principles that we have discussed on many occasions in the past and will not, I suspect, come as any great surprise to Members of the Committee. 154. You have been in office long enough now to be able to make a judgment as to whether this "informed defence community" is increasing or decreasing in size. Do you detect any greater interest in defence issues from meetings you attend or press and media reports, or Parliamentary contributions? Are you trying to move this small community into being rather enlarged, which is in everybody's interest? (Mr Hoon) Certainly I have always remarked on the contrast between discussing defence and security issues in Washington as opposed to discussing them in London. I think that there is a need for the kind of detailed consideration given to defence issues that exists in the United States in the United Kingdom. So I would certainly welcome more discussion of these issues. Nevertheless, those that are engaged in this debate in the United Kingdom do so very seriously and, obviously, part of the purpose of publishing these papers in this form is to give them more material and access to more material to inform that debate. You invite me to comment on the press and the media. I think there is concern about the extent to which specialist correspondents are given the opportunity of writing about their specialist subject. I find, sometimes, I have concerns about the extent to which those that do know about the subject are given the opportunity of writing about it. That is probably a matter for the newspapers, but I suspect sometimes that the copy of defence correspondents who, perhaps, know both sides of the argument is not always as dramatic and as interesting to news editors as those who do not know as much about the subject. Finally, I think it is right that I should say something about the work that this Committee does, because I do recognise that the Committee have contributed to improving the level and the nature of the debate. I thank you for that. 155. You know what we say, Secretary of State. If the Ministry of Defence was as open as we are, we would be very, very happy. We are trying very hard to get you in our direction. In paragraph 7 of the report, Secretary of State, you say "There is no sign that operational demands are likely to diminish". Despite the slight rise in defence expenditure, we clearly do not have the resources to meet every demand. How are you going to decide which demands are going to be met and which demands are not going to be met? (Mr Hoon) I do not think there is a simple formula for that. Clearly, when you say that there are not resources to meet every demand I think that is self-evidently true, but we make what are pragmatic judgments in the light of resources and in the light of the people that we have available to do the job. Clearly, those are judgments made across Government and it is, obviously, my job as Secretary of State for Defence to inform my colleagues of the state of preparedness and availability of Britain's armed forces and to do so within the general parameters set out in the Strategic Defence Review but not to regard the Strategic Defence Review as a formula. It is not something that we can apply precisely to every situation. What we have to try and do is to work within the capabilities that we identify there and ensure that we are able to satisfy the legitimate demands of those who expect Britain's armed forces to defend Britain's vital national interests. 156. It seems patently obvious to us that despite your endeavours to squeeze more blood out of a stone it is becoming increasingly difficult. We are producing a report on personnel issues in a couple of weeks and although finance is not the panacea to resolve all of the problems it is a very substantial element of it. I think we have to try even harder to persuade Treasury that if they expect you to do the tasks that appear to be necessary it is going to be increasingly difficult to do with the budgetary constraints within which the Ministry of Defence is operating. If you decide to cut your commitments then the public have to be told "We simply cannot afford to do it". However, to meet pensions, to meet the salaries, to meet training and to meet commitments to Sierra Leone, the Falklands and everywhere, it is quite wondrous that you manage to do it with the miserly sum that you are allocated by the Treasury. I think at least ten Members of the Committee will agree with what I have said. If we were in charge, we would happily find 1 per cent of GDP, I think, without much hesitation and take the consequences from the Treasury. (Mr Hoon) As I have said to you before, no Defence Secretary is ever going to turn down support for more resources for the defence budget, and I am certainly not going to do that. Having said that, equally, I think it is important we put into context what we are doing today and actually we are satisfying the demands on us in a range of different theatres and operations. Whilst, particularly as far as certain areas of speciality are concerned, I would certainly like to see more people and more resources, nevertheless compared to - and we have discussed this before - the period towards the end of 1999 immediately after my appointment, when I recognised publicly that there was a degree of over-stretch, we have been able to make very significant reductions, certainly as far as the Army is concerned, in terms of the numbers of personnel actually deployed or on operations. That I think has improved significantly many of the problems that I felt we were facing towards the end of 1999. I am not being complacent about it, but I do not think the picture is quite as bleak as, perhaps, your observations might tend to suggest. 157. Thank you. In paragraph 11 of this 2001 document, you say: "There is likely to be growing emphasis on multinational approaches to developing improved capabilities, especially in relation to filling capability gaps ... ". Would you care to expand on this statement and, perhaps, give some concrete examples? (Mr Hoon) Yes. I hope it is consistent with what you have said already that even the United States, with the budget that they have available, recognises that there are limits to the amount of money they can spend and the amount of capability that they can generate. That is even more the case for a country like the United Kingdom. One of the advantages, I perceive, of multinational co-operation is being able to work with allies and partners, particularly to develop capabilities that are not readily available to us today. That is part of the underlying purpose of the Helsinki headline goal, to encourage countries to recognise that there is a range of capability that, ideally, is capability that we would like to have available, but that individually it would be difficult for them to afford. You ask for an example. One of the examples that we are looking at is a search and rescue facility which is not something which, traditionally, other than on an ad hoc basis, the United Kingdom has judged to be vital to develop. On the other hand, the United States has certainly developed a very sophisticated ability, the French are probably ahead of us in having that capability and we would like to find ways in which we can work with other countries to develop that. There are a number of other things that we are working on, not least the suppression of enemy air defences, where co-operation with a number of countries is now quite well-advanced - again, to provide a capability that we do not have available to us as an individual nation but which, working in combination with others, we can develop. 158. Thank you. Are these documents going to be annually produced? (Mr Hoon) In a sense, part of the reason for publishing these documents in this way is to break out of a deliberate annual process in order to try and provide documents as and when we judge them to be necessary. However, I think it is fair to say the policy document is perhaps something that the Committee might find helpful on a regular basis. To some extent it is an area where I would be grateful for your views, because it does seem to me that if you find this kind of process useful - and it is a change from what has been done before - then we could look at the timing in the light of your feelings. I would have thought publishing something like this on an annual basis, without being fixed on particular dates, is sensible. 159. With this mania for contracting out, if your resources are constrained, Mr Hoon, you can contract out the task to us, and I am sure we would do a very good job. I am also sure you would be the first to sign up for what we would produce! (Mr Hoon) I can see many advantages of contracting it out to you on that basis, because you would be bound to produce a statement of Government policy. Chairman: I do not think it would be Treasury policy we would produce. The next block of questions we all fought to ask, but I am afraid Laura Moffatt won the task. Laura Moffatt 160. I am a lucky girl. Good morning. There are some issues I would like to raise within the new published The Future Strategic Context for Defence. I draw your attention to the part in purple on page 8 that talks about the revolutionary changes within procurement and the way in which the MOD would like to exploit what is happening in civil developments for technical equipment for the MOD. Our continuing question has to be to you, Secretary of State, how do you expect to do that if you are just about to sell DERA? (Mr Hoon) I am not at all persuaded that there is any inconsistency between the two propositions that you put forward. One of the reasons why I was persuaded, having looked at this afresh, that it was sensible to sell part of DERA was because of the difficulty of a single, Government-run organisation keeping pace with technological advances and that what we needed was to have a way of encouraging those who work for that part of DERA to be able to have access to both the wider world of technological change but, equally, for them to find exciting the prospect of working within that particular organisation. As far as the part that we judge it is necessary to retain in public ownership is concerned, one of the essential tests of that was to ensure the continuation of independent objective advice to Government about the nature of assessing technology as far as Government procurement was concerned. That, as I have said to you before and I repeat, will remain within public ownership and, therefore, public control. 161. 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 closing contracts - just, at the moment, a small proportion of our research block - out to competition. Interestingly, DERA won 70 per cent of those contracts on merit, but other people won 30 per cent 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. Chairman: We are all waiting for Wednesday 28 to interrogate your colleague, the Baroness. I hope she comes in with all the answers. Leave has been cancelled, I must tell you. Laura Moffatt 162. 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 reach 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. 163. 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. 164. 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. Laura Moffatt: 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 165. 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 (inaudible) 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 166. 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. 167. 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. 168. 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 similar 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 Monitoring 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 Balance 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. 169. 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 is starting 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. 170. 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 a 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 171. 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 172. 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. 173. 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 174. 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 œ590-odd million, and this year we are on track for œ500 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. 175. 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. 176. The more information, I am certain, the welcome. (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. 177. 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 right 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. 178. I understand that point in general, but I had a helpful answer at the beginning of the week to a question on RAF Fastjet pilots. We are now a staggering 17 per cent 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. 179. Just a final one on that and then a related question: why is it that the RAF's record in retaining volunteer reserve Fastjet pilots is so pitifully small? They have a pool of seven part-time Fastjet pilots. In America it is a large proportion of the total, and even our own tiny Royal Naval Reserves has 14 Fastjet 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. 180. Final question: I suspect we see the hand of Mr Hatfield in this 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 - 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. 181. Had we had to do the land entry I would agree with your point. (Mr Tebbit) Chairman, I will just mention that in terms of joined-up war-fighting, the reason why we have, for example, a rolling programme of large, joined-up war-fighting exercises, such as Swift Sword, is to make the forces, as it were, continue to be capable of that type of skill and operation, not just in peace support. Could I possibly just go back - I know this is improper - on the balance of investment issues? I think it is still quite important. There is a real distinction between the sort of issues we face over targeted retention problems - for example pilots - which are not about the overall amount of money we have at our disposal, it is about very difficult questions of retention and labour markets and morale, and that sort of thing, and, at the other end of the spectrum, this wider issue of trends. The most important trend, if you are looking for a balance of movement from equipment, as it were, to front-line people would be, for example, in the logistics organisation. The business change programme we have there is needed, because at the moment we have got over 40,000 in our logistics ---- 182. We are just coming to that later on. (Mr Tebbit) It is in those areas where you can look for bearing down on people, positively, not just as a negative thing. Mr Hancock 183. We are just coming on to that. I have got a brief question at this stage on the way in which we are disposing of surplus sites. In your previous documentation you have laid great emphasis on trying to bring your activities on to large core sites, so freeing up other sites for disposal. The policy there is that only in "exceptional circumstances" would these be offered to public bodies or local authorities; in the main you are going for the maximum gain. I would be interested to know whether you see that as a significant change of policy. I would also be interested to know whether or not you think that that policy conflicts with the Government's intention of trying to exercise some environmental control over disposal of their own land so as to influence what happens on it. The contradiction there, surely, is, is the environmental benefit outweighed by the financial gain to you, and how do you balance that? Who makes that decision? Who makes the judgment? The final question is: are you using any of the money you get from the estate specifically targeted to improve the existing estate? We have been told by experts who have given evidence before us that at Aldershot, for example, just to improve the overall accommodation for young soldiers will take 10 years to bring it up to an acceptable level. One could argue, and they would, that some of that resource you are getting from the disposal should be specifically targeted to improve what you are intending to keep. If that is so, where is that documented and what proportion of it is in the programme? (Mr Hoon) Let me try and start at the beginning of your first question, because I think, actually, that will answer most of your concerns. Clearly, it is in our interest and in the interests therefore of all those who work directly and indirectly for the Ministry of Defence that we maximise the return on the disposal of surplus sites. That is not to say that we will always look to the very highest price, we will certainly take account of other factors - Government policy elsewhere and environmental issues and so on - but, nevertheless, I think it is fair to say that you would have to persuade me quite hard if you were objecting to the policy that we should not try and maximise the return for the Ministry of Defence. In doing so, it does then increase the resources that we have to be able to do precisely the things you are encouraging us to do. I do not entirely accept the suggestion that it would take 10 years to improve accommodation. We have, for example, very recently put in some accommodation at Northwood, which was done in a very short space of time because the kind of modern system building techniques that are available I, personally, think are perfect for the kind of single accommodation that is largely deficient. I want us to be rather more demanding than you are suggesting in terms of improving single living accommodation. 184. We are more demanding. I thought it was you who were not being more demanding, because the experts were telling us it was the MoD who were dragging their feet. Presumably, you are the MoD for the purposes of Parliament and if you are not dragging your feet who is? (Mr Hoon) I have made clear to you on previous occasions that accommodation is an important priority as far as I am concerned, and therefore it is an important priority for the Ministry of Defence. A great deal of effort is being made in this spending round in order to secure resources to improve accommodation. 185. Can you then just explain the "exceptional circumstances"? Who would have to make that decision? Would that be down to you? (Mr Hoon) Ultimately, yes, but, as I say, these are matters that we look at pragmatically. I think it is fair to say that my approach is that I would expect to look to the maximum return for the department of any particular sale, unless there were compelling reasons otherwise. You indicated some of those potentially compelling reasons, they might well be wider Government policy, they might be environmental concerns, or there might be specific reasons for making a contribution to other areas of the country's life, but I have to be persuaded that that was justifiable because in taking such a decision I would inevitably be depriving the Ministry of Defence of resources that would otherwise be spent on defence. 186. I entirely understand that. Is it possible for you to let us have a look at the guidelines that you use to dispose of sites and how the judgments are made? I would also like the answer to the question about the proportion of the assets sold and the way in which the proportion of that money is actually reinvested in the estate as a pre-determined policy. If that is the case, where does that feature in any of the reports that we have so far seen? (Mr Hoon) All I say is that it is not a pre-determined policy. It would not be sensible to have such a pre-determined policy because asset sales, for example, are inevitably going to fluctuate year on year, according to the particular sites that become available. There cannot be a fixed amount because it will depend on all sorts of factors quite outside our control - the property market being the most obvious one. Equally, it also follows that it will depend on where those sites are and when they are available for sale, because clearly a Central London site is going to realise an enormous amount of money compared to some of our remote rural sites, where, frankly, the only use may well be for housing, and only then if a local authority judges it appropriate. It may be that, in fact, some of the rural sites cannot be used for any purpose at all because of planning restrictions. So the amount that that is likely to realise will be very modest compared to a Central London site. If we have a big Central London site that appears in our accounts for any given year it would be foolish to say that that was a pre-determined way of making those spending allocations. Again, the accounting officer may know a bit more. (Mr Tebbit) I would only add one or two points. Firstly, the decisions on disposals of estate are taken jointly by the budget-holders who own their land (there are 11 top budget-holders) and by our estates organisation chief executive, who clearly has an incentive to maximise asset use. We get better incentives because with the introduction of resource accounting and budgeting there is a capital charge and depreciation on this, the budget-holder is paying 6 per cent year on the valuation of his estate and therefore he has incentive to get rid of stuff otherwise. Quite apart from the central policy directions about this, we have targets, as you know, of œ700 million worth of asset sales over the four-year period, and we are on track for that. We do not apply those simply to single living accommodation, it goes across the whole of the budget, and the estate, of course, is all of our operations as well as just housing. So we do not have a fixed figure, but I would be very surprised if the budget the Secretary of State tells me to implement next month does not include a seriously large hike in the amount of money we devote to single living accommodation. We are also looking at better ways of spending money wisely through prime contracting, through grouping and bulking our contracts to get a bit of value for money, along best practice lines. Mr Hancock: That is good news. Chairman 187. What still rankles, Secretary of State, is that the Treasury took œ1.5 billion over the sale of housing to Nomura. Perhaps we should claw some more of that back. When you see the size of the problem and the amount of money that the Treasury got and the amount that is being handed back, there is a good source of funding to improve the housing estate. (Mr Hoon) You tempt me to make a cheap political point about who is responsible for that! 188. Have you found the agency structure inside the MoD provides you with useful management information on cost generation and so on? (Mr Hoon) What is impressive about the agency structure is it does give, in particular, organisations an identity that allows them then to manage their activity more effectively than perhaps would be the case if they were part of a very large organisation like the Ministry of Defence. I have tried to visit a number of the agencies, although there are now 37 of them so we have a considerable number, in order both to understand what they do and how they do it but also to get a sense of whether we are demanding enough of them, and I have been very impressed by what I have found. The fact they have the ability to manage their own affairs has given them a sense of purpose and direction that I suspect they might not have had as part of a much larger organisation. 189. You would expect that and I would too, but do you really believe they are delivering the goods in the way you would have expected? This government did not introduce the system, of course, but do you believe it is delivering the goods that the previous government thought it would? (Mr Hoon) Having to put myself in the position of a Conservative minister is a strain that I will not ask of myself but all I would say is that I came to this somewhat sceptical. The Labour party had not necessarily enthusiastically endorsed the concept of agencies and, therefore, coming into government I was keen to see whether they would work or not. As I indicated to you earlier, I am prepared to recognise that giving this kind of identity to particular government functions and activities has been a success because it has given the people who work in those agencies a real sense of ownership of their own activities in a way that would not otherwise have been the case. That has meant that, in a sense, they also are able to look outwards with more confidence than perhaps they would otherwise, winning business away from their traditional sources of work. 190. Are they as accountable to you as they would have been if they had been departments or sections of departments? (Mr Hoon) Ultimately yes, because ultimately they are responsible to the Ministry of Defence, and I think the test of this is that you as a member of Parliament can ask me as Secretary of State a question and demand, ultimately, that I give you an answer. Now, in the process it may well be that you get an answer in the first place from the agency but the likelihood is that you will get far more detail from that process than you would by simply asking a Secretary of State a question across the whole range of activity. I think a good test of accountability, therefore, is the extent to which a member of Parliament can get information about that particular function. 191. Do you intend to expand the number of agencies or contract them or remain the same? (Mr Hoon) We have actually reduced the number in recent times. I gave you the figure of 37: there were at one stage 44 agencies within the Ministry of Defence, and that is partly because we have looked at, particularly in the logistics area, better ways of organising delivery. Particularly in logistics in the past we had tended to see vertical organisation of the agencies but in a sense what we have now with the DLO is a much more horizontal approach looking right across the department at common functions, particularly between the three services, to try and find ways of organising their work more efficiently. That really explains the reduction in the number. All I would say is that I judge these areas pragmatically. It seems to me that we should not be approaching the concept of agency on anything other than a "Does it work?" basis and, if it does work, then I have no idealogical objection to it. Chairman 192. I think your eulogy of agencies will form the basis of my first question to the Baroness, and simply add "Why then flog on?" (Mr Hoon) And I am sure in your normal very fair way you will also say I used a pragmatic test to determine my approach to it. Chairman: We have yet to be exposed to the pragmatism; we know what the financial arguments are. One topic we are all vying to ask concerns defence medical services and there the government cannot have all of the blame. One of the best reports this Committee ever produced was in the period of the last government on the demolition of defence costs studies 15, and the consequential catastrophic decline of the defence medical services. Laura Moffatt, who knows a thing or two about changing bedpans, will add her professional experience to this question. Laura Moffatt 193. Secretary of State, you said earlier - and I totally agree with you - that one of the areas where we can look to share our capabilities with other nations is in defence medical services. When we go abroad and see our units working together, if there is a common language then, on the whole, it is about health and medicine, so I think it is an area that we can usefully exploit. I do have to say that I completely and utterly agree with the way in which this government has tackled the issue of defence medical services and I believe that we have the right ethos now to develop the service but - and there is a "but"; of course - as somebody who has worked in the health service for 25 years, you can create structures and provide equipment reasonably easily, but the difficult part is making sure you have the people with the skills and the expertise to be able to take advantage of that. We have a really good structure and a way forward with the centre for defence medicine and with the MDHUs, which I believe are functioning extremely well, but it is the same problem as in the health service - getting the people in place to do those jobs. (Mr Hoon) I do not particularly disagree with that; I would simply, though, invite you to recognise that there is a connection between structures and people -- 194. I did. (Mr Hoon) -- particularly in medicine because one of the problems, not simply for defence but for the National Health Service in general, is ensuring that the structures are of, for example, an appropriate size - and this has been a particular difficulty for us in terms of both recruitment and retention - so that doctors and consultants, for example, can maintain the necessary professional standards in order to be able to continue to practise in particular disciplines. It is not simply a problem of defence medical services but for the National Health Service generally. It does mean, for example, and I certainly have to face this problem in my constituency and I am sure the same is true of many colleagues, that smaller structures do pose difficulties in terms of retaining particular kinds of skills because, if doctors or consultants are not gaining sufficient experience in particular disciplines, then they will lose their professional accreditation and necessarily want to move. In a sense that is a problem we have had to face up to in defence medical services as much as the National Health Service will generally. 195. I completely agree and I am going through that pain in Crawley at the moment about not having accreditation for particular specialties. Moving on from that point and referring back to the performance report, it clearly indicates that you feel that we are on course to be able to solve many of these problems. Is the evidence there to say that we are on course? (Mr Hoon) You have taken a far more optimistic interpretation of what we put in the report than we have! 196. It does say "on course", "on course", "on course"? (Mr Hoon) "On course" but I would say that there is still a lot to do. I am not pretending that there is anything other than a great deal of effort that has to be made in order to deliver effective medical services, so we are starting from a very low base. There have been some signs that measures taken in very recent times are beginning to be successful but I would want to see sustained improvement over a number of years before I am confident of being able to say to you that there are the kind of medical services available to the armed forces that I would like to see. 197. And I think we would have loved to have seen a starred bit below this that says "The Secretary of State says that we are nearly there but not quite yet"? (Mr Tebbit) I would add that last time when I was here I said I thought we had stabilised and were beginning to make a bit of a difference. We did check the figures after that and it is very small beer and not enough but we have managed to increase the trained defence medical services strength over the last year by 74. It is by no means enough but have turned the corner, and on the TA we had 200 professionally qualified people moving into the TA last year, its first year, and now we are moving into the second year. It is by no means enough but it is a mark of the efforts that we are making and at least it is encouraging people. They are seeing it getting a little bit better than it was; they can see a trend. 198. Further on in that same report, in paragraph 72, you speak of the new fast track system for referral for serving personnel and that is down as "achieved". I wonder what measures you took to make sure that that happened and is achieved? (Mr Tebbit) In detail, we have taken contracts with particular institutions - I cannot remember which ones now - to make sure we can get them referred. 199. Could you write to us about it and let us know? (Mr Tebbit) Yes. Chairman 200. We were very pessimistic when we said some years ago that we could sense the decline of the defence medical services and that we doubted whether it would ever recover, so somewhere between that pessimism and Laura's optimism you think we are nearer one side of the continuum than the depressing side? (Mr Hoon) All I would say, using Kevin's phrase, is that I believe we have turned the corner; that the measures we have taken are beginning to show some signs of improvement, but I want to see those signs of improvement sustained year-on-year rather than as a result of a single year's statistics. Dr Lewis 201. Our own Joint Rapid Reaction Force is presumably our major tool for dealing with the shift towards an expeditionary strategy. In your performance report, you conceded that the achievement of its full operational capability has been delayed "due to exceptional level of operational commitments", but in the defence policy 2001 document that we have just seen today it says "there is no sign that operational demands are likely to diminish". In other words, presumably we are going to stay at this exceptional level of commitment for some time. Does the slippage in this target for the operational capability of the Joint Rapid Reaction Force not suggest to you that the MoD is operating too close to the margins in being able to generate deployable forces? (Mr Hoon) It is undoubtedly a risk. I accepted almost all of what you said until your very final observation because, clearly, we have to maintain an appropriate balance between training, exercising, preparation for operations and conducting operations but, as I think I have said to the Committee before, there is no point in having training and exercising if we are not in a position to use the armed forces who are trained and exercised. The reality is, and the explanation is given in the report, that we have not been able to move quite as quickly as we would have liked in relation to the Joint Rapid Reaction Force simply because of Kosovo and, to a lesser extent, Sierra Leone, because we are achieving with the capability that we have. Now I accept that there is a need for careful judgment about the extent to which we commit ourselves to operations and, therefore, run the risk of neglecting appropriate training and exercising and I assure you the Chiefs of Staff are very conscious about that and give me regular advice on that, but I am equally confident at the moment that we have the balance right but we continue to address this very carefully. 202. You have pointed out repeatedly in written answers to written questions of mine that the proposed new European Rapid Reaction Force is not a standing force and, therefore, would call on contingency forces from the contributing countries. Presumably the type of forces that would be called on for some sort of operation involving the European Rapid Reaction Force would be precisely the same as those that we are hoping to allocate to our own Joint Rapid Reaction Force. What would the effect then be on reaching our targets with the Joint Rapid Reaction Force if we found that a problem arose where we wanted to deploy forces under that label but that we did not have the forces to deploy because they had been drawn away for the European Rapid Reaction Force? (Mr Hoon) I have equally made clear to you on a number of occasions, both in answer to written questions and at question time in Parliament, that we only have one set of armed forces and we can only use that on a single occasion, if they were all to be deployed. I have made it clear that, in relation to specific decisions about the deployment of British forces, that decision would ultimately be taken by the British Prime Minister in the light of the degree of commitments that we had at the time. That, really, is a complete answer to your question because the labels that we give to the organisations will depend on particular circumstances, and I would invite you to be a little more flexible in your imagination because what we are doing are designating capabilities. Having designated a capability, we are not putting that capability in a corner and saying, "That is what that particular group of the armed forces will be doing". That applies equally well to the JRRF where we are looking at developing a pool of capability from which we would draw for particular operations but it is the way in which that capability is used that is important, and that applies equally well to the headline goal and whatever forces might conceivably be used by the European Union in the event of NATO not being engaged. Dr Lewis: I only wish I could restrain my imagination when I come to consider the disastrous scenarios that could come out of the European Rapid Reaction Force, but I will just content myself with this: in trying to assess the competing priorities which could arise between demands made on what we hope will be a standing Joint Rapid Reaction Force of our own and demands made indirectly on those same forces by this commitment to second forces to a European Rapid Reaction Force, would the reconciling of those competing demands not have been a lot easier if the European aspect had been kept within the NATO structure and not placed outside it? Chairman 203. You will have ample opportunity to answer the same question on 7 March so could you just be brief and give a more complete answer when he asks it next time you come - and the time after, and the time after! (Mr Hoon) I think that it would help enormously to put on one side this word "standing", because that is the key to the difficulty in imagination that I think you have. We are not training people to stand waiting for operations. We have a range of people available at different levels of notice with different abilities to do particular jobs and, providing they are trained for that purpose, then they do not have to be put in a box in a corner marked "Do not open until we need it". They are busy all the time and what we are doing is developing a capability, which can then be used. If we do not train for it, we cannot use it but, as I said to you, it can only be used once and we would have to make an appropriate judgment - as we do day in day out - about the resources we have available to satisfy particular tasks whether they are NATO tasks, European Union tasks, United Nations tasks or, frankly, notwithstanding all of the assessments we have made, whether one day there is a direct threat to the territory of the UK. We have to have that flexibility and part of what we are training for is to have that flexibility available to the United Kingdom. 204. Thank you for taking along two of our colleagues with you when you went to Sierra Leone; I am sure it was a very interesting experience. Turning to another group of malevolent pupils, the Treasury, how has the Treasury setting of public service agreement targets sharpened your performance management? I am not comparing the Revolution of the United Front with the Treasury - it would be a bit unfair on the RUF in some respects! (Mr Hoon) Can I say in the first place that obviously the setting of targets has been important right across government, but I think it is right to say that government as a whole recognises that perhaps we should not have too many targets for each department and there has been a determined effort to focus on key elements. As far as defence is concerned, the performance targets have been built on in the light of achievements that we wanted in any event and, therefore, in a sense it is early days yet - we have just been discussing the Joint Rapid Reaction Force - to see whether there will be a close correlation between the setting of those targets and our ability to achieve them within appropriate timescales. Reducing the number of targets for government is sensible because it does allow departments to concentrate on what is important rather than satisfying a whole range of different targets. 205. Will that put the relationship between the Treasury and the MoD on a slightly different basis? Will the Treasury adopt a more arm's length approach generally, or just in one area of setting for public service agreements? (Mr Hoon) The targets are set after negotiation and discussion with individual departments and clearly we emphasise to the Treasury and government in a wider sense the importance of setting realistic and achievable targets that are consistent with the overall direction of policy for the Ministry of Defence. These are not targets that appear from out of the ether: they are targets that are discussed vigorously between government departments. 206. The Treasury and Civil Service Committee in its report was recently critical of the overbearing influence of the Treasury on government departments. Would you share that view? (Mr Hoon) No, I would not and certainly not as far as the Ministry of Defence is concerned. 207. You believe that? (Mr Hoon) I am absolutely confident; I think you would have to show some basis for your proposition. Clearly the Treasury, quite rightly, takes a close interest in the amount of money available to the Ministry of Defence; I am delighted to say that they took sufficient interest to recognise that there should be more money available to defence over the next three years, and I am delighted about that. They clearly take an interest in major policy decisions that are taken by all government departments but I have no sense that the Treasury in any way interferes in the decisions taken by the Ministry of Defence. (Mr Tebbit) I would only add that the Treasury are sincerely trying to move to a more strategic way of managing their relationships with departments, and these public service agreements are a manifestation of that and they are in negotiation between Treasury and the department which was doing it anyway. Our Strategic Defence Review made it much easier for us to have key targets that we were doing anywhere; basically that is how they have been articulated. I would also say, however, we do spend œ25-23 million a year; we have an asset base of œ67 billion and it is right for us to be under pressure and for us to have that pressure that we transfer to our own staff to use our money as efficiently and effectively as we possibly can and, to the extent that the Treasury might be regarded as overbearing, I am also overbearing on the department as the accounting officer in making sure we spend money wisely. Prioritisation and efficiency is terribly important in the Ministry of Defence; the public expects it. So I do not mind when the Treasury sometimes interferes. 208. They are not trying to second-guess you or instruct you on policy? (Mr Tebbit) There is less micro-management on policies for the Secretary of State. (Mr Hoon) I have no sense of being interfered with. Chairman: I think we had better move on! Mr Cann 209. We understood when smart procurement was introduced, which we all agree with, that we were going to make a œ2 billion saving in defence equipment. It now appears that most of the savings - maybe all, I do not know - will be made by just shifting back into another timeframe. I would call that either a cut or a slippage. Which would you call it? (Mr Hoon) It is simply not true. Could I emphasise that the biggest problem we face in managing resources today is the result of the success of smart procurement because in the past it is undoubtedly right to say that one of the ways in which the Ministry of Defence has managed its year-on-year account is by being able to slip payments into the next year, simply because industry was not in a position to be able to deliver on what it had said it would deliver. Smart procurement now means that, in fact, industry is delivering to time and, therefore, understandably expects to be paid. That ability, therefore, that was once exploited by successive permanent under-secretaries in managing accounts from year to year is much less available. I am determined it should remain so, because it does underpin the confidence that both the department and industry have in the success of smart procurement. 210. But you your document DARC27, paragraph 8.3, talks of removing from projected project costings œ2 billion which was otherwise planned to be incurred over the next ten years? (Mr Hoon) But that is precisely because we are able to make savings in the process. One of the consequences of delays in equipment being available is that the cost tends to rise, so the earlier you take delivery, generally speaking, the lower the cost and that is the way in which, in part at any rate, we have been able to identify the œ2 billion savings. There are other ways as well because the teamwork in process means that the teams have been able to identify savings in the through-life cost of the equipment. Again, in parenthesis, that is why we tend now to talk about "smart acquisition" rather than "smart procurement" because one of the areas we can make significant savings is in the way in which we utilise the equipment once it has been procured. So the œ2 billion is a real, net saving over that ten year period of amounts that we would otherwise have had to spend had we not adopted this different process. 211. So could Mr Tebbit produce us, then, a list of where the œ2 billion savings have come from? (Mr Tebbit) No, I cannot. The reason I will not do it is not because I am trying to be devious but because ministers still have to take decisions on a large number of those projects because it is a ten-year period. 212. So we have not made the savings? (Mr Tebbit) No, these are plans. I as an official have to plan a defence programme over ten years. (Mr Hoon) And longer. (Mr Tebbit) But that œ2 billion is the net change to the cost of projects over ten years - not by just shifting it by 15 years - which we attribute to smart procurement principles. It does not mean the programme has got œ2 billion pounds cheaper because it has given us headroom to put other elements in. Ministers take decisions on individual projects at particular points, and these are plans, not all absolutely committed projects. The Secretary of State will need to take decisions as we go through that ten-year period and until he does I cannot say to you "This is going to happen" because that would be pre-empting political decisions. I can give you some comfort in other areas, however. We have other targets which involve œ750 million over three years, 2001-2004 and that is a very exacting target. 213. What is that on? (Mr Tebbit) That is the same - positive action in the programme but in a much shorter timeframe. (Mr Hoon) I had some difficulty on this when I was first appointed and, if I can go through the learning process, most government departments spend a particular amount of money in a given year on a particular project, and that is an end to it. Our budget is three-dimensional in the sense that if we are talking about, say, Eurofighter, if I say that Eurofighter is affordable - which it is - I have to say it is affordable not only this year, but next, and for every year we are planning to be able to operate Eurofighter. There are going to be very significant peaks and troughs in a profile over a long period of time. For example, it may well be that I am talking about savings in this case in year ten of a budget, because in year ten it may well be at that point that I have a significant cost of maintenance -- 214. In year ten, of course, you will not be in this post, and nor will Mr Tebbit! (Mr Hoon) Leaving aside those projections, the reality is that we have got to agree budgets today that are sufficiently robust to deal with year ten. I cannot agree to a project today that I know full well is unaffordable in ten years' time, but it follows from that that there may well be opportunities in year ten to make savings, and that is part of what we are looking at. For example, in the long life of a project like Eurofighter it may well be that I can project forward savings on maintenance. We are not spending enormous amounts on maintenance today because we have not got enormous numbers of aircraft in service, but that will obviously increase as the aircraft comes into service and many more are available. If I can negotiate today agreements as a result of a different way of working through smart procurement that says that in ten years' time the projected cost of maintenance is going to be reduced, that is a perfectly proper saving that we can claim credit for because it is the result of the system. It is important, therefore, not to see this in terms of a single snapshot about this year's accounts, but to project forward. 215. I accept all that and I do not have any problem with it, but somebody has put œ2 billion down as what we are going to save through this system. You cannot quantify it; Mr Tebbit cannot; I cannot; even the Chairman cannot, and yet it is set down here. Now, if it were to be said that it may vary by this, that or the other, then I think we would know where we are. (Mr Hoon) What Kevin has said to you is completely accurate, and the statement is accurate, and what he is saying is that there are projected savings of œ2 billion over that ten-year period that could be available to the Ministry of Defence should we continue -- 216. Could and should? (Mr Hoon) Yes -- with this process. Now if, at a certain stage in the process, I or my successors judge that this particular aspect of the saving is not a good idea for wider policy reasons, then what the permanent secretary would say to me at that stage is, "Fine, Minister, you are entitled to take that policy decision but you must bear in mind that there are certain risks to your budget in taking that decision". It might well be that that policy decision was so important to the minister at time that he or she would then choose something different and there would have to be savings made elsewhere to come within budget or, alternatively, we would have to persuade the then Chancellor of the Exchequer that this was justified and required extra spending for the Ministry of Defence. All we are saying, however, is that if we continue with the present policy we can expect to secure savings of œ2 billion over that ten-year period and that there are reasonable expectations that that can be done. (Mr Tebbit) We can also give you a more specific promise than this. We are taking all of our projects worth more than œ100 million - of which there are about 100 - which means we will be expanding our detailed tracking beyond the thirty odd major projects we currently track, and we will be tracking those on an annual basis for time, quality and cost. That information will be made available as we go through our programmes so you will be able to see how much better the Ministry of Defence is getting at bringing projects to fruition on time and on cost, and when I say "you" I mean also the Public Accounts Committee. In other words, we are not trying to evade in any way or cheat in any way; we have no reason to. 217. Nobody is accusing you of that. (Mr Tebbit) I can assure you that I am already finding how well this is working because there is already pressure in the budget within the equipment programme because equipment is now arriving to time and cost. It is getting very difficult because we used to rely on good old-fashioned slippages where we would expect to spend œ100 million this year and we would only get bills for œ80 million because of the relative efficiencies of industry and the Ministry of Defence. Now we get the œ100 million; it is already happening. In all sorts of ways, therefore, we know that the performance is improving. This œ2 billion is absolutely real but it is a planning figure. You will have much more detailed information and Sir Robert Walmsley is putting this in place as I speak on our 100 major projects. 218. It is not a planned figure; it is an aspiration figure. (Mr Tebbit) That is what plans are, but they are a bit better than aspirations. Chairman: We must move on to defence diplomacy. Mr Hancock 219. Before I ask some questions on defence diplomacy may I ask this, finally, on smart procurement, because I do think it is a bit of a scam and I think the œ2 billion is a bit of a scam because you cannot quantify it and nor can we. There has to be a downside to smart procurement and you put your finger on it when you talked about Eurofighter and the maintenance cost. It is a bit like buying ships; if you buy ships on a smart procurement programme, the first ship is undoubtedly not going to be the same as the last ship. If you buy well upfront you are not absolutely sure that the last ship is going to cost that much but you have agreed a price and I think the scam is when you get ripped off over the last part of it. (Mr Hoon) Let me be absolutely clear; there is no scam and there is nothing wrong with this process. The process is working and delivering. Your example about ships might apply if you were buying rowing boats and you might well agree a single price for ten rowing boats, but we do not buy many rowing boats. 220. Are you suggesting that the Type 45, the first, is going to be the same as the last? (Mr Hoon) No, because that will be part of the discussion and negotiation we have. (Mr Tebbit) On the Type 45 the government has led a contract for the first three. The reason it has led a contract for the first three is because it needs to see how the performance comes in. This not done as a straight run of everything on the same price. On the Attack helicopter, we have actually increased the price we are paying for the Attack helicopter by œ120 million because, in doing so, we can achieve through in-service support cost savings œ750 million over the programme of in-service support. Now, you will say to me "Prove it" and, of course, I cannot yet but we will be tracking it as we go, so sometimes it is worth spending to save. That also may not look smart procurement if you look at it superficially but we are looking at whole-life costs as well as what we are doing. 221. Let's hope you can prove it when the time is there. Moving on rapidly to defence diplomacy, you still make it very much an objective here and your report suggests that you have met your targets. Is it still a driving force for you, Secretary of State? Is defence diplomacy a very important part of the role of the Ministry of Defence? (Mr Hoon) Yes, it is. We have given it such emphasis across government that we have established a pool budget with both the Foreign Office and the Department for International Development specifically to look at ways in which we can work together in a wider sense to prevent conflict which is obviously essential to our idea of defence diplomacy. 222. The budget went up by ten million in the Defence Assistance Fund. Where was that extra money principally being directed? (Mr Hoon) Certainly some of that money will be going to Sierra Leone and to West Africa. There is also a training team being established in central and eastern Europe. I am sure there are other areas as well but those are two. (Mr Tebbit) There are more defence diplomacy scholarships. (Mr Hatfield) And we have established military advisers, for example, in Romania, Estonia and Czech Republic, and civilian defence posts in Romania and Poland. All that comes from this fund. 223. Will those first three remain? Is the plan to keep them going? (Mr Hatfield) For the foreseeable future. I am not suggesting they will be there in ten years' time but I think we may even extend this to Poland. We are talking to the Polish government about that now. 224. Finally, relating to the re-allocating of defence attach‚s, how is that working out? When will that be completed? What has been the reaction of our NATO allies to the changes there? Some of them have borne the brunt of the changes. (Mr Hoon) I think it is fair to say as you indicated that the process is not yet entirely complete and it is rather too soon to judge the reaction to it but this was a careful reconsideration with the benefit of advice from the Foreign Office of the placing of defence attach‚s and a lot of thought was put into where they should go: we have had a net increase in posts - only by one but nevertheless it does demonstrate the importance with which we view defence attach‚s. I certainly find wherever I go that they play a very valuable role, and we want to use them to the best effect. 225. Will you continue the policy of using non-commissioned officers and warrant officers in posts as defence attach‚s? I personally think it is very successful. (Mr Hatfield) I was in Finland last week and our deputy defence attach‚ there was, indeed, a warrant officer and doing a very good job. 226. And is it policy to continue that as much as possible? (Mr Hatfield) Yes. Chairman 227. What is he doing in Finland? (Mr Hatfield) Finland also provides a defence attach‚ service to Estonia. Picking up the NATO point, there has been a slight reduction in the total number of attach‚s in NATO countries but all countries are still covered. One of the important differences about NATO from a lot of the posts, say, in Africa or Eastern Europe is we have a massive relationship anyway going on with those countries and, especially with modern communications, we have found that it is often easier to work directly and through the organisation in Brussels, so we do not need to have the same numerical coverage in each post and I do not think we have any problems as a result of the adjustments. Mr Brazier 228. I would like to put a quick observation on the record in breach of the twenty years' tradition and say something in favour of Ministry of Defence officials. I wrote my first pamphlet on through-life costing twelve years ago and the biggest single item blocking it then was the attitude of the Treasury saying, "Ah, but these savings are going to be thrown up a long way away and we cannot estimate them very accurately", all of which is true. The work that has been done within the Ministry of Defence under the last government but which has been continued by this one in terms of saying, "Well, even if there are estimating difficulties, we must make sound decisions to spend a little bit more upfront in order to save further on very substantially", is critical for a cost-effective procurement effort, and I think quite a lot of credit must be taken there by the officials concerned. (Mr Tebbit) That will be of great comfort to my people and I would like to say that we do this through integrated project teams so that even if people move on the team remains and the body of knowledge is captured and continues to be monitored. Mr Brazier: Yes. I think the principle is right. Chairman: I hope that pamphlet is still available in the Admiralty library. Mr Gapes 229. Can I take you back to the Future Strategic Context document and the topical issue of National Missile Defence. Your essay in paragraph 89 says "The risk of air-launched weapons of mass destruction attacks will remain very low". In that context, do you believe that the new US administration shares that view and can you elaborate the government's present position on President Bush's National Missile Defence initiative. (Mr Hoon) This is an assessment in light of our current judgment about the level of the threat to the United Kingdom but we recognise and understand that the United States has different concerns and has identified the emerging threat to the United States and believes that, given the timescale taken to deal with it, it is right that they should pursue a missile defence policy. 230. In the view of your remarks then and also paragraph 59 of the document which confirms the assessment which I think is absolutely correct, which is that the US administration and congress are going to go ahead with - however it comes out in practice - something called National Missile Defence, do you think it would be helpful, given their commitment to consultation with allies, that we might propose a joint threat assessment within NATO and perhaps the European allies who are not in NATO as well, so that our perception and other NATO allies' perceptions of threat assessments could be put into the pool when the United States are making their own assessment, so that we try to come to a common view as to whether National Missile Defence is necessary and particularly what kind of defence measures would be necessary in the light of the Anti Ballistic Missile treaty, or any modification to it? (Mr Hoon) We already do that, and that work is shared and taken forward together. I am sure you are not missing the point, but the point about the assessment that the United States has made is that the threat that they perceive that they need to deal with is far closer to the United States than it is to the United Kingdom. The capability, therefore, of a particular country to be able to deliver a missile to the United States is a much more direct threat to the United States at this stage than to the UK simply because of the distances involved. 231. It depends which countries you are talking about. Iran -- (Mr Hoon) Let's be specific. We are talking about North Korea. 232. If we are talking only about North Korea -- (Mr Hoon) We are not talking only about North Korea but we are talking about North Korea in terms of the first stage of concern that the United States has. That is the first stage of concern that they are seeking to address in the early period of this policy. 233. But if we are looking 20/30 years ahead, which is what this document was talking about and it is stated that it is expected that within that timeframe other countries will develop a capability for chemical, biological or nuclear armed missiles and so on, is there not an argument that, given the interrelationships that there are within the world and given the range of strategic missiles, we, the Russians, the rest of the NATO and our other European Union partners should all be working together with the US administration to get a common threat assessment. That would be consistent with the strategic arms regime and the control regime that we have and will avoid the problem which many of us are concerned about which is that the unilateral decision by an American administration, without taking account of those wider issues, could lead to the ending of arms control agreements on a global basis? (Mr Hoon) The United States have made it clear, and the new administration has made it quite clear, that whilst they recognise the necessity for a missile defence system particularly to protect themselves against that first stage, they will do so only having consulted allies in NATO. That was said as recently as last Saturday by the defence secretary. 234. I am happy with that but I am proposing we take a proactive approach to try to get the involvement of our NATO allies, the Russians and others in this process so that we avoid it leading to a very serious breakdown of strategic arms agreements? (Mr Hoon) But I do not see the distinction that you appear to be trying to draw. The United States has identified a particular threat to the United States and we accept that that is a serious threat which the United States is quite rightly looking to defend itself against. The reason is that North Korea simply is nearer to the United States than to the United Kingdom. Moreover, they appear to be more willing to use the capability than might be the case in respect of other countries because threats are a combination both of ability to deliver as well as a willingness to use. We simply judge that, at today's state of knowledge, there is not a country that has both the ability to deliver and the intention as far as the United Kingdom is concerned, and that inevitably means that whilst we can share assessment of threats - and I made quite clear we perfectly well understand why the United States reached its conclusion - it does not necessarily mean that because different countries have different perceptions they can somehow collectively reach a conclusion. If you are threatened, as the United States is, then you take a particular decision in the interests of the United States. Discussing that with Russia, whilst it has some impact, clearly, as far as global arms control is concerned, does not take away the threat to the United States. 235. But Russia is a lot closer to North Korea than the United States? (Mr Hoon) But that is why the second limb of a threat is important. North Korea has not evinced any public intention, as far as I am aware, of threatening Russia but there have been occasions on which North Korea has expressed its reservations about the United States. 236. The document does not even mention North Korea, but is talking about a 20/30 year timeframe. (Mr Hoon) But this is our document. This is the point I am trying to make to you. You are, with respect, confusing a threat to the United States with an assessment that we make on behalf of the United Kingdom. 237. I think the problem here, however, is that there is a strategic arms control regime. There is an Anti Ballistic Missile treaty, SALT, Start 1, Start 2, the comprehensive test band and all the other matters which come from that and the problem, if we do not have collective views internationally about these matters and if the American administration, having said it will consult, is serious about consulting, then it should be prepared to consult with all those involved in that process and listen to what they say. If we do not get collective threat assessments, my point is we are in danger of bringing down the arms control regime, and that is my concern? (Mr Hoon) I think you are conflating a number of different concerns. For example, you threw in, without qualification, the ABM treaty. That is a bilateral between Russia and the United States - we are not a party to that - and if the United States and Russia choose, as previously, to amend the terms of that treaty or if, for example, they judge together that that treaty has no longer any validity because the international strategic landscape has changed so much, then it is perfectly open to them to abandon it. Chairman: We have to move on. Mr Gapes: One last point: it is a bilateral treaty but if one state then chooses to break that treaty, you then are in the position where there was a deal done with SALT and the ABM treaty limiting the number of missiles and limiting the anti-missile systems. If one pillar of that goes, then you are in danger of the whole international strategic arms control system going and that has been a consistent position taken by successive British governments over many years. My concern is we are in danger, if this process goes forward unilaterally with unilateral breach of that treaty, it could bring down the whole international arms control system. Chairman 238. That is a comment; not a question. (Mr Hoon) I do think I need to say that that is a far too melodramatic view of the ABM treaty. The treaty has been amended in the past -- Mr Gapes 239. By agreement. (Mr Hoon) Amendments tend to be by agreement, and there is no reason why that should not occur again in the future if the parties judge that the treaty has any continuing utility. They may have come to the conclusion that, in fact, it does not have. Mr Hood 240. Secretary of State, we are hearing rumours that there may be a shift in attitudes towards the continuance of no-fly zones over Iraq. Is this the case, and can you set out the UK's present position? (Mr Hoon) We judge that the no-fly zones continue to be justifiable for humanitarian reasons; in particular we remain concerned about the threats that Saddam Hussein poses to the people who live on the ground under the no-fly zones and we will continue our policy of protecting those people on humanitarian grounds. 241. When the Committee was in the Gulf last year we picked up a concern about the continuation of the no-fly zones and what was happening with the relationship with Iraq, and there was a concern being expressed, not upfront but in other circles, about the fact that there was no light at the end of the tunnel; that they were continuing and there was no movement, so much so that we heard that Kuwait was organising a conference of all Arab states to discuss it. That was a year ago and now we have rumours that there is a weakening of support for no-fly zones. How are we responding to that? Are we just high-balling it and saying "Well, we will just carry on"? (Mr Hoon) We are not but, at the same time, I think it is important to put the views of the international community into the appropriate context, and the context is Security Council resolution 1284. This was negotiated after many months - I suspect it seemed like years at the time - of determined effort in the United Nations to establish a process that was on offer to Iraq to Saddam Hussein by which there could be, to use your phrase, light at the end of the tunnel. There was - and continues to be - an opportunity for Saddam Hussein to accept the will of the international community, an agreed Security Council resolution, whereby if he allows appropriate inspection of facilities in Iraq then there can be a progressive lifting of sanctions. Clearly, in such circumstances, there could well be then a series of discussions with the regime that would have beneficial effects as far as the people of Iraq are concerned, but we must have overriding concern for the people on the ground in the northern and southern no-fly zone whom we are protecting. Dr Lewis 242. May I add my personal thanks, and I am sure that of Mr Gapes, for the hospitality you extended to us when we accompanied you to Sierra Leone last week and in particular for the extent to which you involved us in parts of your programme that you need not have done. This was greatly appreciated. The Permanent Secretary and others told us on 17 January that Sierra Leone was providing a kind of dry run for the way in which the new conflict-prevention, cross-cutting budget would be used. If the champions of this new type of budget are vindicated, it is going to change the way in which the Ministry thinks about applying UK resources to trouble spots. How do you feel this conceptual approach is working in Sierra Leone at the present time? (Mr Hoon) I do not think it just applies to Sierra Leone but to a number of other areas. One of the key lessons learned from Kosovo was that it is not simply enough to have extremely effective military capability that prevents humanitarian catastrophe; you also have to have the people that you can then put into a place like Kosovo. The civil administration was completely shattered, not only as a result of the conflict but over many years of totalitarian rule and, in those circumstances, I recognised that we needed access to all sorts of skill. That is still the case as well in Sierra Leone because, as you saw, what the British army are capable of doing certainly is to train the Sierra Leonean army to behave in a lawful, constitutionally respectable way with the military skills that go with that but allied to that will be the need for policing, for example, as well as other governmental skills that will be required once the country responds to the lawful expectations of a democratically-elected government. What I see very much about the conflict prevention fund in a sense is that, once the purely military aspect has been completed, then we need to recognise that there will be other issues down the track that have to follow behind. It may well be that those are taking place simultaneously as the military solution is taken forward. 243. Briefly, on that further point you have raised, I know that Mr Gapes and I were both very affected by what we saw on one bit of the visit where our programme was diverged from yours when we visited the amputee camp, where there were no fewer than 226 people ranging from a toddler of 13 months to breadwinners for families who had had either one or both hands cut off by the RUF. Is there any way in which you can see the Ministry of Defence co-operating with the DFID to target some specific assistance, either now or in perhaps a happier phase of development when the military project has gone further on that peculiarly horrifying aspect of the war? (Mr Hoon) In the first place, what we do is designed to deal with the intimidation that that kind of appalling behaviour was about. Clearly, the attacks were appalling for the individuals but they were designed to intimidate. They were about ensuring that the rest of the population realised what these people were capable of and, by training the army, we are giving the government of Sierra Leone the opportunity of saying to its population that they will not suffer those kinds of attacks. When we did visit Mashiaka, for example, we all saw the benefits of that in terms of an area that had previously been controlled by a rebel group now being repopulated by its original population, with people going about their lives and getting on with business free from the sort of intimidation that you saw at the amputee camp. It is part of what we do as much as, say, what DFID and other government departments might do in terms of granting financial or other assistance. Certainly, however, I see this as part of a joined-up process. I do not think we should be seeking to separate out the different elements. When we look at projects in the conflict prevention fund, we will be looking at ways in which we can work together to deliver a conclusion. It follows that there is no point in training the Sierra Leonean army to control the territory of Sierra Leone if we then do not put in place, or help to put in place either, the civil administration that allows the government to govern. Mr Gapes 244. Can I, first of all, agree and thank both yourself and your officials and Brigadier Riley and all the military people we met. I was really struck by how competent and how caring our people are in Sierra Leone, and we are making a difference - it is quite clear. You can see the mood of the people and there is a general sense that it is getting better, and I am very glad I was able to see that. We are doing a job and we have just extended the period for the military short-term training mission until September and, obviously, I am not asking you to give years and dates but how long do you think we will need to maintain our forces with a presence in Sierra Leone? (Mr Hoon) I agreed to the extension of the training because those responsible for the training came forward with specific reasons as to why we should carry on, both in terms of training more people but crucially to give those individual soldiers who have received basic military training the ability to work in units. The advice I received was to the effect that, whilst we had trained a good number of people who would be useful individually, they lack the kinds of skills that organised units require if they are taken to occupied ground which, ultimately, we assume the President of Sierra Leone will want to do. So that was a specific justification for extending the training teams and obviously I remain open to those sorts of arguments. Equally, in the light of all the comments this Committee has made today and the very practical considerations, I also have to recognise there is a limit to that. I cannot put a date on it because it would not be sensible at this stage to do so. I think it is clear from what we saw in Sierra Leone that we are moving towards a situation, and we saw something of it in Mashiaka, that those trained units can now go out into areas that were previously dominated by the rebels and occupy those areas and behave in a military way that is useful to the government. That is a process that is clearly under way and we will expect to see continuing. 245. Clearly now the economic recovery that is beginning in Freetown and the children going to school normally and all the rest of the normalisation that is going on will require time. The UN operation and our own role within Sierra Leone, both in support of the UN and directly, is something that we would not want to pull the plug on and then allow the rebels to come back. (Mr Hoon) No. 246. Could you give an assessment of how you would judge when our mission has been fulfilled? (Mr Hoon) Our strategy has always been to carry on after the short-term training teams with an international training team that will be very much about this kind of strategic leadership role that the government forces will need to develop. In a sense we want to go beyond training individuals into units to make sure that the Sierra Leonean army has available to it the ability there itself to carry on training. Again, there is no point in training thousands of soldiers if the government itself cannot continue the process thereafter. That is why we always planned for the international training team to continue where we left off. 247. Can I put to you that from my point of view, having been there, I would say I think we should stay for as long as we are needed and not prematurely withdraw for other reasons. (Mr Hoon) We will stay for as long as we are needed but I think it is important to distinguish between the need to do the training, which is what we are doing, and the question of security in Sierra Leone. When you talk about need, we are not there to provide security other than in this indirect sense. We have indicated that we would be willing and we have available an over-the-horizon capability, but on the ground what we are doing is training the forces of the Government of Sierra Leone to establish their own security, if I can put it that way. That was what was encouraging about our visit because they are clearly demonstrating that capability. I would not want the need to be in any way confused with the security need. The need is about training. That was why I was able to take the decision, because it was put to me that there was a need for further training. I am confident that there will come a time when that need is no longer as acute. Mr Gapes: I hope there is no suggestion of any premature withdrawal from Sierra Leone. Chairman: I think if ever there is a justification for intervention anywhere, Sierra Leone is it. You may say, Secretary of State, we are just there for training, but the psychological impact is much more than a small group of people undertaking training. If ever a time comes for us to withdraw it has to be absolutely, as I am sure it will be, well, well thought out. I am very proud of what the British forces are doing over there. I am very sad, frankly, that we do not have more resources to put in more people; you judge the size. Anyone who goes there will come back totally, totally committed to the British presence. I just hope the United Nations can develop their skills commensurate with the task, but I am less confident of the latter than the former. We have another 20 minutes, if that is okay. Mr Brazier: I am sorry if I had to drop out for a private medical reason at the last moment but I echo the Chairman's words. I strongly opposed all our interventions in the Balkans but I think Sierra Leone is a model of what we should be doing. I have got a long list of rather complicated questions on public-private initiatives and the guidelines. It is obviously a very important and complicated subject. I am going to give you several questions together, if I may, for brevity. Does the Investment Strategy's announcement that you are looking at ways of using PFI for war-fighting equipment represent a change in policy? What criteria, whether it does or not, will you be applying in drawing a line beyond which PFIs will not venture? There clearly has to be a line somewhere. Thirdly ---- Chairman 248. Shall we just take those two, they are quite close together. (Mr Hoon) The line is that we will not in any way compromise military capability for financial reasons. What we are trying to do is enhance our military capability, military effectiveness, at the same time as achieving value for money. That is a test that I will apply to any proposal for using private finance. Mr Brazier 249. How do you reconcile your policy of withholding public funding for new capital investment unless "private financing [is] shown to be inappropriate, unworkable or uneconomic" with your commitment to a level playing field between PFIs and public sector solutions? (Mr Hoon) Because that is the precise approach that we adopt in determining whether or not a private finance solution is sensible. It is entirely even-handed and we make judgments according to achieving value for money without in any way compromising military capability. 250. You do not see either having a contract heavy lift capability or potentially a contract Future Strategic Tanker Aircraft as compromising the front-line capability? Supposing, to take the heavy lift example, you have a not entirely secure airfield you are operating to and problems of enforcing a contract where you are landing in a war zone? (Mr Hoon) Part of the process that we undertake in determining the appropriateness of a private sector solution is to look at precisely those issues and they are built into the contractual arrangements. We, for example, have negotiated special arrangements for the crewing of roll-on roll-off ferries for precisely that reason, so if those vessels had to go into war-like zones they would be able to do so and it would be covered in the agreement. 251. They would have uniformed crews? (Mr Hoon) Exactly. Chairman 252. Military uniformed crews? (Mr Hoon) They would be Sponsored Reserves, but that is part of the thinking. We are not taken by surprise that when we procure military equipment or military services they might have to go into war. Mr Brazier 253. That would apply to the heavy lift as well? (Mr Hoon) We have not got that far, I think it is fair to say. What we are looking at with heavy lift for transport aircraft is the purchase of the aircraft. We have not yet got into discussions about how they will be used because they have not yet been constructed. 254. Obviously that is going to be a matter of some interest to the Committee given that pivotal role. (Mr Hoon) The C-17s that will be available this year are military aircraft. 255. They will have military crew? (Mr Hoon) Yes. 256. The final question: your Investment Strategy anticipates a more proactive approach to using assets in exploiting wider markets. Do you anticipate a greater emphasis on PFIs to deliver it? What do you think the potential is for the revenues that could be generated from these wider markets? (Mr Hoon) Is that it? 257. Yes. (Mr Hoon) There are obvious opportunities but they vary according to particular areas. We discussed agencies earlier on. The Training Agency, for example, has begun to be very successful in offering training packages beyond employees of the Ministry of Defence and is beginning to derive some significant income. I have to say that we approached that in terms of looking at the asset and whether it is necessary. If we do not need that particular asset then clearly the solution, as we have discussed already this morning, is to sell it. If, on the other hand, strategically we require a particular asset into the future but, for example, we cannot use it 100 per cent of the time for MoD purposes then we will look to using that in other ways in these wider opportunities that are around. Some of those agencies will be better able to exploit those opportunities than others simply by reason of what they do. Training is certainly an area where I think we have significant assets that we cannot use 100 per cent of the time and ought to derive some income from because in deriving that income that adds to the amount of resources we have available to spend on defence. 258. You are allowed to keep all the income under the new strategy, 100 per cent in house? (Mr Hoon) Yes, every penny. Mr Brazier: That is a considerable advance. Mr Hood: I would like to move on to DU and veterans' welfare. Are DU munitions an essential part of the Armed Forces' weapons inventory? Are you looking for cost-effective alternatives to DU? Chairman 259. Depleted uranium. (Mr Hoon) Depleted uranium shells are the most effective way of dealing with main battle tanks today. That is why they will continue to be in our inventory unless and until we establish some other way of dealing with main battle tanks. There are a number of different ways of attacking a main battle tank but I am sure you would not want me to ask British servicemen to put their lives at risk because there was a weapon available that would do the job and we take it out of service. Mr Hood 260. Do you remain convinced that the risk to human health from DU is negligible? (Mr Hoon) Yes, I do. I spent some considerable time looking in particular at the statistics. The one area of statistics that I found most convincing was the epidemiological evidence of those who had been deployed to the Gulf, around 53,000 service personnel, compared to service personnel, again a control group of around the same number, who were not deployed. The death rates over that ten year period since the Gulf conflict are almost identical. What struck me as being of great significance was the incidence of cancer among the control group, that is those who did not go to the Gulf, was actually higher marginally than the incidence of cancer among those who did go. So there is not any evidence at all of any enhanced propensity to cancer, for example, as a result of serving in the Gulf. That is not simply exposure to DU. I think one of the interesting things about those who have expressed concern about so-called Gulf War Syndrome is that the causes of that syndrome have been changing over the period of the ten years and DU is perhaps just one of the more recent suggestions as to what might be the problem. 261. At this stage are you able to assess the response to your offer to provide medical testing for veterans who are concerned that they may be suffering some form of radiation poisoning? (Mr Hoon) We already have - I have visited it and if you would like to go I would certainly encourage you to do the same - a unit at St Thomas' Hospital which is available for Gulf War veterans to go in and have their symptoms looked at and considered. I was very impressed with the thoroughness and the amount of time that was made available to each person. As I say, if you would like to go I would certainly extend that opportunity to you and you can see for yourselves the care with which problems are looked at. What we are equally trying to do, and John Spellar made clear in the statement he made to the House, is to find a way of reassuring not only Gulf War veterans but obviously more recently those who have been to the Balkans that whatever symptoms they may be suffering from, if they are suffering a particular illness, are not related to their service. Can I put this as best I can in a personal context. Sadly, we all have experience of friends and relatives who suffer cancer, it is something that is far more prevalent in our society than we are sometimes prepared to acknowledge. My experience of people who fall victim to cancer is they do not want to accept that they have been, if I could put it this way, unlucky, they want an explanation, they want to try and find a reason. I think what has happened with many Gulf War veterans who have suffered cancer since their service is they want to find an explanation and their service gives them an explanation, but the statistics that I demonstrated in relation to the incidence of cancer since the Gulf War, particularly the fact that the control group have shown more signs of cancer than those who actually served, does demonstrate, I think, that this is a problem of the prevalence of the disease in our society rather than anything associated with service in the Gulf. 262. You seem to be convinced but there is some considerable evidence and strong feeling in the country that does not necessarily share your view, particularly in the veterans' associations. Have you met the Gulf Veterans' Association to discuss it with them or have you received representations from them? Are you telling us that they share your analysis and conclusions? (Mr Hoon) There is strong feeling, I cannot dispute that, but there is no evidence. That is the distinction that I would ask you to consider. There is inevitably strong feeling when material appears in the newspapers of pretty questionable scientific and medical veracity. I will give you just one illustration. A very well respected newspaper in this country on its front page carried an assertion by a leading light in the Gulf War Veterans' campaign that almost 500 men had died since they had been to the Gulf. He was right, he was absolutely right, but 500 approximately had died who had not been to the Gulf. Statistically, in fact, you would expect out of a normal population in society that around 700 people would have died out of 53,000 over that ten year period. The reason why it is lower for those who have been in service is that they are younger and, therefore, the actuarial statistics are clear, there will be a smaller number. This was reported as a front page story in one of our national newspapers as if it was somehow significant. Nobody, neither the journalist in question nor the editor, chose to put that into context. Undoubtedly there will be strong feeling. If I had read that without the kind of information I am giving to the Committee now, I would have been alarmed by that. If I read in a respected newspaper that 500 people have died since they served in the Gulf I would think that was significant, it sounds significant, but put into context it is not at all significant, in fact it is perfectly normal. I think it is that kind of careful consideration of medical and scientific evidence that we all need to rely on when reaching conclusions, not strong feeling. We can all have strong feelings but those strong feelings have got to be based on some evidence. Chairman 263. Mr Hoon, it is very important that you do not fall into the trap of your predecessors, even though the evidence may be very strong at the moment, that there is no correlation between exposure to depleted uranium and illness. You really have to keep looking. I would strongly, strongly advise you to carry on the policy that you have begun of still looking and keeping an open mind because the point Mr Hood mentioned is there is a scepticism of the medical profession and all associated with it and it is really important that you are seen to have a very open mind. (Mr Hoon) Can I make it quite clear that I have emphasised over and over again, and I repeat it again to the Committee, if there is any evidence of an association we will look at that evidence absolutely rigorously. I would invite anyone who has evidence to put that forward, but I have not seen any evidence to date. 264. The Commission has commissioned the Parliamentary Office of Science & Technology to trawl the evidence but it is not just a question of sitting back and waiting for some evidence landing on your desk, I think it is important that the Ministry of Defence and those associated with it are seen to be collaborating with the Americans and with the Italians. I would be very interested to know if the story about the Italians stands up at all. (Mr Hoon) It does not. There has been very recently a conference in Washington where a considerable amount of the medical research and evidence that has so far been compiled was considered. I think actually your family doctor will be able to tell you this, that one of the well-known facts about leukaemia, and the allegation of these two unfortunate Italian soldiers and whether they suffered leukaemia as a result of going to the Balkans, is that leukaemia takes between ten and 15 years to manifest itself after the exposure to a particular source. These people had been to the Balkans but in the last 12 months, yet that, again, did not prevent any of the national newspapers seizing upon this as being some highly significant story again because they probably did not go and ask their family doctor in what circumstances leukaemia shows itself. I can do my best to deal with the evidence, what I cannot deal with is this kind of strong feeling that then is the result of this alarmist publicity that people suffer from. Chairman: But you know the problem is not what is right, it is what people perceive to be right. Mr Hood 265. I can understand your concerns about the tabloid presses but it is the anxiety that I experience, and we experience, and I am sure you experience, in our surgeries when we have some of the veterans come to us asking questions and asking for help. I have to say, Secretary of State, just saying "scientific research says you have not got a case, it is nothing to do with the fact you were injected with some stuff that you were not told too much about, it is just a coincidence that you are now ill" just does not wash. (Mr Hoon) We do not actually say that to them, of course. 266. Of course you do not, but that is their experience. (Mr Hoon) It is not their experience. As I say, I extend to you an invitation to go to the medical facility at St Thomas' Hospital and ask those kinds of questions. Indeed, I have had constituents, and I assume that you have, I have sent to St Thomas' because it seems to me that is the best way of resolving their doubts and concerns. Let me be clear, when I went there I was told that there are treatments that they can use particularly because one of the problems that many in the Gulf faced was the fact that they failed to diagnose the kind of shock that people can suffer from in that kind of high intensity warfare and the longer that goes untreated the more difficult it is to resolve. You have pressed me about DU, you have pressed me about the scientific evidence and, I repeat, in the absence of any specific evidence I am confident that we are dealing with these problems as best we can. We will continue, and John Spellar's statement made this clear, to work with independent scientific evidence to develop the most reassuring processes that we can. If I have to try and reassure people, the only way I can do it is on the basis of the best scientific and medical evidence available. I cannot substitute hysterical fears for that scientific and medical evidence. If you can suggest where else I should go other than, say, the Royal Society or other independent organisations for the best scientific evidence, I would be delighted to hear where I should go. I cannot do any better than rely on the best evidence that is available to us. Chairman 267. What advice have you issued to people who feel that they may have come into contact with depleted uranium as to how they can get tested? (Mr Hoon) If we can distinguish, first of all, between the proposals we are developing for the Balkans, which we will extend to any Gulf War veteran who still believes that his illness arises from service in the Gulf, what we are seeking to do is to find appropriate screening mechanisms that will allow those who have continuing doubts to receive appropriate medical advice. Trying to reassure people is the central purpose of what we are developing. At the same time, if someone, before that is in place, believes that their illness is attributable to their service they can be seen straight away and they can be treated straight away. If someone presents either to an Army doctor or, indeed, to their own general practitioner and says, for example, "I served in the Gulf and I have got an illness that I believe is associated with that", they can be referred immediately to St Thomas' and they will receive appropriate help and advice. As I say, there have been occasions on which, particularly as a result of psychological conditions, appropriate treatment has been given at St Thomas'. I repeat, and the doctors and nurses there have seen now a very considerable number of people, none of the people they have seen has been able to demonstrate that the conditions that they believe they are suffering from are in any way attributable to their service other than, in the main, in relation to these psychological consequences. 268. If somebody lives in Inverness do they have to come down to St Thomas' or do you have some regional structure? (Mr Hoon) If someone in Inverness has an illness they will be treated either, if they are still in service, through the normal processes of the military medical service or, if they are no longer in service, by going to their general practitioner. In a sense it is the residual category, the people who remain anxious having, in a sense, been reassured that they do not have any symptoms attributable to their service. As far as they are concerned, we will pay, for example, their costs of travel down to London and their expenses involved in visiting St Thomas', that is part of the service that is available to them. I do not see any gap in the process as far as they are concerned. It is much more sensible for them to be seen by experts, people who are used to dealing with the kinds of problems people may have, than it is necessarily to try to set up a parallel structure in every part of the country. 269. This links in with the next question, that of compensation arrangements. The MoD historically has been pretty parsimonious in compensating, and that is putting it at its politest. In the SDR the Government announced there would be an inquiry into compensation arrangements. We were hoping that document would be published some time ago. Can you give us any indication as to the progress of this research into new approaches to compensating our military personnel who have been disabled as a result of service on behalf of the Crown because the record, as I say, has not been a particularly good one over the years in my view? (Mr Hoon) The work has certainly taken longer than was anticipated, not least because of the complexities of dealing with modernising pension and compensation arrangements. A great deal of progress has been made and I hope that we will be able to publish a consultation document in due course. 270. In due course. Can you be a little more specific than that? That could be six weeks, six months, six years. (Mr Hoon) Soon. 271. Is that the best we are going to get? Mr Tebbit, give us some relief. The Secretary of State is being rather imprecise. (Mr Tebbit) It does sound incredible but when we got into this we found that it was much more complicated and the legislation that was linked to all this stuff was much more difficult than we expected, and when you get employers, and it is Victorian legislation, it tends to take a long time. "Soon", I think, was an indication that we are not dragging our heels on all of this but, on the other hand, we are not in a position to do it in the next few weeks. I would be very surprised if we sat here next year and felt uncomfortable. 272. I would be extremely surprised and exceedingly angry if it takes that long, it has been over three years now. It must be immensely complicated if something takes three years to do. I think we are getting a bit irritated because this Committee threatened to do an inquiry into compensation at the beginning of this Parliament and we were bought off by the promise that the MoD would do it, and now we are coming to the end of this Parliament and still we hear "soon, maybe". (Mr Hoon) I have never said "maybe". I said "in due course" and I said "soon", but I am not going to give you a precise date today because the work is not quite finished and it would be wrong for me to do that. If you want to press me as to a precise date, I will give you a precise date. 273. I hope that it is in the next two or three months or even earlier. I hope you can use your considerable influence, Secretary of State, to kick a few posteriors. Another thing that has been waiting for some time is the pensions review. Can you tell us if the same criteria apply, same flexible timescale apply, to the Armed Forces' Pension Schemes that are again causing a lot of disquiet? (Mr Hoon) Because of the obvious overlap between compensation and pensions we are dealing with them together and I anticipate that the publication of them will be simultaneous. Mr Brazier 274. Is there any chance of allowing the different services to develop different policies? It is no secret that the Air Force would have liked to have seen the approach outlined in the Bett Report which would have effectively ended early pensions for regular officers leaving early. The other two services would see that as very damaging. Are you looking at the wider issue of allowing services to develop --- You mentioned specific problems in particular areas not to be confused with the whole and so on. (Mr Hoon) I do not think it is particularly helpful in the modern world to talk about differences between different services. Certainly what we need to try and design are compensation and pension arrangements that are appropriate for particular people within the services. It may well be that there is significant overlap and common ground between the different services rather than saying all RAF pensions will be on this basis and all Royal Navy pensions will be on a different basis. The reality is that we have got to devise arrangements that are sensible for some people who may well leave the Army routinely at around the age of 40 as against those who might well stay in the Royal Navy until they are 50 and there will be very different arrangements accordingly. There may well also be a need to look at arrangements for those who, say, stay in the services for ten years, whichever branch of the services they are in. What we are trying to develop are arrangements that reflect the modern world and reflect the fact that some people will stay in for 22 years and earn a pension at the end of that 22 years, whilst others may choose to leave after, say, ten and want to be able to use the pension entitlement that they have built up in that period to sustain them later on in their different careers. 275. One final point. There is though surely a considerable difference in principle between apparently identical arrangements for two people leaving the service, say as officers aged 40, between someone on the one hand for whom the existing arrangement, the early pension, provides job security and, on the other hand, further subsidising someone who is going out with an extremely valuable and expensive skill? That is the difference between most of the Royal Air Force and one or two small elements of the other two services and the rest of the Armed Forces. (Mr Hoon) I think that is right. I do not think you should see the Royal Air Force as only consisting of pilots. 276. Minister, it applies to all air crew, nearly all Air Force officer groups in fact. (Mr Hoon) I accept that there could be a difference in that sense but then there is a degree of fairness that we have to extend to the individuals concerned and if you have trained in a particular area I cannot honestly see any particular reason why you should be disadvantaged at the end of your 22 years' service simply because you have chosen to train in an area of specialisation that then is marketable thereafter. What we have to ensure is fairness both for individuals but reflecting, and I think this is the key point, both the particular conditions of service life, where we are not necessarily expecting people to spend their entire working lives in the services, at the same time as making those arrangements as flexible as possible to give people the opportunity of either taking their pension with them or establishing a sufficient pension that then allows them to do something else perhaps. Chairman 277. So what about those people who, in the 1970s, were caught in the trough? Does that mean there will be some consideration given - you have spoken of fairness - to maybe compensating in some way those who, through no fault of their own, were caught in that appalling trough and lost large sums of money as a result of being caught? (Mr Hoon) I have had a number of letters from colleagues about particular cases that have been highlighted in their constituencies as far as the Armed Forces are concerned. I have to say to the Committee that this is not a specific problem to Armed Forces' ensions. It may have been highlighted by particular groups, who have clearly written to a number of colleagues as a result, but this is a consistent problem of all public sector schemes that were subject to pay restraint in the 1970s. The trough that has been identified and colleagues have written about in relation to Armed Forces' pensions, the same trough exists for public sector pension schemes during the period. It has always been a basic principle of all public sector schemes that the enhancements and changes are not retrospective. Mr Hancock 278. Most of those schemes have been amended to take care of that. (Mr Hoon) They have been amended prospectively, I am not aware that they have been amended retrospectively, which is the question the Chairman asked me. Chairman 279. I hope that is going to be at least considered in the document that you produce. When we were in Bosnia three years ago we had a lot of complaints from servicemen who felt that they had been disenfranchised prior to the 1997 election because of their lack of ability to obtain postal votes. As a result of our report, the MoD promised to examine the issue jointly with the Home Office. I would not expect you to be able to answer the question now, Secretary of State, but would you consider the question I have asked, look at what was promised, and perhaps you can come back to us and tell is if there are going to be any changes to ensure that when the election eventually does come, and the certainty of that appears greater than the certainty of your timescale for announcing the pension scheme, that people are not going to be disadvantaged? (Mr Hoon) I will write to you about that. Chairman: The last few questions are on the Type-45. Mr Hancock 280. If I could, Secretary of State, draw you to the critical question as far as my constituents and many others in South Hampshire are concerned about and that is the future build of the Type-45. You will recollect that you gave a commitment here that you wanted to see those ships built by at least two companies and it would be spread around the country, and you repeated that twice in the House of Commons in debate. Is it still your intention to divide the construction of the first three Type-45s between the two contractors in order to keep alive real competition for the construction of the rest of the vessels? (Mr Hoon) Yes. 281. And how do you intend to do that? (Mr Hoon) By continuing with the process of ensuring a fair distribution of work between the private contractor and Vosper Thornycroft. 282. Once you have let the contract to the prime contractor, what influence can you bring to bear to ensure that the prime contractor conveys into reality your sentiments? (Mr Hoon) Because we are working with the prime contractor, who in turn is working with Vosper Thornycroft, to develop a design that is sufficiently robust then to allow for sensible pricing arrangements to be agreed on the remainder of the Type-45s. 283. Is it not somewhat bizarre that the prime contractor then submits a bid over and above, knowing of your intention to split this work, to build all 12 ships himself? (Mr Hoon) We are looking carefully at the unsolicited bid that we received from BAE Systems Marine. It is being evaluated. Obviously with any proposal that offers value for money to the taxpayer we have to consider it carefully. It has not in any way changed our central strategy, which is to ensure that there is competition and that competition must mean that we have more than one company able to build Type-45s. Nothing has changed in our policy. 284. Have you met with BAE Systems to convey to them your strongly held view that they should still be looking to share that work since that prime contract has been let? (Mr Hoon) I have certainly had conversations with leading members of BAE Systems where that view has been very firmly emphasised to them. Chairman 285. Could Vosper Thornycroft put in an unsolicited bid to build all 12? (Mr Hoon) They could and we would obviously look at that carefully as well. One of the things that appears to have been overlooked in some of the comments I have seen is that Vosper Thornycroft are very heavily engaged with BAE Systems in the design stage. A joint team is working to develop a design that then will form the basis for the construction of the Type-45s. Chairman: So if I was living in the Portsmouth area ---- Mr Hancock 286. That is a rather strange comment bearing in mind that they were not, in fact, consulted about the unsolicited bid to build all 12 ships. (Mr Hoon) It is not for me to comment on an offer by a private sector company. We will evaluate that offer. All I am saying to you as a matter of fact is there are employees of Vosper Thornycroft working on the design of the Type-45. Chairman 287. If I was living in the Portsmouth area then I should not be too exercised by the adverse publicity that somehow all is going to be pinched away from Vosper Thornycroft? (Mr Hoon) There is no change in Government policy. Chairman: Thank you all very much for coming along, it has been a very interesting session. We will, of course, be seeing you shortly when Dr Lewis will not be doing a runner, when you come and talk about European Security, I am sure he will be fixed rigidly to his seat. Thank you.