Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  40. Can I ask you, looking back again at the four types of potential savings in figure ten, would you say that there is more possibility in the future of co-operating with the USA or with Europe either in relation to any of these things or each of them individually?
  (Mr Tebbit) I do not see them either/or, we need to look at both.

  41. I was wondering where the greatest opportunities were.
  (Mr Tebbit) The specific thing is about research and we are certainly planning to do more in the research field with both Europe and the United States. The big thing on the research field is co-operation through an organisation called EUROPA. I wonder if Mike Markin might say something about the research side there.
  (Mr Markin) I certainly interpreted this table as being four elements of contributions to research rather than a wider equipment thing. Perhaps just before I answer directly, you mentioned the exchange of equipment, under research we are doing a limited amount of that on things like chemical and biological agents and electronic warfare equipment. So if, for example, you have a very high profile threat then at an emergency research stage you can exchange equipment with the US, say, to try to counter that. Answering your latter question, we have always had a very strong relationship with the United States on research and a much more fragmented relationship within Europe. The issues of the different fora, and indeed the sensitivities of the various industries, have made things rather difficult. We are poised to make a major step for the better within Europe now with the EUROPA MOU that has been agreed by officials and should be signed by Ministers in May, we hope. That will enable all nations to play on a selective basis. Closed groups can choose to work together and much wider ones if they wish. There will be a transparency to that and an ease of common arrangements that should make things far more efficient.

  42. What you seem to have said is that things have been easier in the past with the USA than with Europe but Europe, in terms of co-operation with Europe, is catching up. What I was actually asking was where the opportunities in the future will be? Given that Europe have now caught up, do you expect the opportunities to co-operate with Europe will be greater than those with the United States or not?
  (Sir Robert Walmsley) I think they are going to be reasonably finely balanced. What is happening with the transnationals is that it is undoubtedly opening up the opportunities within Europe and it is making it much easier because big industry has got a foot in many of the European camps. Equally we are finding the transnationals are setting up quite strong industrial bases in the US and enabling us in many ways, under the Declaration of Principles, to work more readily with them too. So I see both of these things beginning to go forward rather more easily, but we put a little bit more emphasis on the European one, as you say, to try to catch up.

  43. Can I ask Mr Tebbit, not just looking at research but defence co-operation in general, where you see the greatest opportunities?
  (Mr Tebbit) I think it will be with about five partners: the United States, France, Germany, Italy and Spain. These will be the key partners on equipment for the future. As it happens the programme is pretty balanced. The Joint Strike Fighter, and I am assuming it works and the US Government review comes out in the way we want it to and it is positive, that will send a huge message but one also which will be about collaboration with Europe because a lot of countries might be involved. On the other hand, we have got the A400M strategic transport aircraft and the Meteor missile, two key European collaborative projects, so it is pretty balanced.

  44. Can you put it into cost saving terms? Are we likely to save money that we would have had to spend ourselves?
  (Mr Tebbit) With the United States we usually go in as a junior partner but because of that we tend to benefit disproportionately through the investment the United States has put in. CDP may correct me but often there is a very high gearing with co-operation with the United States. With Europe it depends how many partners one has. Some of the research and activity has given this gearing something like 5:1 which, again, is very helpful. It does depend very, very much on individual projects. It depends on how many partners one has. It is very difficult to give a generalised statement. I do not know whether Sir Robert Walmsley would want to hazard a guess because I do not want to evade it but I could not give you an answer to that. We try to run both sets of collaboration on the basis of getting the equipment we need with the best value for money rather than for the sake of US or Europe.
  (Sir Robert Walmsley) There is a very good table on page 16 of the report which shows the fact that the development cost, which is what one is really after saving, sharing the R&D costs of the programme, the absolute level of development cost goes up as does the number of countries. So in introducing more partners, as we have done on Meteor, it is very important indeed to keep those development costs in toto under control. In that case if we can make it work in collaboration with Europe, because we have three, four, five partners, it is going to yield more savings. Sometimes it is not an option to collaborate in Europe and the Joint Strike Fighter is just that.

  45. Which countries in the EU do you tend to find it is easiest to co-operate with? Which are most keen on co-operation?
  (Mr Tebbit) That is quite hard to say because you can find people who are very keen who frankly cannot bring as much to the party. As I say, Germany, France, Italy and Spain are the four leading partners in terms of the projects we are running and in terms of the collaboration we are pursuing.

  46. Ignoring how much they bring to the party, which are the ones that you find are wanting to co-operate?
  (Mr Tebbit) There is a strong interest among Scandinavian countries at the moment in co-operation linked to the way in which British industry has taken over and often taken an interest in joint ventures with Scandinavian countries. That is certainly true. The Netherlands is always an important country because it plans its equipment programme a long way ahead, as do we, rather longer perhaps than France and Germany have tended to. The Dutch are always quite important partners to collaborate with.
  (Sir Robert Walmsley) France I would put at the top of the list. The tragedy, and I think it is a tragedy, is that Eurofighter does not involve France. That was the well known story of the two European combat aircraft being developed contemporaneously. Closely followed by our Eurofighter partners. Back to the Chairman's very first question, we are absolutely determined that Italy, Spain, Germany and the United Kingdom will stay together on this aircraft right throughout its 40-50 year life. Then we add in Sweden from its Letter of Intent participation. That is it.

  47. If the European Union retained exactly the same defence requirements as various countries within the European Union now retain, would we save any money by organising our entire defence forces on a collaborative basis?
  (Mr Tebbit) Within Europe?

  48. Yes.
  (Mr Tebbit) It is something which has never been thought about frankly because we have retained, as it were, control of those projects within the context of our alliances or nationally rather than as a European Union venture. The Union does not have a role in defence equipment co-operation as such, the Commission does not play a part.

  49. I was asking the question because it would be interesting to know if you had done any analysis on how much is savable. Not that I am suggesting in any way that this is the right way for this country to proceed or, indeed, the right way for the European Union to proceed, but it might give a handle on how much potential there is for defence co-operation and the targets you could be aiming at? I was wondering if you had done any analysis of exactly how much we could reduce our spending perhaps across the whole of Europe? We would never get there without having total co-operation but the interesting thing is to see the target.
  (Mr Tebbit) The answer would not be reduced spending, the answer might be more efficient use of spending. Since Europe as a whole only spends, what, 60 per cent of the United States' expenditure on defence and is particularly deficient in expenditure on the equipment programme, Britain is much higher than most as a percentage, I do not think we would look for savings that way. What we have done so far is to create this thing called the headline goal within the European Union which is about capability to deliver up to 60,000 people, different force packages that might be formed from that, not a European army but a capability in general. That has not gone to the stage of future equipment programmes but we are certainly beginning, as Europeans, to look at where the holes in collective defence are linked to the NATO Defence Capability Initiative and starting to think more systematically about correcting the key deficiencies. This tends to be in terms of capability rather than new programmes but it would obviously lead to new programmes. More partners, we hope, will join the A400M project. Strategic lift is one of the key deficiencies identified in these processes.

Mr Leigh

  50. Mr Tebbit, the first controversial Select Committee inquiry that I was involved in was 15 years ago, the Westland Inquiry, which you may remember.
  (Mr Tebbit) Yes.

  51. According to your cv you were safely ensconced in Turkey at the time.
  (Mr Tebbit) It was Richard Mottram who had to do all that.

  52. That was a classic dispute between the needs of European co-operation on the one hand and, I cannot remember all the details, buying a cheaper American version and there was enormous political fallout from the whole thing. Just thinking on a wider basis, what progress has been made since then to ensure (1) that we do not get this sort of fallout between Ministers on these matters and (2) that the needs of the armed forces are put in front of political objectives?
  (Mr Tebbit) I think that was a very special set of circumstances in that case. I would say the system we have at present is one which ensures that in any major equipment programme we consult all interested Government Departments initially and subsequently at ministerial level before we proceed with a decision. The Foreign Office, Department of Trade and Industry, the Cabinet Office, employment considerations, these days regional considerations, they are all pulled into the analysis and everybody has the opportunity to have their say. Although the Defence Secretary finally goes forward with the proposed decision, as it were, we do build in these factors pretty thoroughly in our analysis. The EAC, the Equipment Approvals Committee—rather a strange name since it does not approve but recommends—is mandated to take into account these wider factors of political co-operation or industrial considerations or inter-operability factors in making its judgments and recommendations about where to go and which direction to take, not just the narrow equipment issue. That helps quite a lot. I cannot say you could never have a situation where a Prime Minister and a Defence Secretary might think differently but in my time I have not found an issue where that has been the case.

  53. Can I refer you to paragraph 4.8 which deals with some of these problems. Am I right in thinking that over half of the most recent 17 cases whether to commit to international co-operation were taken by Ministers collectively and that they made these decisions partly on wider industrial and political motives? Does this open the door to make a decision to pursue a political objective at the expense of the needs of the armed forces?
  (Mr Tebbit) No. When I said we take those factors into account, it does not mean to say they drive the projects or the decisions. An Accounting Officer like myself has a duty at the end of the day to recommend on the basis of value for money for defence. That could be a long-term view, it could take into account considerations of industrial capacity that we might need in ten or 15 years' time, it does not have to be absolutely short-term. Balancing considerations one has to decide on value for money at the end. In other words, if it was very marginal, all other things being equal, one can indeed legitimately, and should, take into account wider factors, but if the premium you have to pay is enormous, 30 per cent, then one would not pay that.

  54. I understand that.
  (Mr Tebbit) Or at least one would not be prepared to authorise that as an Accounting Officer.

  55. Yes. In terms of value for money they have got to be pretty near equal?
  (Mr Tebbit) More or less.

  56. When you say "wider factors", are these industrial or political, or both?
  (Mr Tebbit) They can be a number. It usually comes down to judgments about risk. When one is trying to make judgments between competing factors it usually is a question of measuring things which are very hard to quantify and to analyse risk, it is very rarely a simple, straight forward issue.

  57. When you say "risk", I do not really understand that. Could it be that if you had two projects which broadly seemed to offer roughly equal value for money, you would be happy if the Minister said "I want to pursue option A because that will promote European co-operation, which is a political aim of mine" rather than, say, co-operation with the Americans? Would you accept that as an Accounting Officer as a valid reason?
  (Mr Tebbit) It is difficult to discuss these things in the pure abstract and I suspect you are thinking about BVRAAM because it looks rather large there on the page that you are referring to. Promoting a European missile was a consideration in this because it was important for Europe, we judged, to have the capacity to develop a missile in the future and not be entirely dependent upon a US partner. There were also other considerations like the type of aircraft we would be using as distinct, perhaps, from the sorts of aircraft the United States might have. There were quite a lot of factors that came into the account but Ministers in the end came down to a collective judgment on this and there was not a split, as it were, of the Westland nature that you talked about earlier.

  58. All right. So you are satisfied that you hold adequate safeguards in a personal veto as Accounting Officer to prevent the wrong decision being made for the right political reasons? The wrong decision in terms of the needs of our armed forces.
  (Mr Tebbit) I would not say that, but let me just put it like this—

  59. You would not say that. That is a rather alarming answer.
  (Mr Tebbit) I would not put it the way you have put it. I did not feel the need to ask for a direction from a Minister in order to proceed with the Meteor missile programme, I was satisfied that that represented value for money.

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