Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 360 - 379)



  360. Well, it has not been in the Navy, has it?
  (Air Marshal Sir Jock Stirrup) Well, if I can just go back to one point that was raised earlier about the criteria for deciding the balance between sponsored reserves and regulars, one of the issues, for example, is that sponsored reserves servicing tankers will only be used to go and service tankers on deployment. Regular servicemen who service tankers can be called to go and do other deployments elsewhere, other enduring deployments, and the smaller the corps of regulars, then the greater the burden on them, and that is an important factor and is one of the criteria, one of many, which was used to inform the initial judgment on the balance between sponsored reserves and regulars, so it is taken into account.

  361. So has it been changed in the Navy?
  (Air Marshal Sir Jock Stirrup) I would not want to answer and could not answer for the Navy.

  362. Could I move on to another question which is really about the charges which are levied in terms of PFI services. To what extent are they actually limiting your flexibility in terms of budget at the MoD and have the Treasury had any thoughts on this in terms of tying up your budget for many years hence?
  (Sir Robert Walmsley) We are very conscious of course of the fact that we could be potentially locking up a large part of the defence budget, and that is now part of the MoD's annual accounts process to look at how much of our future budget is locked up in existing contractual commitments. I think we are very sensitive to the issue and our new financial procedures at the Ministry of Defence require us to keep score.

  363. So what is that score in terms of the percentage of budget that you have tied up?
  (Sir Robert Walmsley) Well, it is clearly increasing as we push through these private finance deals, but a very big one like the Future Strategic Tanker Aircraft will have quite a significant effect on that. That is going to be, if we get it into a private finance deal, somewhere around £12-15 billion over, I think it is, 27 years, some enormous period of time, so you can work out that that means that it is about 3 to 4 per cent of the defence budget on that contract alone. We will not do it unless it is better value than doing it by the conventional method.

  364. I accept that, but does it not actually limit your flexibility in being able to manage your budget if you have got a large percentage of your budget tied up in contracts, and not just for that?
  (Sir Robert Walmsley) That is absolutely right and that is why part of the sophistication of these private finance projects is not to lock in the same level of MoD demand at the end of the contract period as you start out with at the beginning. That is part of the competition.

  365. So have you set yourself a certain percentage of budget that you would not go over?
  (Sir Robert Walmsley) No.

  366. Have you got any indication of what it will actually be, the budget?
  (Sir Robert Walmsley) Well, I have told you the situation on Future Strategic Tanker Aircraft.

  367. Well, that merely doubles—
  (Sir Robert Walmsley) That would double effectively our PFI commitment in the MoD, more than double it actually.

  368. But have you actually made a projection of what it could be if you actually followed through all the PFIs which you have got and those stopped?
  (Sir Robert Walmsley) No.

  369. Why not?
  (Sir Robert Walmsley) I think at the moment the position is that we are talking about a very small proportion of the defence budget. We will keep a score of what the commitment is and if the Government become concerned about it, it is clearly the sort of thing where we would then say, "Well, no, that is a step too far".
  (Lord Bach) You have to look at the alternative as well of course. If we were to have conventional procurement on each and every one of these items, then also that would have an enormous influence on the future programme.

  370. I accept that, that the defence budget and defence policy, perhaps the difference in certain areas is that you might get major changes in what you actually want to do and if you have got the majority of the budget tied up in a certain way, it limits what you can do in terms of flexibility.
  (Lord Bach) But you can also have the budget tied up, if I may say so, if you procure in the conventional way because then you have year by year what it is you have to spend on that particular piece of equipment and it is tied up and tied up. Both are sums which are tied up unfortunately.

  371. Would it be possible for you to send us some analysis of the percentage of budget and how you see it going?
  (Lord Bach) I think, if we may, Chairman, as part of the paper that you have asked for as a result of Mr Jones's and your own questions, we will try and include something on that.


  372. Thank you, but you are not out of the woods yet. There are six more areas which are equally contentious one of which is of course the Sea Harrier. We had an opportunity very recently with Sir Jock and I am not sure whether he is going to stand by exactly what he said in question 192, and Mr Howarth will pose the questions, but as we have so many other things to discuss, I do not want questions on the Sea Harrier to go on for more than ten minutes.
  (Lord Bach) Well, Chairman, I am absolutely happy to answer questions on Sea Harrier. It does not entirely take me by surprise, but at the same time you had a pretty good go at this last time, or rather Mr Howarth and Mr Rapson to a lesser extent had, and I think "go" is the right word, at the Air Marshal. My own view is that he answered extraordinarily well and I stand by what I have read he said, and that has embarrassed him. Of course we are absolutely in your hands as to how much time or how little we spend on this.

  373. Well, what he said was that if we had more money, we would keep them, and the question is whether—
  (Lord Bach) That is one of the things he said.

  374.—more money should be made available and I will say what I have said a thousand times in the last 20 years, that more money needs to be made available so that the Ministry of Defence can have the defence policy, the human policy that I think everyone on this Committee believes it should have. We will have not a re-run of the arguments, but perhaps ten minutes on a rather different dimension with Mr Howarth having hot-footed it from the debate on Sea Harriers earlier.
  (Lord Bach) It seems to be topic of the day today, Mr Chairman.

  Chairman: Well, there are a lot more.

Mr Howarth

  375. I suspect, Minister, it may well be a continuing topic of the day because, as you know, from today's Daily Telegraph there is concern and the headline says, "Sea Harrier's demise puts Britain's fleet in peril for six years". This is a very serious matter. If I may say in parenthesis that I think all of us on this Committee were extremely impressed with Sir Jock last week. He came, as it were, on his own and he is new in the job, so what we are going to be doing is concentrating on one or two aspects following up from last week. Last week he did say to us that he would prefer to keep the Sea Harrier and its air defence capability. Your colleague, the Minister of State, Adam Ingram, admitted there would be a risk associated with the withdrawal of that aircraft and Sir Jock said that he envisaged that we would be going into offensive operations with allies or partners, but it is clear that if we wanted to mount another Falklands campaign, we would be unable to do so. Now, as the Chairman was saying also, and I am sure you have seen the transcript of what happened last week, Sir Jock told us that to upgrade the FA2, the Sea Harrier, would be extremely costly. Can we, therefore, explore this a bit further. Adam Ingram told the House recently that taken together, the withdrawal of the Sea Harrier and the upgrading of the Harrier GR7 to GR9 would produce a net saving for the MoD of £109 million. That is the net figure and I understand it is arrived at after taking into account the cost of upgrading the Harrier GR7 to GR9 as standard.
  (Lord Bach) No, you are wrong about that.

  376. Can you tell us what the gross figures are?
  (Lord Bach) You are wrong about that, if I may say so. I will take a little time to explain this and I am grateful for the question. The £109 million net saving is the combined result of two main work strands that contribute to the revised strategy of the JFSH. With the first work strand, about £135 million is saved by a composite measure to withdraw the Sea Harrier from service and to facilitate an increased CVS commitment by the GR7 to become the GR9 force during the transition to an all-GR force. Savings arise principally from the withdrawal of the Sea Harrier commencing in 2004 with the commensurate reduction in aircraft support costs, the avoidance of unnecessary infrastructure work at RAF bases, and you will recall that Cottismore and Wittering were both designated to be the air bases before the cancellation, and the cancellation of upgrade programmes on the FA2, on the Sea Harrier. These savings are offset by some expenditure on the GR7 aircraft and also by modifications to the Invincible-class carriers and improved logistic support to a GR7 force, both the embarked and land-based operations. Now, the net effect is a baseline saving of £135 million reduced to £109 million when the extra cost, the £26 million, associated with the GR7 to GR9 upgrade programmes are taken into account. That is the upgrade programme which means that those planes can be on ships and on aircraft carriers, not, if I may say so, the cost of the GR7 to GR9 upgrade that would involve the integration of the Pegasus engine providing improved performance and other upgrades as well. Now, I hope that is clear. It involves some part of upgrading GR7 so that it can be on aircraft carriers, but it is not the figure for the total upgrading of the GR7 to GR9. Sorry to have taken a long time, but it is important to get this on the record.

  377. So what you are saying is to make the GR7 carrier-capable, in other words, to provide the modifications necessary to deploy the aircraft from a carrier, is going to cost £26 million?
  (Lord Bach) Part of the £26 million, if you heard me right, comes from that. There are also some modifications to the carriers which no doubt is relevant to the GR7s going on the carriers and improved logistic support to the GR7/9 force.
  (Air Marshal Sir Jock Stirrup) Could I just clarify one point because it is important. These things are not required to make the GR7 deployable on a carrier. As we know, the GR7s have deployed on carriers and operated from carriers. These are improvements to enable it to do it better.

  378. I am sorry, I did not quite understand. The Minister has just told us that it is in order to enable the aircraft to be deployed on a carrier and you are saying it is not true.
  (Air Marshal Sir Jock Stirrup) Improvements to the aircraft to enable it to be employed from the carrier better.

  379. Can you explain how, what sort of improvements?
  (Air Marshal Sir Jock Stirrup) The improvements, I have not got a list, but we can let you have the details of that, if you like. I am sorry, but I just had to be clear because what you were saying was suggesting that we could not deploy on a carrier now which of course is not true.

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