Committee of Public Accounts - Minutes of EvidenceHC 1946-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

PUBLIC ACCOUNTS COMMITTEE

CARRIER STRIKE REPORT – GOVERNMENT RESPONSE

THURSDAY 26 APRIL 2012

URSULA BRENNAN

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Public Accounts Committee

on Thursday 26 April 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Chris Heaton-Harris

Mr Stewart Jackson

Fiona Mactaggart

Austin Mitchell

Nick Smith

Ian Swales

James Wharton

Amyas Morse, Comptroller and Auditor General, gave evidence. Gabrielle Cohen, Assistant Auditor General, Ashley McDougall, Director, National Audit Office, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.

REPORT BY THE COMPTROLLER AND AUDITOR GENERAL

Carrier Strike (HC 1092)

Examination of Witness

Witness: Ursula Brennan, Permanent Under Secretary of State, Ministry of Defence, gave evidence.

Q1 Chair: Thank you for agreeing to appear this morning. I hope that this will be a short session.

We have called you back because part of the way in which we want to ensure that this Committee is effective is that when we produce reports with recommendations, we want proper responses from Departments on time. Your job as accounting officer is to assist in Parliament to ensure that that can happen. It has not happened in this instance. We have had exchanges with you three times, I think, although I have not looked at the minutes to see when you were going to report. I accept that the last exchange was not with you, but with someone else, and we were told that you would report back to us by the end of April, which is now, but you haven’t.

Ursula Brennan: Indeed. I apologise that we have not responded to the Report. Responding to Public Accounts Committee Reports is a serious and important duty for me as the accounting officer. I thought long and hard about this, because this is a serious and important subject, and I did want to respond to the Committee.

At the time, I thought that we were close to concluding the planning round work that we have been undertaking, and I thought it would be disingenuous to produce a Government response to the Public Accounts Committee in the knowledge that, in a very short time afterwards, we expected to be making an announcement about the settling of our planning round that included the equipment programme as a whole, in which this was a very significant element. I thought it would be better to do that and then give you a response that reflected the work we had been undertaking. Unfortunately, that work has taken us longer than I expected. We now find ourselves in the period for local government elections, and it would not be appropriate for Ministers to be making an announcement about the conclusion of the planning round and our equipment programme during that period. That has, therefore, prolonged the period within which I concluded that it did not make sense to come back to you about the carriers.

Q2 Chair: Let us deal with the timing issue first, and then come to the substance. You would have known about the purdah period when you or your officials told us we would hear by the end of April.

Ursula Brennan: At that time, I did think we would conclude our work pre the purdah period.

Q3 Chair: When did purdah start?

Ursula Brennan: Purdah began on 12 April, I understand.

Q4 Chair: 12 April. And when were you or your Department last in front of the Committee, when you said that we would hear by the end of April? It was the end of March. You must have known.

Ursula Brennan: Well, I can genuinely tell you that we thought we were close to the end of this process, but until Ministers reach decisions on it, I am not in a position to make points on the conclusions of that work.

Q5 Chair: So are you telling us that immediately after purdah we will know?

Ursula Brennan: Absolutely. As soon as purdah is complete and Ministers have made an announcement about this, we will, immediately after that-as swiftly as possible-get back to you with a response to this Report.

Q6 Austin Mitchell: Has the decision been made and just not announced yet?

Ursula Brennan: Ministers have not made a decision on these planning round and equipment issues, no.

Q7 Chair: Ministers have not made a decision.

Ursula Brennan: That is correct.

Q8 Chair: Despite what I read in The Daily Telegraph, the Financial Times, The Economist and numerous other journals.

Ursula Brennan: The Secretary of State for Defence wanted to take the time to assure himself about these issues.

Q9 Chair: He has not made a decision.

Ursula Brennan: He has been asking us a lot of detailed questions. He then has some discussions that he needs to have with his ministerial colleagues, including the National Security Council, and that process has not concluded. Until it is concluded, we will not be making any announcements about this subject.

Q10 Chair: It is not just that you can’t tell us about the decisions. I do not mind if you say, "He has made a decision, but I can’t tell you because it is purdah."

Ursula Brennan: I am genuinely assuring you that that process has not been completed, and decisions have not been taken.

Q11 Austin Mitchell: You can’t tell us when it will be announced.

Ursula Brennan: And I can’t tell you when it will be announced, because it is Ministers who take these decisions. As soon as they have taken decisions, they will announce them to Parliament. As soon as that has happened, we can respond to the Public Accounts Committee, but until Ministers take decisions, we are, unfortunately, not able to give you a response.

Q12 Nick Smith: Given the large media coverage of this topic in recent weeks, that feels like a very curious statement. It seems to me that the Department is fiddling around and burning £50 notes in massive buckets at the moment. I understand that building work to adapt the carriers has already begun and that much has been spent on this. How much would it cost to undo this work if the decision was made to return to the short take-off plane?

Ursula Brennan: When I appeared before the Committee on the carrier work, I explained that we were going to undertake analysis work about the costs of conversion of the cats and traps. We are engaged in analysis, and Ministers are looking at the costs of the whole of the equipment programme, including the carriers. When they reach a conclusion on that, I will be happy to give you the information.

Chair: Hang on. I think that you were asked another question. This is expenditure already incurred. Go back to the question, Nick.

Q13 Nick Smith: How much have you spent on the design and the build of the cats and traps at the moment?

Ursula Brennan: I can confirm the information that we gave you in relation to the last National Audit Office scrutiny. I cannot give you any further numbers on that, because those are the numbers that Ministers are working on at present. Until they have reached a conclusion on them, I cannot share them with you.

Q14 Chair: You know how much has been spent. The concern is that if all the reports in the papers are correct-I am talking not about the red tops, but about the Telegraph, the Financial Times and The Economist-it looks as if a decision might be taken not to use cats and traps, but to revert to the aircraft decided under the previous Government. All we are asking, and it is not unreasonable, is how much have you spent to date since you took the decision to investigate whether or not to move to cats and traps. How much have you spent on that to date?

Ursula Brennan: In relation to that, I have to stand by my comment that we provided information that the National Audit Office examined for the previous hearing. Since then we have been conducting further work. The expenditure around all that further work is the subject of discussion with Ministers. It has to be settled with Ministers before I can come back and explain that to you. We are discussing at the moment hypothetical questions about what might or might not happen. When Ministers reach a decision, I will be very happy to come back before the Committee and go through any numbers-

Q15 Chair: But you can tell us how much you have spent. Let us assume that they carry on with the cats and traps. How much have you spent to date on implementing the decision that was taken after the SDSR-that is on the work to try and see whether or not the cats and traps were a feasible alternative? How much has been spent?

Ursula Brennan: I cannot give you figures that are different from the ones that we have published about the carriers.

Q16 Chair: But you have figures. You know how much you have spent.

Ursula Brennan: Each week that goes past, different estimates are made and further work is done.

Q17 Chair: Well, give us an estimate.

Ursula Brennan: When we have a set of estimates that we have agreed with Ministers, and when Ministers have made announcements about these subjects, I will be very happy to share that work with the Committee. I cannot give you a "where we have got to today". This is work that Ministers need to reach a view on. When Ministers have reached a view-

Q18 Chair: I do not think that we are asking you to tell us what the Ministers’ view is. We are simply asking you to tell us what the expenditure is to date on implementing the most recent decision, which presumably is the decision that officials are currently working on. That is all.

Ursula Brennan: And, as I say, I stand by my comment that in relation to expenditure numbers, we do not release day-by-day numbers about where we have got to with expenditure. We provided information for the National Audit Office study. If Ministers choose to make decisions, we will provide you with further numbers.

Q19 Chair: I just do not believe that. If you are putting options to Ministers-quite rightly, you say that it is for Ministers to decide-you will have in those options a figure that will tell you how much has been expended to date in implementing the SDSR decision. All our experience around the table will tell us that you have that figure. All we are asking is how much you have spent to date, which is a perfectly proper question for our Committee as monitor of the expenditure programme. I accept entirely that Ministers have the discretion to decide. I am unhappy that we still do not know whether you have managed to cut the budget sufficiently so that you can live within your means. I am unhappy about the delay, but I accept that it is the ministerial prerogative. What is not acceptable is for you to say, "I don’t know." You must know, because it must be in the options that you are putting to Ministers.

Ursula Brennan: I am not saying that I do not know what the numbers are. What I am saying is that I am very happy to provide you with figures and to provide them for the National Audit Office to examine when a decision is made. We have already started work with the National Audit Office so that once we have concluded our planning round, the National Audit Office will conduct a scrutiny of the assumptions that we have made around the affordability of our equipment programme. It is not appropriate for me to give you interim figures that are not published figures and that have not been agreed with Ministers before they have reached decisions.

Q20 Chair: For accounting officers, this is not a question of Ministers fiddling the figures. You know what you have spent.

Ursula Brennan: It is not a matter of fiddling the figures. I am simply saying that, as an Accounting Officer, I am happy to account to you for decisions that are taken and expenditure associated with those decisions, but not to provide you with figures at interim dates between conclusions that are reached by Ministers.

Q21 Austin Mitchell: But the work is going on each week.

Ursula Brennan: The work is going on in relation to our equipment programme and to carriers, yes.

Q22 Austin Mitchell: And that has a cost.

Ursula Brennan: Indeed.

Q23 Nick Smith: And you must have an estimate of how much the Minister will have to write off if the decision is made to go with the short take-off plane.

Ursula Brennan: You are asking me a hypothetical question.

Q24 Nick Smith: No, it is a very simple question.

Ursula Brennan: It is a simple question, but it is a hypothetical question. If Ministers choose to make decisions about the carrier programme, they do that on the basis of advice that is provided by officials, and if they choose to make changes, they will account to Parliament for that, and I will account to you, the Committee. What I am saying is that before any of those decisions are taken, I rest by what is on the record in relation to the carriers.

Q25 Mr Bacon: Are you trying to establish a new convention? It is common for this Committee to look at figures as Government Departments are going along, and before projects are complete.

Ursula Brennan: Indeed.

Q26 Mr Bacon: Just to give you three examples. We have been looking at the Olympics for six years. We have had lots of numbers, and the Olympics have not happened yet, as is common knowledge. In your area of defence, we have looked at the Eurofighter and the Chinook helicopter. We had some very clear numbers on what had been spent on the Chinook helicopter even when it was at a stage when the eight helicopters that were purchased-they cost something like £52 million each when we could have had them for about $13 million, and they would have been a lot more capable if we had done it properly-could not fly if it was raining and could not go more than 20 minutes from an airport, so there was more work to do. But that did not stop you giving us the figures. Are you trying to establish a new convention?

Ursula Brennan: Indeed I am not trying to establish a new convention, and each year in the major projects report we go through, with you, many, many projects that are at interim stages. In the examples you quoted, we provided the information to the National Audit Office, we worked through it with the NAO, and we got a good understanding of what the numbers were. You are asking me to tell you, across the table in Committee, what the numbers look like today-on 26 April-not on the basis of any of that kind of exchange with the National Audit Office, and not on the basis of any decisions that have been taken by Ministers.

Q27 Mr Bacon: The issue of what decisions are taken by Ministers is a matter for Ministers; it is nothing to do with this Committee. I think what the Chair was after was what money-our constituents’ taxes, which they work hard to earn before they pay them to Revenue and Customs-has been spent so far. That is a legitimate inquiry. What you are saying is that you would be happy for the NAO and you to discuss the point of how much has been spent so far, among other points, and then for the NAO to report to Parliament in the normal way and for us to examine it with you. Yes?

Ursula Brennan: In terms of the-

Q28 Mr Bacon: Just yes will do.

Ursula Brennan: I am sorry; I am just trying to work out what you are asking me.

Q29 Mr Bacon: I thought it was a very clear question.

Ursula Brennan: You are asking me about if the NAO came to us today and said it would like to write an update report for the Committee on how much money has been spent. We could, of course, undertake such a study, but the point that I was trying to make earlier was that we are in a process of work that is about to reach a conclusion. If you wish, ahead of that conclusion, to conduct that kind of inquiry, we would be very happy to respond to it. I am simply saying that updating the Committee today with numbers that just happen to be the numbers that we use off our spreadsheets, as opposed to formal numbers that we have audited, is not a helpful way of proceeding.

Q30 Mr Bacon: I hope you are not being optimistic when you say you think you are about to reach a conclusion. My experience of observing the carrier programme is that it is just the latest chapter, and that there will probably be others.

Ursula Brennan: In terms of reaching a conclusion-I am sorry, but just to be clear-what I meant was the conclusion of the planning round. The planning round has been looking at the whole of our expenditure, including the equipment programme-

Q31 Chair: How long has this planning round been going on?

Ursula Brennan: A long time.

Q32 Chair: Quite. How long? And is it post-SDSR?

Ursula Brennan: It is post-SDSR.

Q33 Mr Bacon: How long has the planning round been going on all together?

Ursula Brennan: I think we started the planning round in about July.

Q34 Chair: July 2011?

Ursula Brennan: Yes.

Q35 Mr Bacon: So we are coming up to the anniversary relatively soon. Are you expecting to finish it before you get 12 months in?

Ursula Brennan: I am expecting us to complete it before that.

Q36 Chair: That in itself is outrageous from our point of view of ensuring value for money, particularly given your deficit of £38 billion, or whatever it is. It is absolutely outrageous that here we are in 2012-13 and we still really don’t know whether you’ve got your 2011-12 figures right.

Ursula Brennan: It is because we are so determined to get this right that we have been going into it in an enormous amount of detail.

Q37 Chair: I don’t accept that. It doesn’t take you that long. I accept your determination and I accept your commitment, but to say it takes you that long to take the necessary decisions to get your budget into balance is nonsense. No organisation can run like that. In the private sector it would be bust.

Ursula Brennan: We have had a serious problem with our budget in the past-

Chair: You’ve got one at the moment.

Ursula Brennan: -and getting it into balance is a really big and serious issue for us. So many things depend on it. There is an awful lot of stuff that we need to do in Defence, but until we get that budget into balance, it is really difficult to take forward some of the things that we want to take forward and get them sorted out. The desire to get this sorted quickly is a matter of enormous concern to me.

Q38 Chair: What is quickly for you? What is quickly?

Ursula Brennan: Well, I want to get it sorted now-

Q39 Chair: I would have said within three months would have been a sensible sort of time frame. We are now talking nine months.

Ursula Brennan: I completely understand your concern about this. It is a source of concern to me that we have not managed to resolve it, but in the choice between moving to get it done by a date and getting it right so that we had confidence in where we were, I have discussed this at length with my finance DG and with the Secretary of State, and we are clear that getting these numbers right, even if it has meant extending longer than we wanted to do, is the right solution for us.

Q40 Mr Bacon: I am very glad that you have got Mr Thompson as your finance director, and I have got a lot of confidence that you are now seriously engaged in trying to sort out these problems. However, the fact that you have had these problems and that they have been so big is surely a direct consequence of the fact that successive Ministers of successive Governments have been behaving for many years like schoolboys in a sweetshop, and civil servants-particularly successive accounting officers-have not stood up to them and said "If this is what you want, you have to make sure you’ve got the resources for it." That was why the gap grew to something like £36 billion or £38 billion on your watch. You were the second permanent secretary.

Ursula Brennan: I was indeed the second permanent secretary. The reasons for the problem in our budget have been the subject of much debate and discussion, and I think it is not just a matter of one factor. A variety of things, particularly in relation to the equipment budget, have been a problem and Bernard Gray wrote a very detailed report about all of that.

Q41 Chair: When?

Ursula Brennan: Bernard Gray wrote his report in 2009.

Chair: Three or four years ago.

Ursula Brennan: Since then, Bernard Gray has joined us as the Chief of Defence Matériel, having written a critique of our procurement. He has actually come round to the other side of the table, if you like, and is trying to help us resolve the problem-

Q42 Mr Bacon: Yes, and it is all very welcome, but my point is that successive civil servants, including successive accounting officers, have had the power and the responsibility to stand up to Ministers and say, "If you really want to do this, I cannot see that it is good value for money-I cannot see that it is an effective, efficient and economic use of taxpayers’ money-so you are going to have to issue me a letter of direction." Whether we are talking about the carrier, the Eurofighter, or the Astute submarine, these points can be made in many areas. How many times did that happen? How many times did you or your predecessors as accounting officers demand a letter of direction before you would act?

Ursula Brennan: The occasions when Accounting Officers ask for letters of direction are made public to the Public Accounts Committee.

Q43 Mr Bacon: I am talking about in relation to major equipment. I know there have been individual cases when the Ministry of Defence paid for a parent of somebody who had been murdered in Bosnia or somewhere to fly over there at taxpayers’ expense. Most taxpayers would think that was a good thing. I am not talking about that. I am talking about major equipment programmes. How many times have letters of direction been sought for major equipment programmes?

Ursula Brennan: I could not tell you the answer to that, because you are asking me how many times they have been sought, as opposed to how many times they have actually resulted, because one of the things that happens in this kind of debate is that if there is a problem, you don’t want to get to the point where you have a letter of direction; you actually want to be able to resolve the problem. So there are lots of occasions-

Q44 Mr Bacon: My point is that you didn’t resolve the problem. You ended up with a £36 billion hole.

Ursula Brennan: We have discussed this many times.

Q45 Mr Bacon: It is worth discussing quite a few times, because it is our constituents’ taxes and the system seems to be failing.

Ursula Brennan: It absolutely is worth discussing, but the reason why we have been using so much energy and effort to get this problem resolved this time around is that we do not want to continue on that basis. The reason why we are spending so much time getting the budget right is so that we actually reach the point at which we are able to say to all the people who work in the Ministry of Defence, "Here is your budget, here is what you are being asked to do, those two things add up"- as opposed to a set of aspirations and a budget that does not match. We have had some serious problems, and serious work has been required to try and resolve that. We are absolutely determined that we are not going to continue on that basis, and that is the reason why it is taking so much time.

Chair: We love your determination, we would just like to see something come out of it.

Q46 Mr Bacon: One more question. The Chair referred to the recent press coverage, in the Financial Time, The Economist and The Daily Telegraph. Are the Ministry of Defence police investigating the circumstances leading to that press coverage?

Ursula Brennan: I have initiated leaks inquiries in relation to a number of those incidents.

Q47 Mr Bacon: You have done.

Ursula Brennan: I have, yes.

Q48 Mr Bacon: Why?

Ursula Brennan: Why have I instituted leaks inquiries?

Q49 Mr Bacon: Why have you involved the Ministry of Defence police?

Ursula Brennan: Sorry, in terms of who actually conducts the inquiries-

Mr Bacon: That was my question.

Ursula Brennan: Yes, I am sorry. The leaks inquiries have not mainly involved the Ministry of Defence police, they have involved our security investigators-we have a team of security investigators who do leaks investigations.

Q50 Mr Bacon: You say "not mainly". My question was whether the Ministry of Defence police were involved in investigating the circumstances leading to the recent press coverage.

Ursula Brennan: I do not think that the MDP is involved in those leaks inquiries.

Mr Bacon: It just seems to me that if you look at the criminal waste of money that the Ministry of Defence has engaged in over the past decade or two that your inquiries should be directed elsewhere.

Q51 Nick Smith: Changing the aircraft and the carrier design has got to be the worst kept secret in world defence politics at the moment. The SDSR said that fitting catapults and the rest of the gear to the carriers would allow greater interoperability with US and French carriers and naval jets. I asked the Secretary of State about this at the previous Defence questions, and he said that the collaboration was not about the interoperability of aircraft. We have since had these media reports that the British Government have told the French Government that we cannot afford to adapt the carriers for interoperability. Has a decision been made to tell the French sotto voce that we are not going to go for interoperability with carriers, and allow that with them?

Ursula Brennan: There are two points about that. The first, which I repeat, is that Ministers have not taken a decision on the carriers. That is the first thing.

Q52 Nick Smith: Even though the SDSR said that we would be interoperable.

Ursula Brennan: Sorry, they have not taken a decision subsequent to the SDSR.

Secondly, the SDSR talked about interoperability. I think sometimes that there is a confusion between interoperability and what is referred to as cross-deck working. Interoperability encompasses a range of things on which two nations might work together in relation to a capability such as Carrier Strike. But it does not necessarily mean cross-deck working on the actual deck of the carrier.

Q53 Nick Smith: But have we told the French that we will not be adapting our carriers for interoperability?

Ursula Brennan: I cannot comment on conversations that Ministers and others have in the pursuit of work that is going on.

Q54 Chair: If we go back to our Committee’s Report of November 2011, we warned that the risks and costs associated with converting the carrier were not properly understood. That was right, wasn’t it? We were right.

Ursula Brennan: At the time of your Report, I think we explained-I explained-to the Committee that we were undertaking a study of the costs of conversion of cats and traps. That work is in train.

Q55 Chair: Can I just ask you the question again? We said that you did not properly understand the risks and costs associated with the conversion. We were right.

Ursula Brennan: At the time that you reported about the costs of conversion, we said that we did not have the detailed information and that we were conducting a study.

Q56 Chair: So a decision was taken without proper understanding of the costs and risks, which is now-as we understand it-under consideration for review?

Ursula Brennan: I think at the time one of the things that we discussed with the Committee was that decisions were taken and the next phase of the work was the detailed analysis on the cats and traps. That is the phase that we are in.

Q57 Chair: I will tell you why I think this, because it is back to Richard’s point-I am sorry, I will come back to you in a minute. If we were right, and I think we were, that you did not properly understand the risks and costs, and if, when we come back to this issue, you have changed your mind and we find that there are extra costs associated with yet another change of mind and the effectiveness of the policy-in other words, defence capability-will be impacted, why on earth don’t you exercise a little bit of your accounting officer authority and issue letters of direction to stop Ministers taking decisions that again end up with the taxpayer having to foot the bill for a massive amount-billions-of torn-up pound notes? Why don’t you do it? I can’t get it-I just can’t get it.

Q58 Nick Smith: What was the estimate of cats and traps then, and what is it now?

Ursula Brennan: We provided the Committee with estimates in relation to the cats and traps-

Q59 Nick Smith: Which was then?

Ursula Brennan: Which was-

Q60 Chair: I can help you. It was £400 million and it is now-

Ursula Brennan: I think it was £800 million.

Q61 Chair: It is now £1.8 billion, I think.

Ursula Brennan: We provided the Committee with estimates about the cats and traps, and we said that we were undertaking work to undertake more detailed work and scrutiny of the costs of the cats and traps. The work that we are undertaking to establish what the costs are now is precisely the piece of work that I have mentioned several times-

Q62 Chair: £1.8 billion.

Ursula Brennan: -in relation to the costs of the equipment programme as a whole, of which this is a part. And as soon as we have completed that work, I will be very happy to let the Committee have the numbers.

Q63 Nick Smith: And is the new estimate of cats and traps £1.8 billion, then?

Ursula Brennan: I can’t comment to you on the estimates.

Q64 Chair: You haven’t answered-I’m sorry to cut across you, Nick, and it’s a bit rude-you haven’t answered the question. If those figures are anywhere near right-£400 million was the original figure, we told you that was rubbish, we said that you didn’t understand the risks and costs, and the figure bandied around the press now is £1.8 billion-you knew you’ve got a £38 billion deficit, so why on earth did you not use your authority and issue a letter of direction to Ministers?

Ursula Brennan: The cost that we quoted at the time of the SDSR was actually £800 million, I think, and not-

Q65 Chair: Why didn’t you use your authority to issue a letter of direction to Ministers?

Ursula Brennan: At the time of the SDSR?

Q66 Chair: At the time of the SDSR and then the spending review. I can’t believe-that is now six months ago, or something, isn’t it? Am I wrong? My timing is probably wrong on that. But anyway it just seems to go from £400 million extra costs to £1.8 billion now. What is clear, as anybody who reads any of the press will see, is that the new technology isn’t working, as we said in this Committee at the time, which is partly why the Americans are pulling out of it. All of that was so bleeding obvious when we did the inquiry, and it must have been much more obvious to you because you’re much more of an expert-we’re dilettantes here-and yet you didn’t use your authority, knowing that you’ve got this massive gap in your budget and knowing that we are now again talking about billions being wasted, to ask Ministers to halt, by issuing a letter of direction.

Ursula Brennan: The point that I have been trying to make is that decisions were taken in the SDSR and we said that we would conduct further work about the costs of the cats and traps. At the time that the NAO looked at this work, I think that the figure that we were quoting for cats and traps was about £800 million. The work that we are doing at the moment across the equipment programme as a whole is precisely about this point; to make sure that the equipment programme that we have is affordable and is value for money.

Q67 Chair: You should have done that before you took those decisions. You must have known.

Ursula Brennan: If we conclude that the equipment programme as a whole is not affordable and if we conclude that some of the elements within it are not value for money and are not affordable-

Chair: Oh, dear.

Ursula Brennan: -those are decisions that will be taken, and will be taken by Ministers. And that is their aim, to bring that equipment programme into affordability and to make it value for money. When decisions are taken on that, I will be very happy to come back to the Committee and talk-

Q68 Chair: You haven’t answered my question, but I do feel rather sorry for you. You are now telling me that when you took those decisions a few months ago, or whenever it was, none of this was known.

Ursula Brennan: The decisions taken in the SDSR in October 2010-is that what we are talking about?

Chair: Yes. Whenever the SDSR was. It’s about the same time, isn’t it?

Ursula Brennan: Yes. That was when the SDSR was.

Q69 Chair: You didn’t know any of this?

Ursula Brennan: When we took decisions on the SDSR, we said that we would conduct further work on the detail.

Q70 Chair: You haven’t answered the question-it then becomes a matter of your competence, rather than ministerial. So, you had no idea at the time that the decision you were advising Ministers to take could involve a massively greater expenditure than in the original estimates, which, as we warned you, could involve massive delay to our defence capability.

Ursula Brennan: We are having a hypothetical discussion-

Chair: No we’re not; we’re having a pretty real discussion.

Ursula Brennan: We are having a hypothetical discussion about the movement between figures that we quoted at the time of the SDSR to this Committee, and the conclusion that we will reach very shortly on our analysis of those numbers. When we reach that conclusion, I will be very happy to account for what has happened to the numbers-what changes have happened, and why they have happened. I do not think it is helpful at present, when we haven’t concluded our work and Ministers have not reached a decision, to have hypothetical discussions such as this.

Chair: Okay. Nick first, then Austin, Stewart and James, and then I am going to call it to a halt.

Q71 Nick Smith: We said that the cost of cats and traps would balloon, and it has. We were worried that the drop in orders for the new plane would mean that the average cost of planes would go up, and that that would balloon too. What are other countries, particularly the Americans, saying about the cost of planes at the moment as they reduce their orders?

Ursula Brennan: We are in regular dialogue with the US about the Joint Strike Fighter and there is a group of customers who work with the US on that. I cannot give you detail about what they might be saying about that at the moment. Some of them are commercial discussions about the price of the fighters.

Q72 Nick Smith: So the Americans are not telling you at the moment that the cost of the plane is going up hugely?

Ursula Brennan: I know that there is a lot of debate about the aircraft and the various different variants of the Joint Strike Fighter. The implications of those costs for us are one of the things that we are factoring into the analysis that we are undertaking.

Q73 Nick Smith: So you think that the increase in the cost of the planes is so dramatic that it will be another important factor-

Ursula Brennan: No, I am not telling you that. I am saying that we are conducting analysis on the entire equipment programme, including the Carrier Strike, which includes the carriers themselves and the aircraft. We are in discussions with the US. There has been a lot of movement around the Joint Strike Fighter and what has been happening to that in terms of its technical risks and costs and all of that, and we are in regular dialogue. When we conclude our piece of work on the equipment programme, that will be one of the things that we will factor into it.

Q74 Austin Mitchell: I think that I am more sympathetic than most to your dilemma, but more dilettante than thou on the technical side of it. The work that is going on now is to install launchers and catchers, and you can’t tell us the cost of doing that.

Ursula Brennan: Catapults and arrestor gear.

Q75 Austin Mitchell: Right. That predicates the decision on the aircraft towards the F-35C rather than the F-35B.

Ursula Brennan: The carrier variant.

Q76 Austin Mitchell: Vertical take-off and landing. Okay. Is that aircraft more expensive than the F-35B?

Ursula Brennan: There is a complex analysis in the NAO report about the different through-life costs of the different types of aircraft.

Q77 Austin Mitchell: It says that the operating costs are lower, but what are the purchase costs?

Ursula Brennan: The purchase costs of the two different aircraft are one factor. When you are trying to look at the variation in costs between the aircraft, there is the initial cost of the aircraft, the cost of converting the carrier, and the through-life costs of maintenance of the aircraft.

Q78 Austin Mitchell: But the plane itself-you cannot tell us whether it has a higher cost or a lower cost than the F-35B.

Ursula Brennan: Simply looking at the purchase cost is not necessarily a helpful way of looking at the picture. We have to look at the costs of those things in the round, and that is the analysis that we are undertaking.

Q79 Austin Mitchell: But you are now stuck with a decision to buy the F-35C.

Ursula Brennan: The actual purchase of the aircraft is still some way off because this is a production line and we will not actually be buying the individual aircraft for some time.

Q80 Austin Mitchell: But if you put cats and traps on, you will not be buying the vertical take-off, F-35B.

Ursula Brennan: The Government committed to converting the carriers to have these catapults and arrestor gear, and that is the work that we are undertaking at present.

Q81 Chair: Is the extra cost of £3.5 billion for buying the other planes correct or incorrect?

Ursula Brennan: £3.5 billion to-

Chair: The long-term costs of opting for conventional jets.

Ursula Brennan: I am sorry. I am not sure where you are quoting that one from.

Chair: The Telegraph.

Ursula Brennan: I have no idea what that figure would represent.

Q82 Chair: They got it from leaked documents from you, so I assume that it is correct.

Ursula Brennan: I would not necessarily assume that. More to the point, this is a complicated picture and I do understand that. I genuinely think that it would be helpful to have a proper NAO examination of all of this rather than discuss it on the basis of what is in The Daily Telegraph.

Q83 Mr Jackson: This is a very unsatisfactory situation. Had you come here this morning and been in a position of having responded to the generic management issues raised in the Committee’s report, if you had disaggregated the issues and left the carrier aside as a specific political governance issue, I think that we could have understood that, but there has not been a full response. That is something that we should be concerned about. Mr Bacon made the point about previous projects that have occurred. Surely the lesson over the past few years is that the ability of Committees such as this and others to access real-time information could have prevented very serious issues around overspending and, frankly, incompetence. You have effectively said today that you will provide the data to the NAO in your own time. The fact that we cannot therefore make a decision as a value judgment, as the value-for-money Committee, as to whether you are going wrong and spending significant amounts of public money making one choice or the other is deeply unsatisfactory and risks establishing a precedent. We need to see that real-time information and budget information in particular so that we can understand whether mistakes are being made or compounded. That is an important point to which I would like you to respond specifically.

Ursula Brennan: Provision of costings on a real-time basis to the PAC would be a variation in the relationship that we have had with the Committee in the past. The Committee has conducted inquiries on the basis of the NAO conducting a scrutiny of information, that information being provided to the Committee and an analysis being undertaken. It has not been the case that officials have come along and regularly given updates on numbers. In our case, the Committee has done an annual update through the Major Projects Report, but I think-

Q84 Mr Jackson: I am sorry to interrupt, but this is important. This is a specific issue of evidence being taken last July, the report being published in November, there being a failure of recommendations and there being a leak. Cumulatively, the evidence suggests that there might be a very serious issue of public money being misallocated or worse. For that reason, it is not acceptable to say, "We will stick to the existing benchmarks in terms of reporting." We are not in a position as a Committee to make a full informed judgment on what is happening unless we have that information.

Ursula Brennan: I do understand that, and it is very unsatisfactory for the Committee that the delay in the settling of our programme has denied you the response from the Department, via the Treasury Minute, to the Committee’s report. I would be happy to talk about the other recommendations of a more generic nature if that would be helpful to you.

Mr Jackson: I am not surprised by that.

Ursula Brennan: But in relation to the carriers, I am in a difficulty. I am sorry.

Q85 Mr Bacon: You could always do what Mr Stephens, who is sitting behind you, has done and give an interview to the press without actually waiting for the Treasury minutes. That is another novel attempt at establishing a new convention. What do you think of that?

Ursula Brennan: The discussions with the press are something that, in my Department, we have enough of already. I am more anxious-

Q86 Mr Bacon: I thought you were going to say it never happened, but all evidence the contrary.

Ursula Brennan: I do not think we need any more of that from the Ministry of Defence.

Q87 James Wharton: Briefly, we have gone around the issues almost as much as we can and I welcome your acknowledgement of the value of the NAO, once a decision has been made, perhaps looking at some of the information behind it, because I suspect it will be very interesting reading and interesting reports will come from it. In terms of where you are at the moment, as I understand it one of the issues will be the cost of the cats and traps EMALS system-installing it and so on. Understanding that no decision has yet been made or announced, has the Department received any correspondence from General Atomics or the Americans that would actually offer comfort or guarantees on price, as a factor that would be taken into account?

Ursula Brennan: We have had lots of discussions with General Atomics and others about the costs of cats and traps, and of Carrier Strike as a whole. One of the reasons why I think it would be really helpful to have a proper NAO view on all of this is that individual components that get quoted to you by one part of the business do not necessarily tell the full story. So a particular price of something may not include elements of cost that are additional costs that one might have to pay to the supplier-the cost of people resource, cost of maintenance and so on. It is trying to get the complete picture, rather than just focusing on which particular elements of the deal-

Q88 James Wharton: I understand that, but in answer to my question, and fully appreciating the overall context and all the different factors that you have to take into account, has the Department received any guarantees on price from General Atomics or the American specifically in regard to the EMAL system?

Ursula Brennan: I think it would probably wrong to say guarantees. We have certainly had discussion with General Atomics. I do not think it has guaranteed anything in that respect.

Q89 James Wharton: So it hasn’t said it will deliver the system for a certain price and, were it to go over price, it would shoulder some of the risk as a company, or the Americans would shoulder that risk as a country or their Department of Defense?

Ursula Brennan: I know that there has been discussion with them about price. I am afraid I do not know that level of detail.

Q90 James Wharton: Perhaps that is something we can revisit if the NAO does a report into detail.

Ursula Brennan: Indeed.

Q91 James Wharton: We have also discussed the cost of planes and cost of systems driving the decision that will be taken, and then you talked about other factors. Very briefly, could you just tell us what other factors would come into consideration?

Ursula Brennan: It is really that to deliver the Carrier Strike capability, you have got the ships, the aircrafts, the maintenance and through-life costs of the ships and the aircraft in different variants, the crewing costs associated with different variants and so on. A range of factors needs to be taken into account, not just the cost of the metal of the ships and the cost of the metal of the aircraft-that was really the point I was trying to make.

Q92 James Wharton: Is the capability of the aircraft one of the factors?

Ursula Brennan: Clearly, when you are looking at making decisions about the cost of something versus something else, what you get for the price is clearly a factor.

Q93 James Wharton: Yes. The reason I ask that is twofold. I remember that when we had hearings on this previously we were told in no uncertain terms how good having the carrier variant was going to be-it could go further and carry more and so on-and why that was the right strategic decision for carrier-enhanced power projection. There were many discussions where it was justified at some length. I am concerned about whether this decision is being taken for reasons other than actual capability, or that it is not being given the weight it should. Also, the cost of the decision when it is taken-I accept that we do not know what the decision will be, and it may be that there will be no change-is whether the long-term cost is being taken into account, which is maintenance if we change the kind of aircraft that we use. STOVL aircraft tend to be more complicated. They tend to be harder to keep going for longer, to keep them in the air, to maintain them and so on. I would not like to see-I am sure this will come up later-a short-term decision taken that in the long run will cost more. Can you give us some comfort that those factors are being considered when this decision is taken?

Ursula Brennan: Absolutely. The short and long-term costs-maintenance costs-across our whole equipment programme is one of the things that we have been trying to get to grips with, not simply to focus on the immediate purchase price of pieces of equipment. In choices that we are making, there is always a balance about short and long-term costs, but also about affordability and the speed at which you get certain capabilities. It is mostly not black and white, but the package of all of those things together is indeed exactly what we are looking at.

Q94 James Wharton: Of some of the recommendations from our previous Report to which you have not yet responded, recommendation 4 is about giving due weight to "long-term value for money" rather than just "immediate cash savings", and recommendation 5 is about ensuring that decisions are "underpinned by robust…analyses". You and I have had a dialogue in the past five or 10 minutes in which we have talked about those issues in a way that you are quite comfortable talking about them, without actually delving into the decision that has been taken by Ministers.

Ursula Brennan: Indeed. Yes.

Q95 James Wharton: I think that that highlights, and I hope you take this on board, that it is quite possible to respond to individual recommendations without responding to an entire report, and I think it would have been welcome had you done so.

Ursula Brennan: I understand that. At the time, I confess, I thought that we would very shortly be giving you the equipment programme decision as a whole, so it seemed like the sensible choice. The fact that that has actually taken longer means that the choice of giving you an answer on some of these things more generally would have been a better way of dealing with it-I acknowledge that.

Q96 Stephen Barclay: First, my apologies for my late arrival-I was on the Finance Bill Committee. May I just ask a really simple question? How many planes of each type are in the current plan, when you are assessing? These are aircraft carriers, and their purpose is to carry planes. How many planes are we expecting to have?

Ursula Brennan: We made an announcement in the SDSR about the number of aircraft. From memory, I think one of the things we said was that the decision about how many aircraft we would have was not one that we actually needed to take at that stage. The point of the Joint Strike Fighter contract is that you do not have to commit up-front to purchasing a specific number of aircraft. I am afraid that I cannot recall-

Chair: The trouble is that it was such a long time ago.

Q97 Stephen Barclay: It was in a footnote to the previous Report-"The precise number of aircraft required…is yet to be endorsed." Obviously, if you change the type of aircraft, that will clearly change the number. Also, however, it comes down to changing specification, which is an issue that the Committee repeatedly finds. I wonder how you can design the carrier and what it needs to be fitted with if you do not know how many planes it will carry. I am a lay person, so perhaps there is a smarter reason for doing it this way. You are building a carrier to take 40 planes of a certain size, for example, but then you go for planes that have vertical lift and that could be carried on a much smaller carrier. I am not sure why we are building such a big carrier.

Ursula Brennan: The decision about the size of the carrier was taken a very long time ago. Once you have started down that path, you would not start planning to make it smaller, so the decision about the actual size of the carrier is something that was settled on long before the SDSR.

Q98 Stephen Barclay: Sure, but the value for money of that decision will change, won’t it, if you change what you are doing?

Ursula Brennan: It absolutely will, and we have discussed some of this in Committee before. You look at the value for money by looking back at where you started from, but in terms of running the Ministry of Defence and for Ministers, deciding, "What kind of capability do I need?", what they will do is look at what carriers they have and what the sensible way is to use them. You will not necessarily just carry on using them in the way that they were designed for initially if, in practice, there are all sorts of reasons-capability reasons, threat reasons, affordability reasons or technical risk reasons-that might make you say, "We designed it in this kind of way but we are going to use it rather differently."

Q99 Stephen Barclay: Of course, but what about the value for money? It may have been a perfectly logical decision to build the carrier that size if you were going for one type of aircraft that needed such a size-therefore that is not a concern from a value-for-money perspective-but if at a subsequent point you change the aircraft, you will have in essence made that the wrong decision, retrospectively.

Ursula Brennan: Certainly, when you invest in very large and long-term pieces of equipment, you have to make a choice and may end up saying "I’m going to use it so differently from where I started from; is it better value for money to can it altogether, and do something completely different?" But usually what happens is that the requirements that are placed on the Ministry of Defence and the armed forces do change over time, and you look at the platforms that you’ve got, and the platforms that you’ve got in build, and you say "I know I started off planning to use them in this way; if things have changed, would I use them differently?" That is true across the entire range of our equipment. You are always making a combined capability, value for money and affordability judgment about what the most sensible thing is to do with the equipment you have in build or in service.

Q100 Stephen Barclay: By what date do you expect to know how many planes these carriers will carry?

Chair: They know; they just can’t tell us-it’s purdah.

Ursula Brennan: No, I was genuinely pausing on that, because I think the decision about how many aircraft will be put on the carrier will get taken at the time when-

Q101 Stephen Barclay: The point of my question was I don’t think the ministerial statement, as I understand it, would address the issue of how many planes will be on the carriers. What I am trying to get is an estimate, therefore, if that is the case, of by what date you would expect to know how many planes the carriers are going to carry.

Ursula Brennan: I think, from memory, one of the things that we explained before was that the plan was to build up the number of aircraft, over time, that would fly on the carriers; and therefore a decision about what is your ceiling in relation to that is not a decision that I would expect to be taken very soon at all.

Q102 Stephen Barclay: It is just difficult, therefore, to see how you can comply with one of the repeated recommendations of this Committee, in terms of looking at through-life costs and long-term value for money, if we don’t know, actually, how many planes they are going to carry and therefore the usage and benefit that the carriers are going to deliver.

Ursula Brennan: I absolutely understand the point you are making, but we have to look at this from a variety of perspectives, and one of the perspectives is, if the Government believes it needs and wants a carrier strike capability, then the question it will ask itself is what is the most cost-effective way of achieving that. From the point of view of what equipment we have in order to deliver that, we will put together the most cost-effective way of delivering a carrier strike capability, and that will also be a judgment, as well as "If you’ve got a very big carrier, shouldn’t you just put lots of aircraft on it?"

Chair: I don’t think you have answered Steve’s question, really. I am going to move on.

Q103 Amyas Morse: A point of housekeeping, only. If we are emerging from this hearing with responsibility for carrying out another review, can I ask that the MOD will give us access to all the information we need to get the review done?

Ursula Brennan: I was not saying that the NAO needed to conduct a review. What I was saying was that once Ministers have announced the end of the planning round the NAO will conduct its scrutiny of the affordability of our equipment programme. If, as part of that, or separately, you wish to conduct another review of the carriers, of course we will make available to the NAO all the papers that are necessary to do that.

Chair: I hope we will, because no doubt the costs will go up and the capability will go down.

Q104 Nick Smith: All this chopping and changing sounds chaotic, over just this 12-month period; so we are building two carriers, but we were going to mothball one, and put the cats and traps on the other. If we go to the short take-off aircraft, does that mean that we will be able to use two carriers sooner?

Ursula Brennan: You are asking me, again, a hypothetical question. Ministers have stated clearly what their policy is. If they chose to change that policy they would explain how they intended to operate that, but I can’t comment on what might or might not happen.

Q105 Chair: I think Mr Jackson summed up really the frustration of this Committee, Ms Brennan. You came here, in a way, not to answer questions, but I hope you have understood from the pretty universal tone round the Committee that it calls into question the ways in which decisions are being taken, and whether or not the change in culture that we hoped we were seeing within the MOD is, in practice, a reality, or just a myth and a lot of words. I have to say that to you, and I say it with sadness. We will see what happens.

Ursula Brennan: I hope that we will be able to give you some assurance when we have completed this process about the way in which we have set about reaching the decisions that Ministers will reach.