Examination of Witnesses (Questions 20
WEDNESDAY 17 JANUARY 2001
TEBBIT CMG, MR
20. I can understand the married quarters; I
am talking about the barrack blocks.
(Mr Tebbit) I am talking about both.
21. At a place like Aldershot we have been told
in this Committee during evidence sessions that it is going to
take at least ten years to get that to a standard which we might
care to live in. At the same time we are asking young servicemen
and women to live in pretty substantially poor accommodation and,
surely, the prime contractor route is not the one for you to go
down if you are unable to deliver on that? Type 45 is a classic
(Mr Tebbit) You need PFI as well, private public partnerships.
That is one of the ways of levering in capital which we may not
have ourselves in the budget. We have to look at all of those
measures. We have a big PFI programme in Aldershot itself. You
are absolutely right, this is a balanced scorecard priority area,
it is another red area. We have put some urgent effort into it.
We are putting more urgent effort into it. It is one of Geoff
Hoon's highest priorities. We do need to see improvements, but
we are rather like Lambeth Council; we have suffered from a lot
of under-involvement in the estate over the years and it is going
to take a lot of money to put it right. It will have to have more
and more resources put on. It is one of the reasons why when you
look at our capital plan it is pretty capital-rich/investment-rich.
22. If I were a young squaddie and I read this,
I would say, "This tells me that you have managed to underspend
three years in a row and yet I am still living in pretty awful
conditions". Explain to me how you have not got the resource
and yet you underspend according to your own report and you are
going to do so again in the current year, all the predictions
there? How on earth can you justify what you have said to me as
a young serviceman living in pretty awful accommodation?
(Mr Tebbit) I would point to the improvements that
are being made and the trends which are there. They are not fast
enough but they are in the right direction. As far as the budget
is concerned, underspend is rather a euphemistic term. What usually
happens in our budget is when you have got £23 billion a
year effectively, the underspend was about 1%. Some of that was
to do with overseas operations, which comes from the Reserve and
is always a difficult figure to get precise. About £240 million
was the underspend. We have to work to that margin because we
cannot say precisely when our receipts are going to come in. Quite
a lot of receipts come in the last two months and therefore we
have to take prudent measures to make sure we are not going to
overspend. We do that by negotiating voluntary agreements with
major suppliers to phase payments across the period. It is quite
normal commercial practice and we are becoming much more commercial
across the board. The Defence Logistics Organisation and Procurement
Agency both entered into those agreements. There was no underspend.
That money, effectively, was then spent on those projects in April,
May and June in the next financial year. It was simple financial
23. The underspending that appears in this Report
is not a real one, of course. It is purely fictitious figure that
says the money was not spent during that time.
(Mr Tebbit) It is to do with cash annuality.
24. You say you have not made any underspend
at all on capital investment and on your running costs.
(Mr Tebbit) There are always fluctuations, but what
I am saying is that the programme is running flat out, right to
the margins. You clearly have to do some management in order to
avoid overspending at the financial year, but there was no slack
or give in the programme itself.
25. If that is the case, you have agreed you
are going to take over £242 million underspend in the current
year. That does not include the £76 million shortfall due
to extra costs in the Balkans, does it? Why not?
(Mr Tebbit) That is money from the Reserve. It is
very difficult to forecast precisely what you are going to need.
26. Why is that so difficult? When I read the
targets you are setting yourself
(Mr Tebbit) It is a very strange thought. Do let me
explain. This is not a problem, there is no mystique here at all.
When you are deployed on operations there are a lot of unforeseen
operational requirements that come through. You do not know how
many operations you are going to be engaged in. You do not know
how much flying you are going to need to do or how much special
equipment you will need for an operationthis is not steady
state stuffand that is the main reason why you find that
sort of thing. We estimated more than we used. One of the problems
about this is we do not try to charge for activity that would
otherwise have happened in the budget. If we were trained at that
level, we do not add it on to the operations. We say we would
have been training at that level so that is the level we ask the
Treasury for reimbursement for in the operation. There was also
one particular thing there which is that we had built temporary
field accommodation in Kosovo which is very good, since we are
on the subject, as good accommodation as exists for any of the
deployed countries in Kosovo. This is not all bad. And that was
late and therefore the bills were not paid, did not fall due as
early as we expected and that also accounted for that. I can assure
you the problem with our programme is not that we have got lots
of slack in itit is right on the edgesbut this is
a necessary effect if you are to live within your means on an
annual basis as Parliament votes.
(Mr Balmer) Of the £77 million we, in a sense,
misforecast for the operational costs to the extent that expenditure
occurs in the current year, a lot of it is projects that have
slipped a little, then we will be able to claim that from the
Reserve in the current year.
(Mr Tebbit) I should have said that. We carry over
that money and it is spent on the bills that were delayed.
27. If we take the £76 million and the
£242 million you have already said you are carrying over,
what additional provision will you seek in the Spring Supplementary
Estimates and what will it be for?
(Mr Tebbit) It all adds up to about £800 million,
but I am looking at the Principal Finance Officer.
28. These will all be red on your balanced scorecard.
(Mr Tebbit) Some of them are to take up money made
available to us in year. As part of the settlement last year we
had £200 million for this current year extra to help us with
the consequences of Kosovo, the urgent equipment improvements
that we would knew we would need, so we have extra money in the
budget this year (and, therefore, as part of the Supplementary
Estimate) for things like Maverick missiles, GPS guided bombs
and secured air-to-air communications, and we will also be spending
some of that money on our accommodation upgrade.
29. It is near to £800 million, you say?
(Mr Tebbit) Yes, and there are little technical adjustments
(Mr Balmer) The total will be £832 million although
we are still agreeing the final figure with the Treasury.
30. Can you drop us a line to give us the detail
(Mr Balmer) The Supplementary Estimate itself will
be published quite shortly and that will have the detail in it.
31. That will be broken down into understandable
(Mr Tebbit) Absolutely, it will say exactly what they
32. That is what I am eager to know. I do not
know what a balanced scorecard is.
(Mr Balmer) I cannot guarantee that the way Parliament
requires Supplementary Estimates necessarily gives you all the
detail you would like. Insofar as it is does not, we will give
you a little list in plain English which does describe where the
money is going.
33. My final question is about targets. Are
your targets optimistic, realistic or deliberately and cynically
(Mr Tebbit) I like to think they are stretched targets.
We do not try and set targets which say 90% means you are doing
brilliantly. We tend to set targets which are stretching so that
a good achievement will be in the 70% to 80% field, and that is
the normal best practice. We tend to do that sort of thing. Some
of the Public Service Agreements are things that have to be done,
but we are talking about quantitative targets. For our agencies,
for example, we tend to set them around that level or regard that
degree of achievement as being probably the right sort of thing.
Target setting, as you know, is quite an art in itself and you
get better as the years go by.
34. You have made great play over the last two
or three years about how important target setting is and when
I have asked questions on it I have found it very difficult to
get answers on how the targets are set. I would be interested
to know who is responsible for the setting of these targets? Are
they judged on historical performance? Are they judged on a realistic
assessment of what is going on in a particular area at the time
the target is set? Are they in some instances pessimistically
set because you know from day one that you have not got a cat
in hell's chance of getting near what should be reasonably expected?
(Mr Tebbit) One general pointwe have been able
to see how we are doing over time on this. Often it is more important
not to worry about the target in any one year but the trend, and
we have been measuring trends and it shows that our targets, by
and large, are getting twice as good as we were in performance.
It is also true that the areas of the Department which have been
most susceptible to targetthe agencieshave been
delivering efficiencies at about twice the level of the rest of
the organisation. I think targets do work and do work in the MoD.
(Mr Gould) I will illustrate from procurement
programmes if you like. We require our IPTs to assess their targets
in the following way: that they look at the cost, quality and
timescale parameters of each project and they set targets for
those parameters at a 90% confidence level, which you can expect
to be relatively easy to achieve (it is never easy but relatively
easy)and at a 50% confidence level, so quite a tough target for
them to meet, and we set the overall agency targets at the 50%
level so meeting all those targets would require them to achieve
a pretty stretching level of performance. IPTs are also required
to set themselves hard targets and over and above those they set
themselves a stretched target. We do not set all the stretched
level targets because, frankly, that would be leading yourself
into trouble, but they are constantly being pushed towards the
stretched target as we go through quarterly reviews, project reviews,
annual reviews so overall certainly for the equipment programme,
and from my experience I know this is also true of the Defence
Logistics Organisation, the targets are set at a pretty tough
(Mr Balmer) It is perhaps worth adding
that for all 37 defence agencies all their key targets have to
be approved by a minister and they are all reported to Parliament
at the beginning of the year.
35. It is hardly fair. What is he judging it
on? Just your advice?
(Mr Tebbit) The difference is that Mr Gould was talking
about the Procurement Agency and I was talking about the 37 agencies
as a whole. Essentially the owner of the agency agrees the target
with the agency chief executive. With very big agencies the owners
tend to be ministers and that is why it works that way. That relationship
is obviously the basis for target setting. I have taken a personal
interest in this because it has been a very mixed bag. Some agencies
have had very good targets and are very very good indeed, others
less good and I have been trying to bring up the overall standard
across the board. Now we have had a few years of this we are beginning
to achieve our targets.
36. May I pursue the issue of just where the
money comes from that is spent on the estate. We send our Secretary
of State up to the despatch box to tell us we are spending more
on defence. Where does that money come from? After you have taken
out the unplanned cost of operations, is that increase in spending
coming from selling off bits of the back garden, DERA whatever,
receipts from those sales, or is there genuinely an increase in
spending from the Treasury?
(Mr Tebbit) There are a number of elements. Firstly,
there is genuinely an increase in spending from the Treasury.
It really is true that the defence budget will increase in real
terms by 1% between this current financial year 2000-01 and 2003-04.
It is also genuinely true that it is first time that defence expenditure
plans will have increased in real terms for over a decade in each
of the years. It is also true that as a result of the last spending
round we have got £1,250 million of new money, even after
inflation is taken into account. There are some other elements
as well as the Treasury settlement. On top of that we are expected
to make 3% efficiency savings, so there is an assumption that
in addition to the settlement we will have these other resources
available to us. The virtue of having a budget increase in real
terms, even if it is quite small, is that you do have a new psychological
relationship with the organisation. You can say to people if they
really can save resources or get more output for the same level
of resources, it is all ploughed back into defence. You are not
having to perform against the Treasury cut and that makes a huge
difference. It is not true of individual bits of the organisation
but overall it is true. The other thing is that we have targets
for asset disposals of £600 million over the period of the
settlement of three years, of both land and equipment. That money
comes back to defence so that £600 million could be added
to the Treasury settlement, as could our 3% efficiencyand
anything over 3% would also be for us. The Smart procurement gains
in our equipment plans will obviously mean that we can buy more
37. So the whole of the 1% comes from the Treasury.
You said in a previous answer to my colleague, Mike Hancock, that
it is quite fraught to rely on monies coming from asset sales
because you do not know where it is going to come, so clearly
an over-reliance on that is dreadful because it does not allow
you to plan properly.
(Mr Tebbit) It is a timing problem rather than a total
38. Explain what you mean by that?
(Mr Tebbit) We have a clear plan for, for example,
the estate sales. We are on target, we are selling what we planned
to be selling at this stage.
39. At the time you wanted to sell it?
(Mr Tebbit) More or less. Last year we managed £287
million of defence sales against a target which was considerably
lower than that. It was about £240 million from memory. This
year our target is £200 million. Our experience since the
Strategic Defence Review is that basically we have realised it
over that period which ends in the next financial year, so we
are pretty well on track there, it is happening, and the only
problem, exactly as I said before, is end year management, making
sure that it comes in the financial year or, if it does not, having
to make provision for not receiving it. Asset disposals of other
kinds are getting a little difficult. Disposing of defence equipment
is not generating as much as we hoped, but it is a relatively
small element in the budget. As you know, when DERA is finally
converted into a private company
2 Note by witness: This was factually incorrect
and was corrected by subsequent sentence. Back