Examination of Witnesses (Questions 40
WEDNESDAY 17 JANUARY 2001
TEBBIT CMG, MR
40. Do not bank on it, Mr Tebbit, we have not
given up yet!
(Mr Tebbit) I thought I would chance my luck there!
41. You must tell the Baroness that we have
not forgotten the debate we are having.
(Mr Tebbit) The only point I would like to make about
DERA is that it is not dependent on simply getting in £250
million. We are doing the privatisation, the PPP of DERA for its
own sake. The timing is not critical in relation to the budget.
If it takes a bit longer, I expect the Treasury to be understanding.
42. By 2010 will be perfectly acceptable to
(Mr Tebbit) It happens to be one of our key targets,
but there we are.
43. Can I ask four brief but I think practical
questions. Just coming back to something earlier, we have got
here a list of your expenditure in given years. We have got an
original cash limit, an adjustment Spring Supplementary and then
a revised cash limit. I was in local government for 12 years as
a local councillor. I have never heard of a revised cash limit.
Can you tell me what that is? A cash limit to me was always a
(Mr Tebbit) We do have to take on additional monies
for operations that are unforeseen. If we have to go to a war
or something then it has to be taken into the budget.
44. In 1997-98 it was Bosnia and that produced
another £13 million, taking off the five from the previous
year, but you have got a revised cash limit which gives you a
£225 million surplus. I do not understand the mechanism.
I thought a cash limit was a cash limit.
(Mr Balmer) A cash limit at the start of the year
is what it says it is. During the course of the year the Government
sometimes gives us more money and increases our cash limit.
45. That is from the contingency fund?
(Mr Balmer) It comes from the Reserve and the areas
in which it has happened in recent years is, first of all, extra
money for Bosnia and Kosovo and, secondly, money for underspend
that has been carried forward. That takes the form of an increase
in our cash limit so that we can spend it in the next year.
46. That produced an underspend of £225
million. I do not understand that.
(Mr Tebbit) It did not produce an underspend. It is
two separate things. You revise the cash limit to take on in your
budget things that happen during the year. At the end of the year
it is still possible to underspend because, as I explained earlier,
we have to do end year management so that we do not overspend
and, as I say, with £23 billion expenditure, that sort of
massaging becomes necessary. It has got nothing to do with the
level of the programme.
47. In local government you spend it all in
March on the roads.
(Mr Tebbit) We do not do that sort of thing. The Treasury
looks very carefully to make sure there is not a surge in March.
48. Can I go on to the three questions which
I am supposed to be asking you. Firstly, you have got an increase
in real terms through to 2003-04 on capital spending of about
11%, and a reduction in current expenditure of 2% in real terms.
Can you tell me what that capital expenditure is going to be spent
on? Are we talking about ships and planes here or are we talking
about IT communications, or the beefs we have had from people
we go and see in places like Bosnia?
(Mr Tebbit) You are talking about all of those things.
You are also talking about housing.
49. What is the priority?
(Mr Tebbit) The priority is equipment. We are in the
peak period of delivery for big new equipments and Eurofighter,
for example, will be at its high period of delivery at that stage,
so will assault ships, so will Apache Attack Helicopters. It just
happens that that coincides with the very high delivery rate from
equipment that is already proven and is being churned out at the
factories. In addition to that, we do have quite a lot of IT expenditure
in that period as the Defence Logistics Organisation "spends
to save" in terms of more efficient supply systems and it
will be a period where we are doing quite a lot to our estate,
particularly in the housing area.
50. What about spares? We read so many horror
stories about spares on this Committee.
(Mr Balmer) Spares purchasing comes from the resource
budget area. One of the difficulties we have in presenting the
figures at the moment is that we are in the process of change
to resource accounting, and our resource accounting purchasing
of spares does not feature formally in the resource budget. That
scores the consumption of spares as they are used, so formally
within these figures you cannot find the money we will spend on
buying new spares. You can define the amount of money you will
spend on consuming spares, and in the capital budget line you
will find the money you are spending on buying new capital assets.
51. When we had to make our direct labour organisation
efficient because we were forced toit was good reallywe
found we had got spares for things that had not been used for
40 years. Have you had a good comb out?
(Mr Tebbit) We found the same. SDR recommendations
get rid of £2.2 billion worth of spares holding. That is
going to be finished by 1 April this year. We have got an awful
lot of stuff we do not need and do not use. Getting better at
supporting equipment does not necessarily mean buying more spares.
When we get a more transparent supply system we will know what
we can get from industry, when we know how long it will take
52. Next day delivery, that sort of stuff?
(Mr Tebbit) Exactly. We are doing all of that type
of thing. When you said spares, we will not be spending much more
on spares because it will be offset by getting rid of an awful
lot of unnecessary spares in our inventory that we have at present
and getting more efficient in having a more transparent system
through from the factory to the main spares depot to the front-line.
The problem we have at present is we go to war with the right
number of spares but we often over-insure because people do not
know how long they are going to have to wait to get them.
53. It is not very easy in Kuwait.
(Mr Tebbit) We also have not known previously the
cost of those spares. We know how many we have and where they
are, but not how much they cost because we have not been using
54. You are not quite up to Tesco's standard?
(Mr Tebbit) We are getting there, but it does cost
a bit of money with the investment programme.
55. May I move on. From our figures, but I assume
we got them from you basicallynext financial year there
is a capital increase of 2.6% in real terms, the next year 1.4%
in real terms, and then a jump in the year after2003-04
of 6.7%. Can I assume that is when the main capital expenditure
starts to happen?
(Mr Tebbit) I would not make it quite such a direct
link as that. It is not quite such a sharp cliff as that. We have
limited ability to move money between the capital expenditure
programme and the operating plan, so there is some degree of flexibility.
56. Is the operating plan revenue?
(Mr Tebbit) Operating costs, activity, operations,
that sort of thing. We have some limited ability. So I would not
want you to think it was quite such a sharp thing as that.
57. This moves me on to the last question. As
I said, I am from a local government background. I found that
capital expenditure automatically means increased revenue expenditure
one way or another. Two new carriers with two new air groups on
them, 40 or 50 planes, compared to the Invincible class, with
one air group, would imply to me a significant increase in revenue
costs of operating the comparative groups, and yet you are proposing
under what we understand an increase in capital terms of 11% a
decrease in revenue terms of 2%. How do you square that?
(Mr Tebbit) I know there is some scepticism but we
are getting more efficient all the time in our operations, in
the way we work, in our general performance, in the efficiencies
we are generating, and we will expect that to be continuing. We
do tend to go for equipment that is less labour-intensive than
previous generations, so it does follow that the new carrier will
need half as many people required for it as the old, so those
trends do also come into effect.
58. When we get you back in 2003-04 and we have
got a revised cash limit, what is it going to say?
(Mr Tebbit) It will look a little different, obviously,
because it is a plan and it changes as you move down the line.
I would still expect us to have this big investment strategy going
on in line with government policy. This is, after all, the Chancellor's'
investment plan as well.
Chairman: We have learnt more about Ipswich
than the MoD in the last ten minutes. Can we keep away from our
constituencies and I promise to join in on that. Julian Brazier?
59. I will ask you the first two questions together
as we are fairly short of time. What efficiency percentage are
you expecting to achieve in the current year and next year? As
a backdrop to that question we were told all along you had very
challenging efficiency targetsand we certainly thought
they were challengingbut you have in the past few years
easily achieved them. What is the reason for that?
(Mr Tebbit) The efficiency figure stemming from the
SDR is 3%. Next year it will still be 3%. That is the efficiency
challenge. That does not mean to say it is cut from the budget,
it is just that the budget levels assume that we will be making
those efficiencies, and that is about fair. We do not go about
getting it on a crude basis across the board. Some bits of the
organisation generate higher efficiencies and some much lower.
The front line generates lower efficiencies and places like the
Defence Logistics Organisation, which is a key area of our modernisation
and transformation strategy, has a higher target attached to it.
Why is it that we do so well with efficiencies and yet we are
still very tight in terms of budgets? I think the problem is two-fold.
Firstly, they are not net efficiencies. It does not take into
account rising pressures in other parts of the budget which offset
these. Secondly, I have to say that I am concerned that our efficiency
drive has tended to get a little detached from the output end
of the organisation.