Examination of Witnesses (Questions 200
WEDNESDAY 7 FEBRUARY 2001
MP, MR KEVIN
TEBBIT CMG, AND
200. Our own Joint Rapid Reaction Force is presumably
our major tool for dealing with the shift towards an expeditionary
strategy. In your performance report, you conceded that the achievement
of its full operational capability has been delayed "due
to exceptional level of operational commitments", but in
the Defence Policy 2001 document that we have just seen
today it says "there is no sign that operational demands
are likely to diminish". In other words, presumably we are
going to stay at this exceptional level of commitment for some
time. Does the slippage in this target for the operational capability
of the Joint Rapid Reaction Force not suggest to you that the
MoD is operating too close to the margins in being able to generate
(Mr Hoon) It is undoubtedly a risk. I accepted almost
all of what you said until your very final observation because,
clearly, we have to maintain an appropriate balance between training,
exercising, preparation for operations and conducting operations
but, as I think I have said to the Committee before, there is
no point in having training and exercising if we are not in a
position to use the armed forces who are trained and exercised.
The reality is, and the explanation is given in the report, that
we have not been able to move quite as quickly as we would have
liked in relation to the Joint Rapid Reaction Force simply because
of Kosovo and, to a lesser extent, Sierra Leone, because we are
achieving with the capability that we have. Now I accept that
there is a need for careful judgment about the extent to which
we commit ourselves to operations and, therefore, run the risk
of neglecting appropriate training and exercising and I assure
you the Chiefs of Staff are very conscious about that and give
me regular advice on that, but I am equally confident at the moment
that we have the balance right but we continue to address this
201. You have pointed out repeatedly in written
answers to written questions of mine that the proposed new European
Rapid Reaction Force is not a standing force and, therefore, would
call on contingency forces from the contributing countries. Presumably
the type of forces that would be called on for some sort of operation
involving the European Rapid Reaction Force would be precisely
the same as those that we are hoping to allocate to our own Joint
Rapid Reaction Force. What would the effect then be on reaching
our targets with the Joint Rapid Reaction Force if we found that
a problem arose where we wanted to deploy forces under that label
but that we did not have the forces to deploy because they had
been drawn away for the European Rapid Reaction Force?
(Mr Hoon) I have equally made clear to you on a number
of occasions, both in answer to written questions and at question
time in Parliament, that we only have one set of armed forces
and we can only use that on a single occasion, if they were all
to be deployed. I have made it clear that, in relation to specific
decisions about the deployment of British forces, that decision
would ultimately be taken by the British Prime Minister in the
light of the degree of commitment that we had at the time. That,
really, is a complete answer to your question because the labels
that we give to the organisations will depend on particular circumstances,
and I would invite you to be a little more flexible in your imagination
because what we are doing are designating capabilities. Having
designated a capability, we are not putting that capability in
a corner and saying, "That is what that particular group
of the armed forces will be doing". That applies equally
well to the JRRF where we are looking at developing a pool of
capability from which we would draw for particular operations
but it is the way in which that capability is used that is important,
and that applies equally well to the headline goal and whatever
forces might conceivably be used by the European Union in the
event of NATO not being engaged.
Dr Lewis: I only wish I could restrain
my imagination when I come to consider the disastrous scenarios
that could come out of the European Rapid Reaction Force, but
I will just content myself with this: in trying to assess the
competing priorities which could arise between demands made on
what we hope will be a standing Joint Rapid Reaction Force of
our own and demands made indirectly on those same forces by this
commitment to second forces to a European Rapid Reaction Force,
would the reconciling of those competing demands not have been
a lot easier if the European aspect had been kept within the NATO
structure and not placed outside it?
202. You will have ample opportunity to answer
the same question on 7 March so could you just be brief and give
a more complete answer when he asks it next time you comeand
the time after, and the time after!
(Mr Hoon) I think that it would help enormously to
put on one side this word "standing", because that is
the key to the difficulty in imagination that I think you have.
We are not training people to stand waiting for operations. We
have a range of people available at different levels of notice
with different abilities to do particular jobs and, providing
they are trained for that purpose, then they do not have to be
put in a box in a corner marked "Do not open until we need
it". They are busy all the time and what we are doing is
developing a capability, which can then be used. If we do not
train for it, we cannot use it but, as I said to you, it can only
be used once and we would have to make an appropriate judgmentas
we do day in day outabout the resources we have available
to satisfy particular tasks whether they are NATO tasks, European
Union tasks, United Nations tasks or, frankly, notwithstanding
all of the assessments we have made, whether one day there is
a direct threat to the territory of the UK. We have to have that
flexibility and part of what we are training for is to have that
flexibility available to the United Kingdom.
203. Thank you for taking along two of our colleagues
with you when you went to Sierra Leone; I am sure it was a very
interesting experience. Turning to another group of malevolent
people the Treasury, how has the Treasury setting of public service
agreement targets sharpened your performance management? I am
not comparing the Revolutionary United Front with the Treasuryit
would be a bit unfair on the RUF in some respects!
(Mr Hoon) Can I say in the first place that obviously
the setting of targets has been important right across government,
but I think it is right to say that government as a whole recognises
that perhaps we should not have too many targets for each department
and there has been a determined effort to focus on key elements.
As far as defence is concerned, the performance targets have been
built on in the light of achievements that we wanted in any event
and, therefore, in a sense it is early days yetwe have
just been discussing the Joint Rapid Reaction Forceto see
whether there will be a close correlation between the setting
of those targets and our ability to achieve them within appropriate
timescales. Reducing the number of targets for government is sensible
because it does allow departments to concentrate on what is important
rather than satisfying a whole range of different targets.
204. Will that put the relationship between
the Treasury and the MoD on a slightly different basis? Will the
Treasury adopt a more arm's length approach generally, or just
in one area of setting for public service agreements?
(Mr Hoon) The targets are set after negotiation and
discussion with individual departments and clearly we emphasise
to the Treasury and government in a wider sense the importance
of setting realistic and achievable targets that are consistent
with the overall direction of policy for the Ministry of Defence.
These are not targets that appear from out of the ether: they
are targets that are discussed vigorously between government departments.
205. The Treasury and Civil Service Committee
in its report was recently critical of the overbearing influence
of the Treasury on government departments. Would you share that
(Mr Hoon) No, I would not and certainly not as far
as the Ministry of Defence is concerned.
206. You believe that?
(Mr Hoon) I am absolutely confident; I think you would
have to show some basis for your proposition. Clearly the Treasury,
quite rightly, takes a close interest in the amount of money available
to the Ministry of Defence; I am delighted to say that they took
sufficient interest to recognise that there should be more money
available to defence over the next three years, and I am delighted
about that. They clearly take an interest in major policy decisions
that are taken by all government departments but I have no sense
that the Treasury in any way interferes in the decisions taken
by the Ministry of Defence.
(Mr Tebbit) I would only add that the Treasury are
sincerely trying to move to a more strategic way of managing their
relationships with departments, and these public service agreements
are a manifestation of that and they are in negotiation between
Treasury and Department, which was doing it anyway. Our Strategic
Defence Review made it much easier for us to have key targets
that we were doing anyway; basically that is how they have been
articulated. I would also say, however, we do spend £25-23
million a year; we have an asset base of £67 billion and
it is right for us to be under pressure and for us to have that
pressure that we transfer to our own staff to use our money as
efficiently and effectively as we possibly can and, to the extent
that the Treasury might be regarded as overbearing, I am also
overbearing on the department as the accounting officer in making
sure we spend money wisely. Prioritisation and efficiency is terribly
important in the Ministry of Defence; the public expects it. So
I do not mind when the Treasury sometimes interferes.
207. They are not trying to second-guess you
or instruct you on policy?
(Mr Tebbit) There is less micro-management. On policies,
these are for the Secretary of State.
(Mr Hoon) I have no sense of being interfered with.
Chairman: I think we had better move
208. We understood when smart procurement was
introduced, which we all agree with, that we were going to make
a £2 billion saving in defence equipment. It now appears
that most of the savingsmaybe all, I do not knowwill
be made by just shifting back into another timeframe. I would
call that either a cut or a slippage. Which would you call it?
(Mr Hoon) It is simply not true. Could I emphasise
that the biggest problem we face in managing resources today is
the result of the success of smart procurement because in the
past it is undoubtedly right to say that one of the ways in which
the Ministry of Defence has managed its year-on-year account is
by being able to slip payments into the next year, simply because
industry was not in a position to be able to deliver on what it
had said it would deliver. Smart procurement now means that, in
fact, industry is delivering to time and, therefore, understandably
expects to be paid. That ability, therefore, that was once exploited
by successive permanent under-secretaries in managing accounts
from year to year is much less available. I am determined it should
remain so, because it does underpin the confidence that both the
department and industry have in the success of smart procurement.
209. But your memorandum dated 14 September
2000, paragraph 8.3, talks of removing from projected project
costings £2 billion which was otherwise planned to be incurred
over the next ten years?
(Mr Hoon) But that is precisely because we are able
to make savings in the process. One of the consequences of delays
in equipment being available is that the cost tends to rise, so
the earlier you take delivery, generally speaking, the lower the
cost and that is the way in which, in part at any rate, we have
been able to identify the £2 billion savings. There are other
ways as well because the teamwork in process means that the teams
have been able to identify savings in the through-life cost of
the equipment. Again, in parenthesis, that is why we tend now
to talk about "smart acquisition" rather than "smart
procurement" because one of the areas we can make significant
savings is in the way in which we utilise the equipment once it
has been procured. So the £2 billion is a real, net saving
over that ten year period of amounts that we would otherwise have
had to spend had we not adopted this different process.
210. So could Mr Tebbit produce us, then, a
list of where the £2 billion savings have come from?
(Mr Tebbit) No, I cannot. The reason I will not do
it is not because I am trying to be devious but because ministers
still have to take decisions on a large number of those projects
because it is a ten-year period.
211. So we have not made the savings?
(Mr Tebbit) No, these are plans. I as an official
have to plan a defence programme over ten years.
(Mr Hoon) And longer.
(Mr Tebbit) But that £2 billion is the net change
to the cost of projects over ten yearsnot by just shifting
it to 15 yearswhich we attribute to smart procurement principles.
It does not mean the programme has got £2 billion pounds
cheaper, because it has given us headroom to put other elements
in. Ministers take decisions on individual projects at particular
points, and these are plans, not all absolutely committed projects.
The Secretary of State will need to take decisions as we go through
that ten-year period and until he does I cannot say to you "This
is going to happen" because that would be pre-empting political
decisions. I can give you some comfort in other areas, however.
We have other targets which involve £750 million over three
years, 2001-2004 and that is a very exacting target.
212. What is that on?
(Mr Tebbit) That is the samepositive action
in the programme but in a much shorter timeframe.
(Mr Hoon) I had some difficulty on this when I was
first appointed and, if I can go through the learning process,
most government departments spend a particular amount of money
in a given year on a particular project, and that is an end to
it. Our budget is three-dimensional in the sense that if we are
talking about, say, Eurofighter, if I say that Eurofighter is
affordablewhich it isI have to say it is affordable
not only this year, but next, and for every year we are planning
to be able to operate Eurofighter. There are going to be very
significant peaks and troughs in a profile over a long period
of time. For example, it may well be that I am talking about savings
in this case in year ten of a budget, because in year ten it may
well be at that point that I have a significant cost of maintenance
213. In year ten, of course, you will not be
in this post, and nor will Mr Tebbit!
(Mr Hoon) Leaving aside those projections, the reality
is that we have got to agree budgets today that are sufficiently
robust to deal with year ten. I cannot agree to a project today
that I know full well is unaffordable in ten years' time, but
it follows from that that there may well be opportunities in year
ten to make savings, and that is part of what we are looking at.
For example, in the long life of a project like Eurofighter it
may well be that I can project forward savings on maintenance.
We are not spending enormous amounts on maintenance today because
we have not got enormous numbers of aircraft in service, but that
will obviously increase as the aircraft comes into service and
many more are available. If I can negotiate today agreements as
a result of a different way of working through smart procurement
that says that in ten years' time the projected cost of maintenance
is going to be reduced, that is a perfectly proper saving that
we can claim credit for because it is the result of the system.
It is important, therefore, not to see this in terms of a single
snapshot about this year's accounts, but to project forward.
214. I accept all that and I do not have any
problem with it, but somebody has put £2 billion down as
what we are going to save through this system. You cannot quantify
it; Mr Tebbit cannot; I cannot; even the Chairman cannot, and
yet it is set down here. Now, if it were to be said that it may
vary by this, that or the other, then I think we would know where
(Mr Hoon) What Kevin has said to you is completely
accurate, and the statement is accurate, and what he is saying
is that there are projected savings of £2 billion over that
ten-year period that could be available to the Ministry of Defence
should we continue
215. Could and should?
(Mr Hoon) Yeswith this process. Now if, at
a certain stage in the process, I or my successors judge that
this particular aspect of the saving is not a good idea for wider
policy reasons, then what the permanent secretary would say to
me at that stage is, "Fine, Minister, you are entitled to
take that policy decision but you must bear in mind that there
are certain risks to your budget in taking that decision".
It might well be that that policy decision was so important to
the minister at the time that he or she would then choose something
different and there would have to be savings made elsewhere to
come within budget or, alternatively, we would have to persuade
the then Chancellor of the Exchequer that this was justified and
required extra spending for the Ministry of Defence. All we are
saying, however, is that if we continue with the present policy
we can expect to secure savings of £2 billion over that ten-year
period and that there are reasonable expectations that that can
(Mr Tebbit) We can also give you a more specific promise
than this. We are taking all of our projects worth more than £100
millionof which there are about 100which means we
will be expanding our detailed tracking beyond the thirty odd
major projects we currently track, and we will be tracking those
on an annual basis for time, quality and cost. That information
will be made available as we go through our programmes so you
will be able to see how much better the Ministry of Defence is
getting at bringing projects to fruition on time and on cost,
and when I say "you" I mean also the Public Accounts
Committee. In other words, we are not trying to evade in any way
or cheat in any way; we have no reason to.
216. Nobody is accusing you of that.
(Mr Tebbit) I can assure you that I am already finding
how well this is working because there is already pressure in
the budget within the equipment programme because equipment is
now arriving to time and cost. It is getting very difficult because
we used to rely on good old-fashioned slippages where we would
expect to spend £100 million this year and we would only
get bills for £80 million because of the relative efficiencies
of industry and the Ministry of Defence. Now we get the £100
million; it is already happening. In all sorts of ways, therefore,
we know that the performance is improving. This £2 billion
is absolutely real but it is a planning figure. You will have
much more detailed information and Sir Robert Walmsley is putting
this in place as I speak on our 100 major projects.
217. It is not a planned figure; it is an aspiration
(Mr Tebbit) That is what plans are, but they are a
bit better than aspirations.
Chairman: We must move on to defence
218. Before I ask some questions on defence
diplomacy may I ask this, finally, on smart procurement, because
I do think it is a bit of a scam and I think the £2 billion
is a bit of a scam because you cannot quantify it and nor can
we. There has to be a downside to smart procurement and you put
your finger on it when you talked about Eurofighter and the maintenance
cost. It is a bit like buying ships; if you buy ships on a smart
procurement programme, the first ship is undoubtedly not going
to be the same as the last ship. If you buy well upfront you are
not absolutely sure that the last ship is going to cost that much
but you have agreed a price and I think the scam is when you get
ripped off over the last part of it.
(Mr Hoon) Let me be absolutely clear; there is no
scam and there is nothing wrong with this process. The process
is working and delivering. Your example about ships might apply
if you were buying rowing boats and you might well agree a single
price for ten rowing boats, but we do not buy many rowing boats.
219. Are you suggesting that the Type 45, the
first, is going to be the same as the last?
(Mr Hoon) No, because that will be part of the discussion
and negotiation we have.
(Mr Tebbit) On the Type 45 the government has let
a contract for the first three. The reason it has led a contract
for the first three is because it needs to see how the performance
comes in. This not done as a straight run of everything on the
same price. On the Attack helicopter, we have actually increased
the price we are paying for the Attack helicopter by £120
million because, in doing so, we can achieve through in-service
support cost savings of £750 million over the programme of
in-service support. Now, you will say to me "Prove it"
and, of course, I cannot yet but we will be tracking it as we
go, so sometimes it is worth spending to save. That also may not
look smart procurement if you look at it superficially but we
are looking at whole-life costs as well as what we are doing now.