Oral evidence: MoD Annual Report and Accounts, HC 1119

Oral evidence, 21 February 2023.

Witnesses

Lt General Magowan, David Williams, Charlie Pate and Andy Start.

Chair

Welcome to this Defence Committee hearing on Tuesday 21 February 2023. We will be looking at the MoD’s annual report and accounts for 2021-22. I am delighted to welcome back David Williams, permanent secretary at the Ministry of Defence. Thank you very much for joining us again. We also have Charlie Pate, director general for finance, Andy Start, chief executive of defence equipment and support, and Lieutenant General Rob Magowan, who is Deputy Chief of the Defence Staff, responsible for financial and military capability. Thank you very much for your time this morning. We have a lot to get through, but could I ask a couple of basic questions first? Have we got a date yet for the publication of the Integrated Review refresh?

David Williams

Not a confirmed date. The work is under way. As I have said to the Committee before, it is a cross-Government production that is being led out of No. 10, so it is not an MoD document. Work is well in hand. I do not think it will be very long, but I do not have a confirmed date.

Chair

So if I said 7 March, would your eyebrows raise?

David Williams

That would be quite a precise date to hazard a guess at.

Chair

It is quite a precise date; we will take that as a potential hint. The last Integrated Review could be summarised as a lean towards cyber and space, but cuts in Typhoon, Hercules, F-35, tanks, Warrior and personnel. You are going to need more money, aren’t you? Is that not the case if we are going to do a refresh?

David Williams

First, that isn’t how I would characterise the previous IR. Actually, I think it is a review that reaffirmed the importance to our national security and defence policy and capability of state-on-state competition. It reaffirmed the importance of NATO and set out a programme in which we were looking over the course of this decade to modernise our capabilities for the future fight. My expectation is that the refresh of the IR will confirm a lot of those judgments, but clearly will it reflect on the changed international situation, given that this week we commemorate the first year of the Russian invasion of Ukraine. It is a period when for a variety of reasons we are perhaps more aware of the systemic challenge posed by China. For me, it is about a doubling down and a refinement, rather than a fundamental change. From a financial perspective, we look to get the Defence budget that matches the Government’s ambition for their asks of our Armed Forces.

Chair

This is your opportunity to declare what you need. We are seeing senior members of the MoD make that very case more vocally, not least the Defence Secretary himself, who has said he is battling hard for more money. I absolutely agree, as I think the Committee would, with your assessment of the deteriorating threat position. You are having to do a refresh because of what has happened in Russia, but ultimately there is not enough money. You tilt toward cyber and space. We have seen our Armed Forces’ capability and readiness shrink. You need more money.

David Williams

In the autumn statement, the Chancellor set out that he and the Prime Minister recognised the need for further investment in Defence following the Integrated Review refresh. Clearly, how much that is and when it comes will depend on the overall fiscal context and other spending priorities for the Government. As the Defence Secretary has also said, this is not a negotiation to be conducted in public, so I am not going to go into a lot of detail on where we are in our negotiation with the Treasury.

Chair

I understand that, but the British public need to understand the relationship between our security posture and what is happening in Ukraine, because it directly affects everybody. It affects our economy, the cost of living has gone up, energy prices have gone up, and the security situation continues to deteriorate. If we don’t spend more money on our security, particularly with how Britain is exposed globally, our economy will be hit. It is in the public interest to see us invest more in our Armed Forces. I repeat the fact that the last Integrated Review saw swingeing cuts, particularly to the British Army, and you have British Army generals now saying, “Our Army is too small.”

David Williams

The last IR and the spending review settlement from late 2020 actually saw substantial additional investment in the Defence programme going forward: £16 billion over the spending period or, over and above our previous assumptions, £24 billion in cash. We have an equipment programme that has some £242 billion over 10 years; the Army’s share of that is £41 billion over that period. Yes, we have taken some capability judgments in our previous plan about retiring some legacy capabilities as we invest in new capabilities for the future. One of the judgments we will need to make, either against a Defence budget that increases or one that doesn’t, is the continuing validity of some of those risk judgments in the light of the threat we now see. That may well require us to reprioritise within our programme.

Chair

Have you put in a request to reverse the cuts in tanks? Have you put in a request to reverse cutting the Warrior fighting vehicle and instead upgrading it? Have you put in a request to reverse the retirement of the Hercules aircraft?

David Williams

I don’t want to get into the detail of individual capabilities at a point when decisions have not been made. However, on the first of those questions I will echo a comment that the Defence Secretary made in the House when he announced the gifting of 14 Challenger 2 tanks to Ukraine, that he has asked the Department to look at the right number of tanks to be upgraded to Challenger 3 standard.

Chair

So there is a possibility that we could shift from that 148, which is really a small number of tanks given that at the end of the cold war we had up to 900 tanks?

David Williams

On that specific issue, as the Secretary of State said we are looking at that.

Chair

That is great news. I have two quick comments from Gavin and then one other question before we go into our substantive session.

Gavin Robinson

When the Integrated Review refresh was conceptualised, it was predicated on 3% being made available. Is that still your planning assumption?

David Williams

That was the planning assumption that the previous Prime Minister had during her time in office. It is not the position that Prime Minister Sunak has taken in his time as Chancellor, as a leadership candidate, or as Prime Minister. As you will understand, conversations about where the Defence budget goes to is part and parcel of conversations around the IR refresh. He has been clear that we will continue to meet, as a minimum, the current NATO 2% of GDP funding commitment. He has been clear, including over the weekend, about his commitment to fund the level of support necessary for defence and other support to Ukraine. We wait to see what the medium to longer term trajectory for the Defence budget will be.

Gavin Robinson

I understand from what you’ve said that the planning assumption in October no longer pertains, but how do you envisage concluding this process in the coming weeks if you do not know what size envelope you are operating within?

David Williams

There is a question on policy headmarks or ambitions to be set out in the refresh of the Integrated Review. We will see what the Defence budget is that comes out of the Chancellor’s spring statement in mid-March.

Gavin Robinson

Will the refresh of the IR be concluded before the spring statement or after?

David Williams

I honestly don’t know. It is not my publication.

Gavin Robinson

Do you understand why it would be hard for us to understand? I think in your first answer you said, “I am sure you understand.” Do you understand how it would be hard for us to conceive of a process where you conclude all of your planning assumptions and publish an IR refresh without knowing what the budget is?

David Williams

Yes, I do understand that, although if you think about the sequencing of work last time round, we had an Integrated Review, we had a spending review settlement, then we had the detailed work through in a Defence Command Paper. Now, we clearly need an assumption about the budget going forward to reflect any detailed changes in the plan for the Ministry of Defence and the Armed Forces. How much of that needs to be painted in a very high-level IR refresh will rather depend on what it says.

Chair

I would have assumed that you would have slid across the table the Defence requirements and Defence postures needed for the threats coming over the hill, and then we create the budget around that, rather than you waiting to hear what that budget is from the Treasury and then crafting our Defence posture accordingly.

David Williams

I don’t want to give the impression that this process is happening in a vacuum. The Department and Defence Ministers are fully engaged in the refresh of the Integrated Review. Along with a number of spending Departments in the run-up to any fiscal event, there are of course conversations under way with the Treasury as well.

Mr Francois

In the statement you referred to a few minutes ago, the Secretary of State talked about contemplating upgrading more than the 148 Challenger 2s originally envisaged in the IR, but he also spoke about speeding up a number of other important Army programmes, particularly in the mobile fires platform, and even a new interim capability for artillery, because of all the issues with AS90. Are you looking in the Department to actually declare any of these programmes as what used to be called urgent operational requirements—I understand that in order to confuse the Russians you have now changed that to urgent capability requirements, so what were UORs are now UCRs, but it’s the same thing—so you drop all your bureaucracy and you just get what you need as fast as you can? Are you contemplating making some of those programmes UCRs, because of the urgency in the situation that is now obvious?

David Williams

Let me start, and then I might hand over to my colleagues. Yes, having come back to the Department after a break, I have found the change in the title somewhat confusing as well.

Mr Francois

That makes us feel so much better. Thank you.

David Williams

I am happy to help you out, Mr Francois. First, we have a good track record with urgent capability requirements. Indeed, the kind of deftness and nimbleness of response to Ukraine, and our support there, demonstrates our ability to move at pace when faced with those kinds of operational pressures. I think my observation on the formal UCR process is that it tends to be very capability or theatre of operations-specific, and what you trade is the longer-term coherence, interoperability and logistic tail. So at this stage I am not particularly expecting formally to declare parts of the core equipment programme to be UCRs, but I am sure we will keep it under review. That is not to say that we are not deeply interested in how we can advance the in-service dates of key capabilities—

Mr Francois

You mentioned Afghanistan. From memory, the Mastiff, a very highly protected vehicle for transporting troops, was brought in from the UOR to actually being in service in 23 weeks. It shows that when the system really puts its mind to it, it can act very fast. Is there any possibility that we could start doing stuff like that for some of the systems the Secretary of State was referring to? You can call it what you like. Perhaps General Magowan wants to answer.

Lt General Magowan

The answer is yes, Mr Francois. I could give you lots of examples, but let me give you three. The Secretary of State has been very clear about gifting AS90. You mentioned the mobile fires platform, and we are trying to speed the mobile fires platform up, but at the moment it is looking like towards the end of the decade. Therefore, we are working with partners to deliver an interim capability within 12 months. A fully capable medium indirect fires capability within 12 months is the target we are setting ourselves to meet the gap between what we have done with AS90 and what is going to appear towards the end of the decade, but hopefully sped up with a mobile fires platform. One of the key lessons from Ukraine is that we need a counter- uncrewed aerial system capability. We are fielding an operational counter-UAS capability in an operational theatre today, which we have sped through the system, with Mr Start’s support, as a direct result of the pressure that we are seeing in the operational battlespace today. Of course, the third and obvious one is munitions. We are able to prime our sovereign base particularly, but not just our sovereign base, to deliver a massive munitions capability that we were not doing two or three years ago, and that we certainly were not doing before Ukraine. So there are examples of where we are either trying to speed up the programme of record or filling gaps within it, if they exist.

Mr Francois

Thank you. That is very good on interim artillery. Challenger 3, even if we speed it up, will still take years because it’s a new turret and a new gun. You cannot do that overnight. Are we looking at work to upgrade our existing Challenger 2s to make sure we have at least two armoured regiments that are battleworthy while we await Challenger 3?

Lt General Magowan

No, the focus is to deliver Challenger 3 on time, and we are going to need, as we have been very clear—

Chair

But to confirm, that’s all complete by 2030. That is a long time away.

Mr Francois

It is just far too long.

Lt General Magowan

We will have an initial capability by 2027, and we are using the Challenger 2 fleet to ensure we deliver the 148. As Mr Williams says, and as the Secretary of State has been clear publicly, we may increase that number from 148. We will see.

Mr Francois

But General, we need more working, battleworthy Challenger 2s now, not an upgraded tank in four or five years’ time. You must understand that.

Lt General Magowan

Yes, and that upgrading of Challenger 2 to ensure it is battleworthy is going to Ukraine, so the focus is to provide the Ukrainian Armed Forces with the capability they need.

Andy Start

Mr Francois, I may not have understood your question correctly, but if your question is are we increasing the focus and energy on increasing the availability of our existing fleet across land, sea and air, the answer is absolutely yes. That is a core drive across the Department. If your question is are we seeking to get more of those Challenger 2s into a position where they are immediately deployable, yes, we are. We are trying to do that through our maintenance programmes—if that was the question, but I may have misunderstood.

Chair

We may come back to this again. Could I just break with protocol and welcome the Latvian parliamentarians to our session? You are most welcome indeed. I can understand why you have come here, and we are delighted to see you. Thank you very much indeed. We did well to push the envelope when it came to gifting Challenger to Ukraine. It is probably not the most appropriate tank; they really need a single platform with all the logistics, supply chains, ammunition and so forth. Leopard was the obvious one—there are 2,000 of them kicking around in Europe—but the symbolism of us gifting Challenger nudged the political appetite in other countries to then lean further into this. Time is against us, with the spring offensive and an announcement no doubt today. How does this transfer over to air power what we can do to provide the top cover that is needed? As you know, in all our combined arms warfare, gifting tanks is fine, but they need that top cover. My question is, what are we doing, and could we somehow be gifting the tranche 1 Typhoons? Yes, it will take a number of months, if not years, but the symbolism of us doing this sends a powerful message to Putin, as well as saying to Zelensky and Ukraine that we are with you, as we have been from the very start.

Lt General Magowan

I don’t know how much of a conversation we want to have about Typhoon 1. The Secretary of State has made it pretty clear where we are with Typhoon 1, the training of pilots and the potential gifting of Typhoon in the future.

Chair

For the record, can you just confirm what you think that actually is?

Lt General Magowan

The Secretary of State has said that, at the moment, gifting Typhoon 1, 2 or 3 is not something that we are going to do. That does not mean it will not be on the table in the future. I will keep out of the politics in terms of whether that encourages the others. From a straight military capability perspective, as a military professional, the conversation that we have with the Ukrainians is, “What operational effect do you want to achieve?” The two capabilities that they are short of are the ability to shoot things out of the sky, so a counter-air capability, and the ability to prosecute more targets on the ground. Typhoon 1 can’t prosecute targets on the ground. It certainly can prosecute targets in the air, and that is why they are the quick reaction alert today over our skies, including in the Falklands. We need to have that conversation first with them. Then we need to understand the timelines of what effect we could deliver for them. Typhoon 1, as the Secretary of State has said and as you have just mentioned, would take some time—potentially 12 months or further. I am more interested in having a conversation with Ukrainian generals about giving them capability much faster than in 12 months.

Chair

I don’t doubt that, but from the very beginning of this journey of supporting Ukraine we have been doing things just in time. We are not planning over the horizon. We are now getting cadets, I hope, into our training schools for two, three or four years hence. We can’t go on like this. Russia—Putin—is deliberately hoping that the West will lose its appetite to support. That requires us to start thinking longer term, not only by providing the top cover Ukraine needs through drones and UAVs, for example, or perhaps A-10 Thunderbolts or Super Tucanos, which are easily done within months, but by thinking in the long term, so Ukraine can provide its own security. That is the sort of thinking. That is where an announcement, political though it might be, would be advantageous at this point.

Lt General Magowan

The Secretary of State can answer himself about political announcements, and he has answered. In terms of your challenge about whether we are planning for the sorts of things you are talking about from a military capability perspective, of course we are looking at all the various options—whether it is in six months, 12 months or two to three years for the Ukrainian Armed Forces. That is what I do every day.

Chair

So why did it take so long to get the main battle tanks there?

Lt General Magowan

Because the demand from Ukraine was such that we were meeting other requirements that we were doing at the time. Then the main battle tank requirement came through, and that was considered. The Secretary of State has made clear that he has gifted 14.

Mr Francois

General, we have approximately 140 Typhoon aircraft. We have 30 Tranche 1s, the bulk of which are due to leave service, according to parliamentary questions, in March of 2025, so in two years from now. The Chairman’s point, which I think the Committee would echo, is that we only gave the Ukrainians 14 tanks. They themselves will not alter the course of the whole war, but they unlocked lots of others. If I may say so, your mistake is that you are telling the Ukrainians what you think they need. President Zelensky stood up in Westminster Hall and asked for jets. He knows what he needs, and if we can give them even a half squadron of Tranche 1s that we don’t really need at the moment, that could unlock the MiG-29s and the F-16s that they want even more. For want of a better phrase, it is a sprat to catch a mackerel. Why don’t we do that to unlock all these other jets? That is exactly what we did with Challenger 2.

Chair

I think you have to take this away, but the message from the Committee is very clear. There are MiG pilots that could be converted into Tranche 1s. I hear what you are saying—that the first Tranche of Typhoon are only air to air, but that would keep the Russian Air Force at bay to allow slower aircraft, such as the A-10 and the Super Tucano particularly, which can drop Maverick, Paveway, Hellfire, Brimstone, Storm Shadow and all these other things that are ground attack. They can work in synergy. That is the air power combination, working in concert. That is the sort of thinking that tells Russia and Putin that we are in it for the long term. I think we have probably exhausted this. We have made our case.

David Williams

Briefly, if I may, we made an announcement about a training offer, and we are now in discussion with our Ukrainian colleagues about what that might be. The Prime Minister has said that he asked the Defence Secretary to look at options. The point that Mr Francois makes is a factor in a calculation about where we end up. Equally, I think on the point Mr Doogan was making in the House yesterday about training to what end, you need to understand where the training is going if it is going to have benefit. That is also relevant. It is a live debate, with engagement with our Ukrainian partners, but in the end it will be a decision for Ministers, rather than speculation from us on where we will end up.

Chair

To conclude this, we had a very constructive visit to Belfast, where we met Thales and Spirit. Thales was concerning, because we stopped making Starstreak, which is mentioned a lot, years ago, and I think they had 60 left. Their cupboard is empty, and there is no official requirement to make Starstreak 2.0. I simply slide that across the table to say that is what Ukraine is now asking for more of, so please can we address that? Secondly, on the Tucano aircraft—not the Super Tucano, which we use as a training asset—we have 60 of those. They could be made airworthy to be part of a training programme to support the Ukrainian air force—again, in the longer term. Perhaps that is something that we could facilitate. We share that with you for you to take away. With that in mind, Sarah will kick us off.

Sarah Atherton

We have probably covered most of the answers anyway, but the media has reported that the Chief of the General Staff will be considering his position if funding is not significantly increased. The CGS himself has said that sending 14 Challenger tanks to Ukraine will weaken the UK forces. My question is: how do we keep the British military today capable to meet the rate of relevance?

Chair

To clarify if I may, the CGS is the head of the British Army, General Sir Patrick Sanders.

Lt General Magowan

First, the CGS can speak for himself; I am not here to speak on behalf of General Sanders. To answer the question directly, we are investing a considerable amount of money to recapitalise the Army. We accept that we took risk against the warfighting capability that we are seeing, recapitalising the Army today, while we were operating in Iraq and Afghanistan. However, we believe that we have a programme of record—yes, we need to deliver it as fast as we can, as we have described—to get after that recapitalisation through this decade. I am not sitting here saying, “And that’s all we need.” The CGS has been very clear about the so-called “four plus one”, which are those areas—I will go into that detail if you wish—that we need more funding for. We are particularly learning from Ukraine, particularly in terms of defence against uncrewed capability, electronic warfare, long-range fires and air defence. Those are four key lessons from Ukraine, which were hard to see four or five years ago while we were operating in other theatres. We absolutely accept that there is an operational shortfall in the British Army today, but that is on top of a significant recapitalisation programme. Again, we can go into the detail of that, but it is quite clear.

Sarah Atherton

There are 60 Starstreak left, and it will take three years to reinstate the obsolescent kit out of that. There is 18 months lead time for the very successful NLAWs, which is classified as a sunset capability. The MoD has done no new orders for the light-weight multi-role missile. How are you going to replenish your munition stocks?

Andy Start

First, we have made commitments for that stock that is already available, and those orders have been placed; for example, with NLAWs we have ordered the first 500 and we have thousands thereafter on order. But they will take a number of years to build and deliver. There is a capacity issue and an obsolescence issue to be addressed, which is a consequence of stop-start production. Strategically, we need to move into a different mindset across the whole of NATO, to having continuous production and buying out obsolescence over time. That is a very different mindset from the historic mindset that has pervaded. We are in the process of working to address, first, industrial capacity with the UK suppliers; actually, only last week I was talking to my French colleagues, and previous to that week to my German colleagues, about how we mobilise across NATO to try to get a more coherent overall demand signal. And we are in the process of placing orders against long-term development. There is a problem. There is absolutely no question but that there is a problem across the whole of continental Europe, but we are going after it. In my role as the national armaments director, I sit on the Conference of National Armaments Directors among my NATO colleagues. We are actively discussing, as you will have heard the Secretary-General reaffirm, trying to aggregate across the whole of NATO’s long-term requirement for both general munitions and complex weapons, to try to create an aggregate demand signal into industry, and then to co-ordinate the industry response. The great challenge we have at the moment, while there is not adequate industrial supply to meet all the demand, is making sure that we balance the needs of multiple nations and get the right munitions in the right place at the right time, including making sure that Ukraine is supported in the way it needs to be.

Lt General Magowan

It might be worth adding—you mentioned the Starstreak high-velocity missile and the upgrading—that the threat is always moving. Therefore, the current capability will not meet the threat of tomorrow. Ensuring that the next generation of high-velocity missile meets the threat is a complex technical challenge, which can take some time. We have that challenge on top of regenerating the industrial base in the way that Mr Start described.

Sarah Atherton

Okay. Defence is talking to you, we understand, to solve problems. We hear that it is a long-term gain for you to work with Defence. Rob mentioned the artillery platforms, but we were told that the MoD was given a resilience proposal to use a fire control system to support both Starstreak and NLAW, but nothing has been heard back from DE&S. My concern is that you are working with Defence and we hear what you are saying, but is there any movement or anything happening for the here and now?

Andy Start

We have already placed letters of comfort around core capability as to what people had available. We have asked for proposals from industry for a range of capabilities—both for the Ukrainians, under our work to support them, and for the capability of the UK—and we are in the process of deciding what the right priorities are against that. In fact, we have a meeting about that this afternoon.

Derek Twigg

General, you mentioned recapitalisation on a number of occasions. When will that give us the extra tanks that we need?

Lt General Magowan

The Challenger 3 timeline is 2027 to 2030.

Derek Twigg

That will replace all the ones we have gifted and more.

Lt General Magowan

The current numbers—our aspiration, or in the programme—are to deliver 148 Challenger 3s. The Secretary of State has said that, as part of our balance of investment, we might invest further.

Derek Twigg

Is that signed off now as a given?

Lt General Magowan

It is in the programme of record, yes.

Chair

That is only two regiments. Would you like to see all the Challenger 2s upgraded to Challenger 3s—255, not 148?

Lt General Magowan

Currently, the programme of record is against two armoured brigade combat teams, or BCTs, which is our current offer to NATO as part of the NFM, the New Force Model. That is the demand against us, and that is why the programme of record reflects the 148 Challenger 2s—

Chair

Sorry, some confusion here—two brigades?

Lt General Magowan

Two brigades.

Chair

Each brigade has three regiments in it. You only have enough here for 148—

Lt General Magowan

It is an armoured battle group per brigade.

Chair

So it is one regiment plus dismounted, or Warrior, or Boxer, which does not have a turret.

Lt General Magowan

As you know, Chair, it is a regiment in barracks and a battle group in each of those brigades for the two brigades to meet the NATO demand at the moment. That is where the programme of record has come from.

Dave Doogan

Supplementary to that, what is the overall nature of the unserviceability of the Challenger 2s currently in the UK inventory?

Lt General Magowan

I have the numbers here of how many Warrior, Challenger, AS-90 and all the other types of vehicles that the Army holds are held, at operational readiness or in deep maintenance, or how many we have gifted, but in this public forum I am rather reticent to declare precisely what our operational readiness is against the stats in the programme—

Chair

You just teased us with the stats; you cannot hold them back.

Lt General Magowan

Do you honestly want me to declare what the operational capability is—

Dave Doogan

Perhaps you can communicate with the Committee by letter, General. Some of us are greatly concerned that the donation that has recently been made to Ukraine accounts for between 25% and 30% of operational assets, which is a concern. I do not need you to confirm or deny that, but—

Lt General Magowan

Which vehicles?

Dave Doogan

Challenger 2s.

Lt General Magowan

It is not that high. I would like to say on the record that, by even my basic maths, it is not that high—but absolutely, we will respond.

Dave Doogan

Thank you very much.

David Williams

Just to be clear, we are planning to bring up from lower readiness 14 Challenger 2 hulls to replace the high-readiness ones that we are sending to Ukraine, so the short-term impact in terms of our deployable forces will be minimised.

Chair

I am pleased that the main battle tank is now being given the attention it deserves, because there was a period about a year to a year and a half ago when it looked like we were going to get rid of it completely. I am pleased that it is back in vogue and that it is not obsolete, which is good to see. David, did you want to pursue your next question?

Dave Doogan

Yes, Chair, I will do that. You have the Committee’s sympathy up to a point, in so far as your Gordian knot is that you have to maintain stock levels, much of which is expensive, for combat that may or may not happen and you are dealing with a Treasury that knows the price of everything and the value of very little. What system are you developing to show the Treasury that yes, this is expensive, but it delivers value in a way that is absolutely existential to the defence of the realm? The Treasury will not like hundreds and hundreds of NLAWs sitting there, going out of date and then not being used, but how does Defence communicate after the hard lessons that we have learned about stock levels over the last 12 months, and how are you changing your systems to deliver that in the current environment?

Lt General Magowan

That is my day job, working with Mr Pate, my close colleague, who will tell me the financial envelope that I might be working in today. I then declare the military capabilities that can be delivered against that envelope. If that envelope is reduced, it is my job to make very clear to the Treasury—including in this particular case, to answer your question directly—what operational impact it will have if we take it out of the programme or if we don’t invest. That might be operations today—“I will have to stop these things today”—or it might be tomorrow: “These are capabilities that I’ll have to cut,” or, “These are capabilities I won’t be able to invest in if I don’t get more money.” What you have just described is precisely what the military capability lead in the MoD does.

Dave Doogan

This is in essence a tension between value and cost. As somebody who was in the MoD as a civil servant a long time ago and was familiar with war stocks arriving when they had never previously been available, my concern is that it looks like war stocks have become an easy target for Treasury efficiencies. I seek your reassurance that that is not the case.

David Williams

First, on the approach that the Treasury has been taking, let me be clear for the Committee: all the additional costs of our support to Ukraine in terms of gifting, acquisition of equipment and enhanced activity on NATO’s eastern flank is being funded through additional budget over and above the core defence programme. We have agreed around £900 million of replenishment money with them over a number of years to replace key elements of gifting in kind. As the Chancellor announced at the autumn statement last year, we have also been allocated £560 million over the next two years to get after increases in our stockpiles over and above the pre-invasion levels. So, when we make the case, we can make it. The broader point, as Mr Start and General Magowan have said, is moving away from this stop-start batch procurement. I absolutely get in engagement with Treasury colleagues in the defence sector. But more generally, I think that a lesson for Government and the civil service from our experience of covid is that there is a value as well as a price to resilience. Having resilience built in seems to me to be where more of our programmes need to be in the future. I recognise the characterisation of hollowing out that you describe. I think there has been a challenge for the Department in the past. I think a lesson from the first Integrated Review—and I am sure this will be there in the refresh, when it comes—is that, moving forwards, resilience in our supply chain and in our full structure is going to be important.

Dave Doogan

I am not so much interested in quantum of budgets, but in culture and systems. I accept your point, General Magowan, that invariably, it is sod’s law—we are invariably fighting the last war and planning on that basis. I am still not convinced that the culture is there where Defence enjoys the sufficient esteem that it requires to educate the Treasury on the value of proper resilience, rather than just simply the cost. That is a wee sideswipe at the Treasury.

Lt General Magowan

That is my challenge.

Dave Doogan

Defence alone operates some ludicrous protocols when it comes to life expiry of missile systems, which other operators of those same missile systems do not operate—and it comes at tremendous cost to the taxpayer and operational availability to the Armed Forces. Is there—please say yes—a plan to take a look at these nonsensical, abstract, nebulous protocols being dreamt up by people miles away from operational environments, and actually get realistic? If the worst that happens is that, when you pull the trigger, it does not quite work one in every 1000 times, that is worth a saving of millions and millions of pounds.

Mr Francois

Hear, hear!

Andy Start

I won't comment on the characterisation of the individuals involved in the process, but it is very clear that, while we have been in a post-cold-war environment, the attitude around this dynamic has been to be extremely safety conscious. I think we are in a different world.

Mr Francois

It's called war!

Andy Start

We are definitely in a war economy at the moment, and that requires a different attitude to risk, which is a conversation we are having a lot—specifically around weapons. That conversation around taking more risk—which, from what the experts tell me, is not significantly more risk—allows us to keep weapons longer and to use them in a wider environment. Over the last few years, there have been some really good examples of where we have taken more risk to get operational capability out sooner. One of the concerns I know this Committee has is how long it takes us to field equipment. Part of the reason it takes so long are the safety protocols we have to go through to demonstrate the safety of every scenario. There is a series of weapons—I am not going to list them in this forum—that we have chosen to add, to make them operationally available before all the safety parameters have been checked, by putting around safety protocols that basically say, unless you are in a combat situation, you fly or operate within this limited window. If we are actively in combat, then we might choose to take in more risk. The short answer to your question is yes; the longer answer is that we are progressively working through our risk appetite around these things, to allow us to keep weapons longer, introduce new weapons more quickly and introduce changes more quickly.

Lt General Magowan

We can give a private briefing on that. On Mr Francois’ point, we are taking more risk with our weapons systems in Ukraine today. Those that do not meet the criteria for the UK infantry meet the criteria for the Ukrainian Armed Forces to respond exactly to what you have just said: they will take more risk at war. To be slightly tedious for a second, ultimately we are talking about calendar life and aircraft carriage hours. The difference between us and the US—there are a whole load of reasons—is that there is a volume that the US has which means it can open up missiles, see where they are, and make a judgment against the totality of the stockpile. We don’t do that, because we don’t have the volume; and therefore we just make an assumption at the very beginning. That is why we want to challenge ourselves—and also, the US is increasingly sharing its data with us. We can provide a lot more detail on that, because it is certainly CDS's priority to get after this and take more risk.

Andy Start

You will see that there is a whole set of life-extension programmes on multiple weapons.

Chair

There is a concern that there are different sell-by dates, depending on where in NATO you are. That does not make sense at all. Air Marshal Stuart Peach was very concerned about that—that a hellfire missile we have has to be thrown away or dealt with, if it is not used, before an American one of the same age. That does not make sense at all.

Lt General Magowan

Absolutely. I know this is a bit boring, but it depends where it is being carried and what the ambient temperature is—is it in the Nevada desert or on Salisbury plain? Anyway, the point is that this is one of the key priorities for us, because it is not acceptable.

Chair

Okay. Let us now turn to expenses and finances.

Robert Courts

I wanted to ask about FOREX. David, you wrote to us in February this year laying out some of the steps that you have taken to insulate yourself against FOREX expenditure—for example, capping risk, forward purchase of foreign exchange and fuel hedge swap contracts. To a certain extent, the larger supplier contracts seem to be arranged on a fixed-fee basis and there is some insulation against immediate in-year inflationary and FOREX pressures, but there seems to be exposure for SMEs, because of course you are expecting to see price increases driven by rising inputs from the supply chain. What more can be done to make sure that the system is insulated against FOREX pressures?

Charlie Pate

Our primary insulation against foreign exchange fluctuation is our forward purchase programme, which we do over the forthcoming three years—so 20%, then 30% and then 30%. By the time we get into the financial year, we have security on the cost of 80% of our expected foreign exchange requirement. Under Managing Public Money, we are not allowed to speculate, so that is about giving us budget certainty. Of course, we then have that on a declining rate going forward. With sterling doing what it has done over the last year, that has inevitably become more expensive for us, both in the short term and in the medium term as that forward purchase unwinds. That is the protection that we have. In terms of working with SMEs, we changed our commercial arrangements last autumn. Previously we wanted to put the primary risk of inflation on our contractors and were preferring firm-price contracts, but we have changed that so that we have a debate about the risk, where it best sits and who is best able to take it. In a world in which inflation and foreign exchange are as volatile as they have been, it is generally better for us, as the authority, to take the primary risk. That supports work with SMEs and also protects us from companies taking excess profits if the exchange rate or inflation take a different path from what we expect.

Robert Courts

Do you think you are likely to see pressure to renegotiate from larger suppliers as well as the SMEs?

Charlie Pate

Mr Start might want to comment on some of this. We have ongoing discussions with all our main suppliers. In some areas, there are definitely pressures emerging with those firm-price contracts that were signed in a very different inflationary era. We have seen it through pay deals that our suppliers have given and particularly through the cost and supply of raw materials. It is challenging us both on the in-year budget from inflation and on the deliverability, because some of those are not available. I do not know whether Mr Start wants to comment.

Andy Start

I think you said it.

Dave Doogan

Just for the record, do you think that the latest iteration of the Equipment Plan is sufficiently informed by inflationary pressures?

Charlie Pate

We were very clear in that Equipment Plan, which was based on March 2022 figures, that at that point we saw emerging inflationary risk and foreign exchange pressure. We set out ranges in the Equipment Plan, but we were not certain enough at that point to take any particular action within the Equipment Plan to maintain the affordability. It would have been too early. Indeed, those rates have fluctuated really quite dramatically over the last year.

Dave Doogan

Yes, but none of those fluctuations have been in a good way—

Charlie Pate

No, but they did start very high. The forward view of inflation in particular has come down somewhat. It is similar with foreign exchange.

Dave Doogan

That is the nature of the beast. My concern would be, though, that the standard practice or standard procedure for generating a plan of that nature does not possess sufficient flexibility to take cognisance of the broad macroeconomic environment that the plan is then put into. Would you agree that in the volatile macroeconomic environment that we find ourselves in now, the plan would demand an iteration or a refresh much sooner than would otherwise be the case? If you put out a set of numbers that, because of your procedure, does not take cognisance of the emerging economic position, that very quickly becomes out of date, if it was not out of date to begin with.

Charlie Pate

We have a commitment to publish an annual equipment plan. Given the scale of what we are dealing with—there are over 800 projects in that plan—I think an annual refresh is probably about suitable. I would accept that in the early years, the macroeconomic conditions that we have do pose a challenge to the Department, but there are a couple of responses we have in the short term, which I will go into. In the longer term, less of that plan is contractually committed, so there is more space to take decisions from both a policy perspective and an affordability perspective. In the short term, we hold a contingency; ultimately, if we need to, we do release funds for these kinds of occurrences. Secondly, we are driving substantial efficiency programmes across the Department. We have plans for £25 billion over the next 10 years. Our current forecasts are a couple of billion over that, and those efficiencies in the first instance can go to meeting those inflationary pressures. In the last couple of years, we have out-turned—give or take precisely on the control totals—the funds that Parliament have voted us, so we are able to manage within budget.

Dave Doogan

The problem is, though, that for more than £3 billion of the efficiencies, the plan is in development, and for £1.9 billion of the efficiencies there is no plan at all.

Charlie Pate

Yes, currently—and that was the position at the end of March last year. I think the total is sort of £11 billion of efficiencies over a 10-year programme. I would not expect the total programme of efficiencies over a decade to be fully formed at this point. What gives me encouragement is that we continue to build the pipeline of efficiencies and as we get through the years, particularly DE&S and the other delivery organisations in the Department are delivering real efficiencies that maintain, if not increase, productivity but for lower cost. We have many examples of those.

Gavin Robinson

At the start of March last year, you were content with the budget for this financial year.

Charlie Pate

For this financial year? Yes. It is always taut, as it is meant to be, but yes, we had a realistic departmental budget, and we are obviously planning and expecting to deliver within the budget.

Gavin Robinson

In your audit and risk committees, did the National Audit Office raise any concerns about inflationary pressures and your inability to meet them at that time?

Charlie Pate

In March, it was absolutely being flagged because inflation was a challenge. What is offsetting it in the near term and from a budgetary perspective is that part of the reason we have inflation is supply chain challenges and that is impacting delivery of specific programmes, so on some programmes we are not able to spend as much as we forecast. In the immediate term, we are balancing that against where inflationary pressure is coming through.

Gavin Robinson

In the six months prior to March, there was a continual and increasing rise in inflation rates—3%, 4%, 5% at the turn of the 2021-22 year; 5%, 6%, 7%; and then into double digits very quickly and for six months pertaining. How much pressure has that placed on the RDEL—your resource departmental expenditure limit: the money you have to spend not on things?

Charlie Pate

In the immediate term, it is limited. The main RDEL expense is our personnel, particularly our military personnel. Obviously that inflationary pressure is set by the pay review bodies. It was 3.75% for this financial year and we were able to fund that within the departmental allocation, including our overall departmental contingency.

Gavin Robinson

No pressures associated in RDEL—

Charlie Pate

For the second year running, we have not run a centrally led—by me to our Ministers—savings exercise within the Department. As you know, that was a regular occurrence, but for the last two years we have not run that. Under the delegated budgetary system, individual top-level budgets are managing what they can to manage within, but no specific saving measures have been put to Ministers to manage within the budget this year.

Gavin Robinson

There have been real-terms cuts in RDEL every year since 2021, with the budget position you had at that stage in the spending review.

Charlie Pate

Over the period, and this was clear in SR20, we have had a falling real-terms RDEL budget, which primarily reflects the reductions in the size of the armed forces, but also reductions in the cost of support. What is also reflected in the accounts is a reduction of the cost of operations, which, as you know, primarily comes through resource DEL.

Gavin Robinson

Two or three years ago—Lieutenant General, you may recall some of this—I remember cancellation of training in the High North. Some of that was Royal Marines, who were regular cold weather programme trainers and trainees. That was paused. Are there no decisions like that this year?

Charlie Pate

We have not run those decisions centrally. Each TLB takes its own decisions on what it can afford within its requirements. But those decisions—

Lt General Magowan

As you know, we are reinvesting in the High North and the Norwegians have been exceptionally generous to give us a camp called Skill Camp, which you may well have been to. So we are going back to the north.

Gavin Robinson

If you are saying there have been no pressures leading to cuts in resource spending on programme costs, what do the three services say?

Charlie Pate

I have quarterly sessions with each of the chiefs as budget holders, assessing where we are collectively with our budget. It is taut and challenging, as you would expect, but they are not taking decisions within their budgets that they need to raise to Ministers that have an impact on our operational effectiveness.

Gavin Robinson

That is quite a different answer from what we got earlier. So they are taking decisions—they just do not feel the need to bring them to Ministers?

Charlie Pate

They are not affecting ministerial policy requirements or operational outcomes. They are managing within budgets that are the size of many Whitehall Departments’ and are taking decisions that they need to take about where they need to prioritise. On the example you gave, no—we are investing more.

Lt General Magowan

I am not aware of major exercises that are critical for our collective training capability being cut.

Gavin Robinson

Okay. Where are we with inflation forecast assumptions in the Equipment Plan?

Charlie Pate

As we go into the new financial year, we will be considering our Equipment Plan going forward and taking account of the inflation forecasts at that point. We have really detailed analysis of inflation, but those are broad ranges of forecasts, because it has been shifting, and we need to be careful of—

Gavin Robinson

Obviously you cannot forecast, but will this year’s experience mean that you have ground to gain back in future years, where you will have to spread expectations on equipment purchases?

Charlie Pate

On a £242 billion Equipment Plan, we are constantly managing that as a portfolio. Some things do move to the right, primarily because of supply chain issues and other delivery issues. Where we can, we pull elements forward to take account of that. Particularly in a high inflationary world, the more long-lead items we can purchase early, the better value for money we can deliver. Where we are certain of a programme and the commercial capability is there, we are pursuing more of those kinds of approaches, which we did not really do before.

Gavin Robinson

Could you give us a few examples of aspects that have been brought to the left?

Charlie Pate

Yes. On Type 26, as part of the overall sign-off in the autumn, we procured—I am not aware of the exact specifics—several hundred million pounds-worth of long-lead items, so we have those in the warehouse. The cost of warehousing now is much cheaper than the expected inflationary pressure going forward.

Lt General Magowan

We are having a conversation with the Secretary of State at the moment about long-lead items for Challenger 3.

Gavin Robinson

You are in that conversation at the moment?

Charlie Pate

Yes.

Lt General Magowan

Yes.

Gavin Robinson

Okay. Thank you, Chair.

Dave Doogan

So 3.4% for uniformed personnel this year—is that the pay offer, Mr Pate?

Charlie Pate

No, I was referring to last year’s pay award, which was 3.75%.

Dave Doogan

Okay. Like many others, I am concerned that some of the pressures on resource DEL have been met with pay restraint on uniformed personnel. I would like any assurance you can give me that that is not the case. I am worried that the recruitment and retention challenges that are faced across all three services, but most acutely in the Army, are a function of the attractiveness or otherwise of the package of joining the armed forces in the United Kingdom, not the least of which would be pay. How much and to what extent are the pressures of RDEL being met off the back of pay for uniformed personnel?

Charlie Pate

Pay is a matter for the pay review bodies. The Government fully met the pay review bodies’ recommendation from last year. We await working through the process and seeing the recommendations for this coming year. We fully met the recommendation last year.

David Williams

More generally, we are midway through a review of the totality of our offer to armed forces personnel. It is a review of incentivisation and reward that is being run for us by Rick Haythornthwaite, so it is known as the Haythornthwaite review. That is looking at the pay offer, the pension and wider offer, at what prompts people who want to join the armed forces and what prompts people who want to stay. That is a piece of personnel policy work that will be reporting later this year, alongside the engagement with the pay review bodies on the ’23 pay round.

Mrs Lewell-Buck

I would like to revisit some of the comments from my colleague Sarah Atherton. The Chief of the General Staff has said that our Army is lacking in capability and capacity around the sustainment of military equipment and supplies. We know that delays remain to some major projects, which I believe we will come on to later in the session. Since Levene, there have been 17 reviews of Defence procurement. Why aren’t lessons being learned? What is it that is resistant to change in the MoD and the Armed Forces?

David Williams

Do you want to start, Mr Start?

Andy Start

By all means. I think it is fair to say, in terms of lessons learned, that there has actually been quite a lot learned over the last decade. I went back and had a look at both Levene and the Bernard Gray report, which articulate the fact that at that time, roughly a decade ago, the vast majority of programmes were late and the vast majority of programmes were way over budget. If we look at today’s data, it is much better than that. That doesn’t mean that there isn’t still a lot more to do, and all of us at this table are committed to do better, but in terms of the overall performance against programmes. at any one time there are about 750 contracts, about 600-plus programmes, and the majority of those programmes deliver on or ahead of their P50 forecast, and the vast majority deliver ahead of budget. There are some really problematic programmes that significantly overrun, and that is where we definitively need to improve our performance, and we can unpack that—maybe I will ask colleagues to talk a little bit more about that. But once we have got to the full business case decision and contract award, our performance overall is actually pretty good. We definitely have to focus on the problem programmes and improve those, and we definitely have to do work on pre-main gate performance. Overall, we would like to be faster, better, cheaper, and we are committed to doing that, but it is important to see that my predecessors and their colleagues across the Department have made decent progress over the last decade. This Committee should take some credit for that because you have constantly applied pressure and recommendations through that period and those recommendations have all been implemented. I think it is a journey, and we’ve got more to do on the journey. It is probably worth passing to Mr Pate to talk a little bit about the pre-contract award phase, where we have more to do, but we are also making progress.

Mrs Lewell-Buck

Can I just come in on that? We hear that a lot in Parliament—"lessons have been learned and more improvement is needed”. We are talking about 17 reviews over 10 years. Why is it so slow? There are still projects where billions of pounds of taxpayers’ money are being wasted, essentially. What is the sticking point?

Andy Start

Let’s start with the dynamic that Defence acquisition and delivery is complex. As we mentioned earlier, I talk to my colleagues in multiple other nations about their dynamics, and they have similar dynamics to us, so this is not a UK issue. This is a general challenge that exists across very complex development and delivery programmes. We have had multiple reviews, and we will continue to have more reviews. We will welcome Mr Francois’ review shortly. Each of those reviews identifies opportunities to do better, and each of those makes recommendations that are implemented and it improves. That is why, over the long term, there has been dramatic improvement in programme performance from a decade ago. That does not get away from your point about the fact that we still have some really difficult, problematic programmes—I am sure we will talk about Ajax in a moment—but the broad picture is one of improvement.

Mr Francois

Absolute rubbish!

Andy Start

That doesn’t mean that we do not need to do better going forward, and we are committed to doing so.

Derek Twigg

Can I ask you to remind the Committee how many of the major programmes have got cost overruns or are delayed in delivery?

Andy Start

If you look at the top 200 or so programmes and you look at outturn—not in-flight, but outturn—just over half deliver on or ahead of their P50 per schedule.

Derek Twigg

So just under half don’t.

Andy Start

Which is what you would expect.

Derek Twigg

So you would expect half the programme not to be doing that.

Andy Start

Just under half are delivered beyond their P50. P50 is P50, which is what you would expect for half. Even more—in fact, the majority—deliver ahead of their P50 on cost. You can look across that programme base, at outturn. When Mr Francois and the Sub-Committee come in and look, we will take you through the detailed data across all the programmes. We plan on P50—

Derek Twigg

In plain language, remind the Committee what the current cost overrun is in total for the programmes that you are running. You should know that. You are in charge of the finances.

Andy Start

I cannot give you the PAC number. As a percentage of the total, it is relatively small. It is in the PAC brief.

Derek Twigg

You don’t know the actual number.

Andy Start

I haven’t got it. If you had asked me in the PAC session—

Derek Twigg

How many months or years—

Andy Start

In terms of months, it is about a 2% overrun across the whole programme. I am sure my colleagues can help me with the exact number in a moment. The key dynamic is that this is a very large portfolio.

Derek Twigg

We know that.

Andy Start

Across the large portfolio, on balance, the majority deliver ahead of their P50 on schedule, and the vast majority are ahead of their P50 on cost. There is a spread, but we would expect that.

Chair

We expect more detail. You mentioned Mr Francois’ Sub-Committee review, so we will go into detail. Emma, do you want to continue?

Mrs Lewell-Buck

I am just concerned that there is something culturally and fundamentally wrong. It has taken review after review, to go back to my original point. There are questions about our readiness, bearing in mind the precarious state of the world right now and that we have depleted stockpiles. Is readiness at the forefront of the mind of people in the MoD?

Andy Start

Absolutely.

Mrs Lewell-Buck

It does not appear so because we are running out.

Andy Start

Let me try to reassure you. I have been in the job for about five months. What I have been commenting on is the performance over the last decade of various predecessors. We have gone from a very bad place overall to a place today where on balance most of the delivery is good, but we have a proportion of delivery that really is not. [Interruption.] Let me finish answering the question. In terms of what we need to work on going forward, we absolutely need to work on driving up availability of the fleet. That has to be a priority. It is a clear priority of the Chief of the Defence Staff. We have to work on spinning in technology and capability more quickly on top of our current assets to make us more battleworthy. We have programmes running against that and I am committed to accelerating it. We have got to improve our level of partnerships internationally and with industry and across the Department. We have programmes in place to work against all those. So we are not complacent that it is good enough by any stretch.

Chair

We will take this further; that is actually why Mark Francois wanted to request a Sub-Committee review of this. In all our journeys, when we visit industry, their biggest complaint from the MoD is that you keep changing the brief. You keep changing the spec halfway through. Now, they actually like it because, of course, what do they do? They charge you more money. You are new in your job, but I am pleased that you are starting to get a grip on this. In so many reviews and each time we have procurement review, you are given the same recommendations.

Andy Start

Let me just say before I hand over to David: we are absolutely not complacent about this. There is an enormous number of things we can do better, and we are committed to doing so.

David Williams

Very briefly, Mr Start has talked about performance improvement within Defence Equipment and Support and the acquisition and procurement end of the business. That is absolutely part of a wider set of initiatives in being clearer-eyed about the risk and potential blockers in programmes as we set them up. It is absolutely about being clearer-eyed on the requirements in terms of how we specify them, being clearer about what is good enough and being really disciplined that at the handover into procurement action, you are not going to change those requirements again. However, if you go to something that is good enough and can be developed over time—so a sort of spiral development—these are not new lessons either, but it is both about how we set out the requirements and the capabilities that we need and then how we go about delivering it with industry. There is a cultural point for me, which we have reflected on. Certainly a lesson for us from the Integrated Review, made only more important by the experience of the past year, is that traditionally, in that triumvirate of performance, cost and time, in the end in our core equipment programme, time has often been the poor relation. If something has to give, it is schedule, whereas increasingly I think we are in a world where if there is one thing you want to hang on to, schedule is really key. In a number of our programme areas, having schedule as the driving component of our delivery is definitely the way in which we are now conducting business.

Chair

The other concern that is in every single report is the absence of muscle memory, of understanding the intellectual capability held by the Minister responsible for procurement and, indeed, those in the lead themselves. I am imagining two great friends who were both in the SAS. They did a great job and their next posting after doing all that SAS-type stuff was smart missile procurement, which they knew nothing about. They had to do 18 months in that portfolio because that was what was expected of their career path. They could not wait to get out of smart missile procurement and back into what they did best. That is an example, I’m afraid, of 18 months where they spent the first half of that time learning what to do. They then started to get a grip and then were rolled out to do something else. That still happens today.

Lt General Magowan

When was that?

Chair

I shan’t mention their names because it would be wrong to do so.

Lt General Magowan

No, not their names, but the story you are telling, Chair: when did that happen?

Chair

It was about three or four years ago, when I was Minister.

Lt General Magowan

Mr Pate can talk about the work, but I do not think that would happen today. The work we are doing with senior responsible owners and the amount of time a senior responsible owner needs to spend on a project and the level of training they are required to undergo is a direct lesson that we have learned. I will accept that LFE—learning from experience—needs to be stronger in the Ministry of Defence and we need to recycle those lessons in a much more agile way. Can I add—I am not being defensive—that we are painting a picture that if Defence sorted all the problems out it would be fine? However, we are reliant on an industrial base and a volume of people in this country that can run a project or have IT skills on both sides of the boundary, whether in the Department or the defence industrial base. We have learned from Ukraine that our industrial base is not resilient enough. That is what we are getting after, and that is why we need more people to go through STEM. My point is that we don’t control all the levers.

Chair

It doesn’t help from our side, the political side, how many procurement Ministers you have gone through—we’ve had I don’t know how many Prime Ministers in the last five years. There is another side to this, which we fully appreciate that you are not in control of.

David Williams

There are limits to my influence, Chair.

Mrs Lewell-Buck

Just to come in on that, the industry often tells us that the skillsets are lost because there is not a regular drumbeat of orders from the MoD and so on. It is a twofold thing. I am not saying that there is blame in just one place.

David Williams

Going back to the conversation about ammunition, getting a sustainable pipeline of throughputs so that we maintain skills and industrial capacity—

Mrs Lewell-Buck

But the point is that it shouldn’t be lost in the first place.

Chair

Can we now start looking at some of the very, very big projects that are earmarked, I am afraid, yellow or red—in other words, they are not going very well? My first question—Mark Francois alluded to this—is this: is there a distinction between you and the Infrastructure and Projects Authority, which is this overview department in the Cabinet Office that looks at everything the Government is doing that is big? Do they have a different colour coding from you? Sorry, the colours are the same, but I understand that the definitions of what go in green, yellow, amber, red and so forth are not quite the same. Is that fair?

David Williams

Let me have a first go, and then Mr Pate can correct me if I am wrong. They are the same. The difference is that the IPA’s published report is done annually, based on the end of quarter 4 of the financial year. They come in at key decision points and investment points and do spot reviews of programmes, so they iterate through the year. We ask our SROs, using the same criteria and metrics, to give us a view of performance on a quarterly basis. The end-of-year quarter is the one agreed with the IPA and shared. Over the lifetime of a programme, if the IPA comes in, they may have a different view from the SRO at that point, but they are then normally resolved.

Chair

Okay, but we receive all these documents, and they don’t seem to match.

David Williams

It is a timing point, rather than a definitional one.

Chair

Thank you. Looking at the report, there are clearly an awful lot of yellows and reds in the top echelons, which is what Derek was referring to. We are going to come to Ajax separately, because that is so large. On the Clyde infrastructure programme, there are safety concerns about the nuclear submarine; that is in the red. Crowsnest comes up every time; it is consistently going poorly. Then there are others that are creeping into here for other curious reasons. The A400M is there I think because you had to modify it because you are getting rid of the Hercules. What is causing all these things to be in the red? Is it, as we have discussed, decision making? Is it a lack of funds for completing the project on time? There are too many projects that are not in the right colour.

Charlie Pate

These are spot assessments at a point in time. We take them quarterly, and then the end of financial year ratings are published by the IPA. Those are the ones that you have from last summer. These vary through the year. Several of them that were red last year have now gone amber, and others have now gone red. That is the nature of our overall portfolio. These are our 50 or so most complex programmes. There are two themes in types of programme, and then there are several systemic or generic issues across the piece. Our nuclear programmes continue to be challenging. These are first and last in class. This is a once-in-two-generations recapitalisation of our nuclear capability, and they remain very challenging. You are seeing that reflected in the ongoing ratings that we publish. The others are some of our digital programmes, particularly where we are exiting from long-standing, monolithic legacy contracts. The Public Accounts Committee recently had a hearing on those. They have been difficult across industry and across Whitehall. We have made substantial progress, but some of them still remain red because they are outside either their cost or time tolerance.

Chair

Thank you. Just a couple of specific questions. The Lightning is critical for our frontline. Apparently there are delays in providing that second frontline squadron from the original planned timelines. Can you explain why there is a delay?

Lt General Magowan

One of the reasons is because of people. We have recalculated the number of groundcrew we need to support the second squadron, but we are confident that that second squadron will be operationally available in 2025.

Chair

We visited Marham as well, and it was actually very helpful. The number of women coming through is impressive, but I hope the Committee will agree that there is a second helmet—a lighter helmet—that needs to be procured in order to allow women to be able to fly the aircraft as well, which I think is important too. Then there is some information that is just absent; we don’t have it. Maybe you could write to the Committee with the gaps—Sea Venom, for example. There are delays in this, but we were not given a reason.

Lt General Magowan

Sea Venom is a technical integration issue on to the platform, but we are confident that we will deliver Sea Venom’s strike capability.

Chair

If we may, we will write to you with a list. A Future Cruise/Anti-Ship Weapon programme—again, is that technical?

Lt General Magowan

No. There is an Anti-Ship Weapon, and there is a DeepStrike weapon capability. It is something that, as you know, we are working on very closely with our French colleagues, but it is a challenge. We are not going to make 2028, so it is looking like we are going to go into 2030. They are both really technically challenging, and there are potentially two different solutions as well, which we are working on with the French.

Andy Start

The Sea Venom example is actually quite a nice one to talk about. First, it is a nice example because it is one where we took risk in terms of the deployment envelope; it goes back to the earlier question about taking risk around safety. In a very calculated way, we took risk around safety so that we could deploy Sea Venom to CSG21.

Chair

That is really helpful, but I will leave it to correspondence, because we want to make progress. We are very pleased to hear that there is an answer to that. I just want to go back to the bigger budgets and losses. Derek, do you want to probe that a bit?

Derek Twigg

Before I go to my question, Mr Pate you said that the nuclear programme is very difficult and challenging. What is the overrun cost or expected increase in cost? Is it £5 billion to £9 billion?

Charlie Pate

There are different elements of the programme. On the Dreadnought, we have the £10 billion contingency, and we are still within that £41 billion.

Derek Twigg

But on the overall programme, is it £5 billion to £9 billion?

Charlie Pate

I don’t have the overall number for the overall nuclear enterprise.

Derek Twigg

You don’t know. Does anyone know?

Charlie Pate

I know that specific elements of those programmes—

Derek Twigg

But it is in the billions.

Charlie Pate

Yes.

Derek Twigg

You don’t know the exact figure. Could you write to us and let us know that figure?

Charlie Pate

We will need to frame it within the specifics.

David Williams

It depends on how you define the nuclear programme—which components, and over what period—given the various different stages of maturity of our programmes.

Derek Twigg

I get that, but you know what I am talking about.

David Williams

For instance, the cost range, quite apart from any overruns, on the replacements—

Derek Twigg

You have a budget. What I want to know is how far over that budget you are going to go. I think that is pretty straightforward.

Mr Francois

If you use the nuclear enterprise definition, we need to know how much that is over budget.

David Williams

We can get back to you on that basis.

Derek Twigg

If I could just ask Mr Williams a question. Given that negotiations are going on with the Treasury at the moment for an increase in funding for Defence, which I am sure the Committee would in general and in principle support, what do you think the Chancellor will make of the fact that on page 141, on losses, you have seen an increase from the previous year, at £82 million, to nearly £134 million? Will that give them confidence that the extra money is going to be well spent?

David Williams

Clearly, we take action to minimise losses and fruitless payments as far as we can, though against the scale of the balance sheet, particularly in Defence, these are not necessarily excessive in terms of what you might routinely expect to come through. Quite a lot of them are technical accounting adjustments rather than direct cash payments.

Derek Twigg

What about Watchkeeper? Is that a technical adjustment?

David Williams

On Watchkeeper—

Derek Twigg

There seem to be quite a lot of problems. Either someone has been very clumsy or not very efficient.

Charlie Pate

These reflect operating challenges, and we have them in various years, and we have had challenges with Watchkeeper, yes.

Derek Twigg

I know we cannot talk about the sensitive item, because it is sensitive. Is that operational challenge as well?

Charlie Pate

No, it is not around operational challenge; it is around capability build.

Derek Twigg

Capability, which we discussed before. In terms of the write-off of AUC at £24 million?

Charlie Pate

That is also a sensitive capability where we had to change the design, and so we had to write that off.

Derek Twigg

So we are not doing too well on our sensitive capabilities, are we?

Charlie Pate

We have a £170 billion of assets on our balance sheet, and this is about a £100 million loss against those assets. Several of those items actually reflect good management, reflecting that we have assets but to continue running them is not value for money, so we write them down.

Derek Twigg

But the Treasury ask you to provide those figures because they are considered significant losses—and I use the word “losses”. Basically, the losses have gone up from £82 million to nearly £134 million. That is not a great performance, is it?

Charlie Pate

They reflect the specific elements that happen during the year, including, as you pointed out, the Watchkeeper issues, but also where we have taken specific action to dispose of items because they no longer provide value for our Armed Forces.

David Williams

The numbers can move around based on quite small or single events, so I think we have included some pre-notification, and next year’s figures include the value of the loss of the F-35, which we lost off the front of the Queen Elizabeth in the Mediterranean. So the numbers can be quite volatile.

Derek Twigg

That is the F-35, yes?

Charlie Pate

Yes.

David Williams

Yes.

Derek Twigg

But on that, you have two tables. You have £105 million, which is the advanced notifications, and the previous table shows the closed cases. So is that in addition to those closed cases?

Charlie Pate

Yes, those will come forward in future years’ accounts.

Derek Twigg

So we have another £105 million?

Charlie Pate

And I am afraid, Mr Twigg, that there will be an ongoing—

Derek Twigg

Which is still higher than 2000 and 2021?

Charlie Pate

As Mr Williams has pointed out, that is primarily because of the loss of the F-35. It is specific events that lead to issues.

Derek Twigg

It is not going downwards, though, is it?

Chair

Thank you for that, Derek. Can we move on now to the 14 Chinook helicopters that we were hoping to buy but were somehow delayed? We ended up saving £900 million in the short term; I think that was the result of the Integrated Review because the money was needed elsewhere. Stop me if I have deviated from anything that is either new or incorrect. No? I can continue on. Again, I go back to my very first phrase that I used in this Committee when we started this morning: you need more money. If you had more—the money that you required—we would not be delaying the purchase of 14 Chinook helicopters. I should add that those are often used by our Special Air Service. Please can you update the Committee on where we are with those 14 Chinook helicopters and the £900 million that was saved? Where has that gone?

Andy Start

From a programmatic perspective, these are FMS cases bought from the US Government, so they are actually primed by the US Government. As a consequence, they have had delays in their programme and, as a consequence, the timing has moved back to a first delivery in 2027, ready for training in ’27 and an IOC in ’28. They are back to the programme that we had, that we were hoping to accelerate. We cannot not because of anything on our side or funding, but because of the timing around the US programme, in particular around global supply chain issues which the US Government are facing.

Chair

So on no account was this a consequence of the Integrated Review; it was a US problem that led to the delay.

Andy Start

In sequence, the initial programme was moved back to reflect overall affordability, which is to do with the overall affordability envelope. We had hoped to use an opportunity to pull it back forward again when we saw a financial opportunity to do so, but, unfortunately we cannot do that because the US Government cannot speed the programme up to meet our timelines, because overall—this is true across multiple programmes at the moment—there are knock-on consequences of both covid and Ukraine that are impacting the global supply chain. That is affecting defence acquisition globally for all nations, particularly around semiconductors, cable harnesses, connectors and various other things.

David Williams

To your first point—and I think this is common for every MoD around the world—our job, or principally General Rob’s job, is to balance capability against the funding available. So, it is a balance of investment, and looking at affordability and capability benefit in the round. Looking at the overall programme coming out of the first Integrated Review, it was judged acceptable to defer this sustainment programme, but that was clearly with the margins of, “But if we’re able to bring it forward—great.” As Mr Start says, we saw a financial opportunity, but programmatically it is less easy to deliver.

Chair

This is an important workhorse for the Armed Forces, isn’t it?

Lt General Magowan

It is not a workhorse. We are at cross-purposes here. This is the Extended Range CH-47—

Chair

No, I am talking about the Hercules—it as an important asset.

Lt General Magowan

As Mr Williams said, it is a balancing of its capability value against the budget available. There is no doubt that the CH-47 Chinook (Extended Range)—just to be clear that this is what we are talking about, Chair—will go into our special forces, so that we can recycle existing CH-47s into the green fleet. It is a critical capability, but Mr Start outlined—

Chair

May I confirm the numbers?

Lt General Magowan

Fourteen.

Chair

Out of a total fleet of 50, is it?

Lt General Magowan

No, I have the number here: 69 MH-47G Block II.

Chair

And there are no plans to cut those?

Lt General Magowan

No. In fact, there is money in the Chinook programme to improve the readiness of the current fleet, but we will retire the oldest—this a 1967 airframe. We will retire 14, as the 14 Extended Range come into our special forces.

Dave Doogan

We have talked about Chinooks and we will be talking about Ajax shortly. Take your pick—there is a whole host of programmes where we can point to a lack of institutional grip. I want to put a scenario to you, which has come to pass: ordering two aircraft carriers 15 years ago at a cost of £6 billion; they have been commissioned and at sea for three years; the Government of the day have chosen to facilitate their Indo-Pacific tilt with that capability; and yet the Type 45 destroyers designated to protect a carrier do not like to sail—or struggle to sail—in warm water, while the airborne early warning system designated to overfly it and protect it is still not operational. All those things taken together are mass incompetence at extraordinary cost—that would be my assertion. I am interested to hear your counter-assertion.

Lt General Magowan

A couple of things first, Mr Doogan. The Type 45, absolutely, had problems in warm water. That is why we have the propulsion improvement programme, and one is already out—

Dave Doogan

It is a bit late.

Lt General Magowan

Well, it is in play. Our job today is to address the problems that you have identified with the Type 45 destroyer. Secondly, when you say “airborne early warning”, I assume you are talking not about E-7, but about Crowsnest.

Dave Doogan

Crowsnest, yes.

Lt General Magowan

Crowsnest is capable. I think that someone mentioned that Crowsnest is a disaster, but I would dispute that.

Chair

The procurement of Crowsnest has come up again and again—

Dave Doogan

It is yesterday’s technology and years late.

Lt General Magowan

Crowsnest is a capability today. We have seen that in CSG21. Software upgrades are happening on a monthly basis. We will see it continue to deploy—

Dave Doogan

Is it at FOC?

Lt General Magowan

It is not at FOC.

Dave Doogan

Is it at IOC?

Lt General Magowan

It was declared at IOC in CSG21. I will get to the answer to your question. We never declared Crowsnest to be the future enduring solution. The future enduring solution for airborne early warning for an air carrier strike group is probably uncrewed. That is why Navy Command is investing in uncrewed technology for airborne early warning to protect the carrier. The other point I would make is that I think we have proved on CSG21 that it is not just us in the fight. If we are deploying these carrier strike groups into harm’s way, we will probably be in a NATO construct. Therefore, our ability to reach across our allied partners to provide escorts, SSNs and airborne early warning will be part of an allied effort.

Dave Doogan

And that is great, you know. Multilateral operations are brilliant—

Lt General Magowan

It is reality; it is the operational reality. Dave Doogan:—on a whole range of levels, but you cannot be, or claim to be, a blue-water Navy unless you can deploy alone. It’s great if you can do it with others, but if you cannot do it alone, it is a bit of a farce.

Lt General Magowan

That is why we have got Type 23, graduating to Type 26, which is the—I am no ASW expert, but I am told that it is the premier global ASW platform—

Dave Doogan

When it gets here.

Lt General Magowan

Yeah, well, it’s not that late.

Chair

Just for clarity, Crowsnest is marked red in the IPA report. It says, “Crowsnest is yet to declare Initial Operating Capability due to industry historical poor performance and the programme requires formal approval to rebaseline the date. This can only be sought once key milestones have been satisfied.” That is where we are with Crowsnest, according to the IPA.

Andy Start

If I may answer on Crowsnest, we delivered an initial capability for Crowsnest for CSG21. The official IOC definition will be met in about May-June this year.

Mr Francois

So it hasn’t achieved IOC.

Andy Start

Well, it depends—

Lt General Magowan

I was referring to an initial capability—

Andy Start

Yeah, so—

Mr Francois

This is sophistry!

Chair

Slow down, everybody. Let’s just clarify—

Andy Start

Let me just give you the clarity of where we are at— Chair:—because there is initial capability, and then there is initial operating capability.

Lt General Magowan

I was referring to an initial capability.

Chair

So that is different to operating, which is what we are interested in, because that means that it is working, protecting the aircraft carrier, which it is designed to do.

Andy Start

So, to be clear, we deployed a capability—

Mr Francois

It didn’t work. Andy Start:—that met the needs—I am told; I wasn’t around. Sorry, let me back up. Your premise, that we have some really horrible, broken programmes that aren’t good enough, is correct. So—

Dave Doogan

No, the premise is that you’ve bought £6 billion-worth of aircraft carrier, and you couldn’t protect it in a window that was 15 years long. That is the premise.

Andy Start

So, if I just stick with Crowsnest for a second, it is a horribly difficult problem programme, and we have a number of them, right? What I am pleased about, on Crowsnest, is the efforts of the team, and I would particularly like to single out the team from Lockheed Martin, who have really worked hard to try to turn that programme around. They are in a position where they have delivered a capability for CSG21, and they have enhanced that capability for IOC, which is due for delivery in May-June this year and delivers the vast majority of that capability.

Dave Doogan

I would be interested to know if you are prepared to accept this analysis. The problem is that you—not you, obviously, but Defence—tried to save a few quid by whipping out an analogue mechanical radar, which is 40 to 50 years old and was on the mark 2 Sea Kings, and tried to stick it into a digital platform. Guess what? It is really difficult to make that work, and not only has it turned out to be vastly more expensive than the electronically scanned array system that should have been in there, but it is years late.

Andy Start

I think the team executing that programme would agree with you.

Dave Doogan

Okay. Thank you, Chair.

Chair

Right; I think Mark would like to just pick up on that, then we want to turn to Ajax.

Mr Francois

Let me put it this way: you owe the Committee a duty of candour, and I think that, if we are talking about terms such as “initial capability”, we need to be really clear about what you are telling us, so that no one can be under the impression that you are trying to mislead us. Do you agree with that?

Andy Start

Yes, and that’s why I came in.

Mr Francois

General?

Lt General Magowan

You’re suggesting that I’ve been trying to mislead you?

Mr Francois

No, I’m just saying that it is very important that no one comes away from this hearing with that perception, because we know the difference between initial capability and initial operating capability.