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Defence Committee

Oral evidence: MoD Annual Report and Accounts, HC 1119

Tuesday 21 February 2023

Ordered by the House of Commons to be published on 21 February 2023.

Watch the meeting

Members present: Mr Tobias Ellwood (Chair); Sarah Atherton; Robert Courts; Dave Doogan; Mr Mark Francois; Mrs Emma Lewell-Buck; Gavin Robinson; and Derek Twigg.

Questions 1 to 167

Witnesses

I: Lieutenant General Rob Magowan, CB CBE, Deputy Chief of Defence Staff; David Williams, Permanent Secretary, MoD; Charlie Pate, Director General Finance, MoD; and Andy Start, Chief Executive, Defence Equipment and Support (Financial and Military Capability) .


Examination of witnesses

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

Q1                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.

Q2                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.

Q3                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.

Q4                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.

Q5                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.

Q6                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.

Q7                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.

Q8                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.

Q9                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.

Q10            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.

Q11            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.

Q12            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.

Q13            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—

Q14            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.

Q15            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—

Q16            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.

Q17            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.

Q18            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.

Q19            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.

Q20            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.

Q21            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.

Q22            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.

Q23            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.

Q24            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.

Q25            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?

Q26            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.

Q27            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.

Q28            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.

Q29            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.

Q30            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.

Q31            Derek Twigg: Is that signed off now as a given?

Lt General Magowan: It is in the programme of record, yes.

Q32            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—

Q33            Chair: Sorry, some confusion here—two brigades?

Lt General Magowan: Two brigades.

Q34            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.

Q35            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.

Q36            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—

Q37            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?

Q38            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?

Q39            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.

Q40            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.

Q41            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.

Q42            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.

Q43            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.

Q44            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.

Q45            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.

Q46            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.

Q47            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.

Q48            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.

Q49            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.

Q50            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.

Q51            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.

Q52            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.

Q53            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.

Q54            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.

Q55            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.

Q56            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.

Q57            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—

Q58            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.

Q59            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.

Q60            Gavin Robinson: You are in that conversation at the moment?

Charlie Pate: Yes.

Lt General Magowan: Yes.

Gavin Robinson: Okay. Thank you, Chair.

Q61            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%.

Q62            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.

Q63            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.

Q64            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.

Q65            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.

Q66            Derek Twigg: So just under half don’t.

Andy Start: Which is what you would expect.

Q67            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—

Q68            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.

Q69            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—

Q70            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?

Q71            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.

Q72            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.

Q73            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.

Q74            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?

Q75            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.

Q76            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.

Q77            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.

Q78            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.

Q79            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.

Q80            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.

Q81            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.

Q82            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.

Q83            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?

Q84            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—

Q85            Derek Twigg: But it is in the billions.

Charlie Pate: Yes.

Q86            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.

Q87            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.

Q88            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.

Q89            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.

Q90            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.

Q91            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.

Q92            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.

Q93            Derek Twigg: That is the F-35, yes?

Charlie Pate: Yes.

David Williams: Yes.

Q94            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.

Q95            Derek Twigg: So we have another £105 million?

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

Q96            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?

Q97            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.

Q98            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.

Q99            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—

Q100       Chair: May I confirm the numbers?

Lt General Magowan: Fourteen.

Q101       Chair: Out of a total fleet of 50, is it?

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

Q102       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.

Q103       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.

Q104       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—

Q105       Dave Doogan: Is it at FOC?

Lt General Magowan: It is not at FOC.

Q106       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.

Q107       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.

Q108       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.

Q109       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!

Q110       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—

Q111       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.

Q112       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.

Q113       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.

Q114       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.

Lt General Magowan: Yes, so I don’t understand your premise.

Q115       Mr Francois: Okay. On Crowsnest, it deployed, and the initial capability was, in layman’s English, the best that we could throw together at the time, because it would have been embarrassing to deploy the carrier without it, but it wasn’t ready to enter service, which is what IOC actually means. That is true, isn’t it?

Lt General Magowan: Well, there was an initial capability on CSG21. The definition that the Chair has outlined is the definition of IOC, which Mr Start has declared in his submission.

Q116       Mr Francois: And it is also true that we had to use the F-35 in that role, for part of the deployment, because Crowsnest didn’t work. That’s true, isn’t it?

Lt General Magowan: F-35 was part of the package of AEW for CSG21. I think, if the CSG21 operational commander was here—and I have had many conversations with him—he would say that the initial capability for Crowsnest, in its AEW role, clearly, in 2021, was suboptimal. He would not say that today. I have spoken to him today about that—or last week, as we have discussed this with Ministers—and the capability has improved significantly through software upgrades that the SRO is leading, so now we have a capability that the operational commander wishes to take to sea.

Q117       Mr Francois: So why has it taken seven years to do what we did in 13 weeks in the Falklands? That follows on directly from Mr Doogan’s point. We took a radar, we integrated it on to a Sea King, it was wartime and we did it in seven weeks. Here, we have taken a radar, which is actually a successor to the original Searchwater, we have tried to integrate it on to a helicopter—the Merlin, which is the successor to the Sea King—and, instead of 13 weeks, it has taken us seven years and still has not met its IOC. What learning from experience have we really learnt?

Lt General Magowan: My job is to support, in this particular case, Navy command to deliver a capability—as far as AEW is concerned—that is meaningful as we march into CSG25. As I said, that is a bridge to probably an uncrewed system. We have never said that the Crowsnest capability is something that will reach into the 2030s and beyond; it is something that will take us to an uncrewed system, which we are investing in right now.

Q118       Mr Francois: So you have spent nearly a billion quid on an interim system.

Lt General Magowan: It is a system that will bridge to a new capability, yes.

Q119       Mr Francois: Quickly, Mr Start, on the procurement side—you keep giving us this riff that there are 600 programmes that are going well, but they are mainly the smaller ones, aren’t they?

Of the 52 that the Infrastructure and Projects Authority order annually—Mr Williams has clarified the issue about the colours, so once a year there is a kind of annual health check and you agree the colours with them—of the 52 largest programmes in their report published last July, how many were green, which is defined as on track to be delivered in terms of time, cost and quality? Of the 52, how many were green?

Andy Start: I will let General Magowan take that, because I do a subset. The total is addressed by the other delivery agencies as well.

Q120       Mr Francois: General?

Lt General Magowan: Against the latest report?

Q121       Mr Francois: The IPA annual health check. How many were green?

Lt General Magowan: Three.

Q122       Mr Francois: What that shows very clearly is that while you, Mr Start, keep to this riff of, “Oh, a lot of them are on time”, the really big ones are not. It is the really big ones that are going horribly wrong, isn’t it? The really important ones—not the procurement of tent pegs.

Andy Start: Let me clarify the dynamic. The colour code goes green, which means it is definitely on track and everything is fine.

Q123       Mr Francois: I just gave you the definition.

Andy Start: Amber says that there are concerns that it might not deliver on time and on budget, and red means we are really worried. I am putting it in layman’s English.

Q124       Mr Francois: We know all this.

Andy Start: In terms of the number of reds across the whole package, we are at what—eight or nine?

Q125       Mr Francois: There were nine. In the previous year, Mr Pate, there were how many? Was it four or five?

Charlie Pate: I am afraid I don’t know.

Q126       Mr Francois: So it is getting worse, isn’t it?

David Williams: In the previous year, they had a five-colour scheme, including amber-red.

Andy Start: Programmes will go in and out of red. In fact, if you looked at the DE&S-related ones, the ones that were red last year will recover back to amber. Amber is a dynamic where the SRO has concerns that need addressing in order to be able to deliver. If you have looked at the out-turn performance, it shows that a lot of those ambers actually do deliver. It is important to recognise that the purpose of those colour codes is to signal worry and concern.

Would I like to be in a position where we had a greater balance of greens versus ambers? Of course I would, but what drives that is the fact that, as Mr Pate said earlier, we run our programmes very tight. As a consequence—and we run all those programmes on P50, which means that the vast majority of those SROs have to work really hard to execute them on time—the out-turn performance, if you look at the major project portfolio deliveries over the last year, aligns with the data I gave you earlier on.

Q127       Mr Francois: The public watching this—there may be a few—would think that you were playing statistical games. Three of them are on time and on track in terms of quality, and the man in the pub can understand that. Let’s come on to Ajax, because colleagues have other questions they want to ask. What is now the IOC—initial operating capability—date for Ajax? Who wants to take that one? What is the IOC?

David Williams: We are very nearly at the point where Ministers will be able to announce the reset dates for the programme, but it is a matter for Ministers to decide and announce, not officials. I will just give you an update on where we are on the programme.

As the Committee knows, we successfully got through the user validation trials last autumn. The reliability and growth trials started last month. We have conducted over 1,000 km of battlefield mission modules without major incident. This week, we are completing the first of the overall battlefield missions that those trials are designed to test. We are in the final stages of cross-government agreement for the reset of the IOC and FOC dates, and I would expect an announcement from Defence Ministers on those very shortly, but it is proper for Ministers to set that out to the House and to the Committee.

Q128       Mr Francois: Do you think you will have it by the time of the Easter recess?

David Williams: Yes.

Q129       Mr Francois: Thank you. General Dynamics has been making much of the fact that they want to start being paid now. We rightly stopped payment because of their terrible underperformance on the contract. Have we started repaying them any money yet?

David Williams: No, we have not. My expectation is that we will not start repaying them or paying them any of the money for work already done until Ministers have made that announcement about the future of the programme and the reset of those dates.

Q130       Mr Francois: Right, so we won’t give them any money until they can guarantee us a date when it will enter service safely?

David Williams: The dates that we set will have a confidence level around them, clearly, but we will reset the dates and that will be on the pathway to recommencing payments.

Q131       Mr Francois: On 12 July 2021, the Public Accounts Committee asked you, Mr Williams, if you would give them a copy of the Ajax contract. Have you done that?

David Williams: No, I have not.

Q132       Mr Francois: Why not?

David Williams: I think we were trying to find a way to get the Committee in to read the contract, or key elements of it. We had a number of challenges with commercial confidentiality. I will confess that I do not know quite why it then stopped, so I will happily re-pursue that.

Q133       Mr Francois: I sit on that Committee, and I have heard nothing of that. A year ago, you said, “Subject to confirming that with Ministers, I am happy to come back to you on that point”, but the implication was that you would try to get the Committee to look at it. That was in July 2021, so here we are, quite a long time beyond that, and they still haven’t seen it. You go on about commercial confidentiality; this is taxpayers’ money, so will the Public Accounts Committee, or indeed this Committee, be allowed to read the sacred Ajax contract? 

David Williams: I am happy to go back and pick it back up again with the Minister for Defence Procurement and with GD. Let’s see if we can make that happen.

Q134       Mr Francois: On the Clive Sheldon KC review into the management of information surrounding Ajax—what a politician would call the “who knew what when” review—am I right that he has now completed his report?

David Williams: It is in the final stages of fact checking.

Q135       Mr Francois: I am told that it has been delivered to the Department, but you are now going through a Maxwellisation process.

David Williams: There is a targeted Maxwellisation process and fact checking, alongside Ministers considering the recommendations.

Q136       Mr Francois: When do you expect that Maxwellisation process to be completed?

David Williams: Given that I have previously guessed and got this wrong for you, Mr Francois, I would have to write to the Committee on that, although I note that when the Minister for Defence Procurement was last here, he expressed the hope that we would be able to get the report out within, I think he said, six to eight weeks of receiving it.

Q137       Mr Francois: A cynic would say that this Maxwellisation process is, a, a way of delaying it, and b, a way of taking anything controversial out of it.

David Williams: It is certainly not the intention to delay it. As you know, I think, from Defence Ministers’ engagement in the House and with the Committee, they are as keen as you are to understand the history of this programme better and what lessons we should learn—

Q138       Mr Francois: So we can expect an announcement on the future of Ajax by Easter and we can expect the publication of the Sheldon report at round about the same time?

David Williams: That would be my ambition.

Q139       Mr Francois: Okay, and will it be published unredacted?

David Williams: I think the last that the Defence Secretary said in the House was that it was the intention to publish it unredacted unless there were issues of national security or against a high bar for commercial confidentiality.

Q140       Mr Francois: This will be my last question. Following on from what Ms Lewell-Buck said, there have been endless reviews of defence procurement. Peter Levene wrote a report in 1986 on this, after the failure of the Nimrod AEW programme, which cost £1 billion of taxpayers’ money. It didn’t work and we had to buy you out instead.

The report was called “Learning from Experience”. In 2010, we canned Nimrod MRA4, which was the airborne surveillance—ASW—version. That cost us £4 billion. We have now spent £4 billion on Ajax and it is years late. And there are all the other ones we could go through: Crowsnest—there are tons of them. Mr Start, have we really learned anything from experience at all?

Andy Start: If your thesis is that there is still a lot that we need to do better on, I agree with you. If your thesis is that there has been no progress since the Levene report, I don’t think that is true, looking at the data that I have looked at, but I am really happy to share that with you and allow you to draw your own conclusions.

Q141       Mr Francois: That was an answer worthy of “Yes Minister”, if I may say so.

Andy Start: For somebody who is an industrialist by background, I feel quite proud of that.

Chair: We will be exploring Ajax further, I think, in the Sub-Committee review, but thank you for that, Mark.

Q142       Gavin Robinson: I just want to ask something very quickly on the Sheldon review. You are right: the Minister said to us “six to eight weeks once it has been received”. Has it been received?

David Williams: The point I need to check is whether it has gone to Ministers in parallel with the fact checking or whether that is happening in sequence.

Q143       Gavin Robinson: So what is the answer?

David Williams: I just don’t know.

Q144       Gavin Robinson: Has it been received?

David Williams: Well, it is in the system in the Department—

Q145       Gavin Robinson: When were you in receipt of it to commence your fact-checking process?

David Williams: I would have to check the date of the letter that I got—

Q146       Gavin Robinson: Last week? Two weeks ago? Three weeks ago? Six weeks ago?

David Williams: No, not six weeks ago. It has been in the last couple of weeks, I think.

Q147       Gavin Robinson: The last couple of weeks—okay. And you will confirm whether the six to eight weeks commences on receipt—

David Williams: Let me come back to you on the timeline.

Gavin Robinson: Or on conclusion of your fact-checking process?

David Williams: I will do that.

Q148       Mr Francois: David, we are two weeks in.

David Williams: That kind of timeline.

Chair: I love that phrase: “It’s in the system.” It covers so many options.

Q149       Dave Doogan: Just very quickly, what do you think the export potential is for Ajax? [Interruption.] Okay, I will take that as a “not very bright”.

Lt General Magowan: No, I think it is an excellent capability.

Q150       Dave Doogan: I also think it is an excellent capability. I have been in it; I have seen it. I would not know a good armoured fighting vehicle from a bad one, to be honest, so I was easily impressed, but I was impressed. My point is that I am concerned—it is much like the Mk 2 Chinook debacle, where Boeing said, “You really don’t want that,” and the RAF said, “Yes, indeed we do,” and they sat in a hangar for I don’t know how many years, because they couldn’t go out in the rain.

My concern is that the contender for Ajax, which was very much a British Army, bells and whistles experiment in how to make something expensive and late—the alternative vehicle could have been built, I think, in Newcastle by BAE. I don’t want to get in a contractual mither, but the fact remains that the only state that will operate Ajax is the United Kingdom—I’ll put a fiver on that.

If you look at CV90, which was Ajax’s competitor, it is operated by a plethora of NATO allies and they will share between them, and the United Kingdom could have done similarly, the upgrade costs and the subsequent integration costs. They will be far more suitable to fleet-of-foot logistical support, shared deployment—all of that. Yet again, the United Kingdom went, “That’s all right for everybody else, but we’re really special. We need something a bit special.” When are we going to shake off that mentality?

Lt General Magowan: First of all, we will see what happens with Ajax. When Ajax deploys on operations and performs in a certain way, people will make their own judgment. You are a braver man than me, Mr Doogan, to put even £5 on, because the future operational battle space is unseen and we’ll see how Ajax—

Q151       Dave Doogan: They might want it, but I bet they can’t afford it.

Lt General Magowan: Ultimately, one of the key lessons of Ukraine is that we want to ensure that we have got a strong sovereign industrial base, so that come the day of the race we can turn around and there are companies out there that literally fly the flag, and we want to be able to rely on them to respond to us when we are under a significant operational pressure, like we are at the moment in supporting Ukraine. That is one of the key lessons.

Andy Start: I think what you do speak to is the great dilemma within defence. I think that the move towards having a defence industrial strategy that takes a longer-term view of those dynamics was the right thing, because it is trying to take into account the dynamics that you are talking about. With the work that Avril Jolliffe and her team are trying to do around increasing exports and taking into account long-term opportunity, we are trying to get that factored into the calculus. But it is a complex calculus of trading off cost, time, risk, UK industrial capability, so it is non-trivial.

Q152       Dave Doogan: I would be reassured by that, Mr Start, if we had not just made the very same mistake with Challenger 3. We will yet again be operating a platform that nobody else in the world does. It is a very expensive habit.

Lt General Magowan: You have just selected one or two there, but we could select others that are currently very successful from an export perspective.

Q153       Chair: Could you write to the Committee and give us the unit cost of a 30 mm Rarden cannon round versus the 40 mm caseless round that is used by Ajax? I would be very interested to know how much it costs to fire the main weapons system.

David Williams: I will do my best.

Chair: Please.

Q154       Dave Doogan: If Mr Williams accedes to that request, for good measure can you pop in the flight-hour costs of Typhoon? We can find out what they are for F-35, F-16, or Saab Gripen, but somehow we can’t find out what they are for Typhoon.

David Williams: I am happy to have a look at that.

Dave Doogan: Thank you.

Chair: We are very much running out of time, so we will have to write to you with some of the questions that we would have asked. David, do you want to pursue your question on estates?

Q155       Dave Doogan: Yes; thank you.

The SDSR 2015 set out to reduce the estate by 30% to generate savings of £2.4 billion by 2024, but the 2021 NAO estimate said that the forecast was for only a 16% reduction and net benefits of less than £1 billion, so have you scrapped those targets as they were not based on detailed plans? If so, what does that say about the quality of evidence underpinning defence reviews and the critical decisions that flow from them?

Lt General Magowan: The situation has changed, because of Future Soldier.

Dave Doogan: Okay.

Lt General Magowan: So the Defence estate optimisation programme—it is not just Army, but it is primarily Army—set a baseline, which those figures were based on, and then Future Soldier recalculated and calibrated the Army footprint to meet Future Soldier, which changed the Defence estate optimisation programme’s plan. And it meant that some of the reduction in scale that you have just articulated, Mr Doogan, changed. That’s the primary reason.

Q156       Dave Doogan: But you set out a plan to reduce the estate by 30%, and Future Soldier is responsible for all of that—

Lt General Magowan: I didn’t say all of it, but that is the primary driver.

Dave Doogan: Okay. Are we getting on to service accommodation later on, Chair?

Chair: We are running out of time. I was going to say that we will write to you, but I did want that question to be done now. So, if you want to perhaps open it up, and then Mark can wrap this up, but I want—[Interruption.] But so important is this question about service accommodation, because it’s been raised so often, that we do want to pose those questions.

Q157       Dave Doogan: I will just conclude my point and then Mark can come in on accommodation specifically. Give us the refreshed position on the robust estates target. What is it?

David Williams: We have come off the 30% production target. What we are looking to do instead is deliver the portfolio of projects; I think there are around 80 projects overall in the estate modernisation programme.

Our metrics are about how well those individual projects are delivering, while also then measuring ourselves against the overall objectives for the new strategy that we published for Defence infrastructure. Those objectives are on page 54 of the annual report and accounts. We do not have a headmark figure for the reduction in the size of the Defence estate in the way that we did in previous reviews.

Q158       Dave Doogan: Okay. What is explicit is that the Defence estate optimisation programme has increased by more than 400% from £1.3 billion to £5.4 billion. What are the reasons for that significant increase?

David Williams: The principal reason for that increase is that when the programme started, we were making assumptions about access to private finance for major infrastructure programmes. The Government took a decision in 2018, or something like that, not to progress further on PFI2, so we have had to substitute conventional capital investment for private finance, which means we are bearing the up-front build costs rather than servicing a private finance deal through a client.

Dave Doogan: So it is an accounting point, really.

Charlie Pate: No, it is the sources of finance. It was resolved in spending review 2020. That was one part of the £24 billion cash uplift.

Chair: Okay, thank you. Mark, do you want to continue?

Q159       Mr Francois: Right, service families accommodation. The FDIS contract—disaster. The context is that recruitment into the armed forces is, unfortunately, falling. It is a good thing that unemployment is low, but people have lots of other choices. Outflow from the armed forces is, unfortunately, rising.

We have fewer coming in and more people deciding to leave, and there is an overwhelming amount of anecdotal evidence that the poor state of housing for service personnel and their families is definitely one of the contributory factors—if not, very often, the straw that breaks the camel’s back, at least for the partners if not the service man or woman. Rather than tinkering with it, what are we actually going to do? 

David Williams: On the impact of accommodation, I take your point about anecdotal evidence and I am sure it will be a factor for a range of service personnel and their families as they think about their future careers. Actually, in the exit interviews that we do, we give 22 standard reasons why someone might be leaving, and standard of accommodation is only about No. 17 on the list.

You had the NAO in last week looking at the landscape review. The top reasons are both a push factor of the impact of service life on family and personal life—I accept that accommodation may be an element in that, even though it is a separate category—and the pull factor of opportunities outside the services. So it is not there in our data, which is not to say that the performance of the FDIS contract is anything other than wholly unacceptable in its first nine months or so of operation.

We have used our contractual levers to put our contracted partners in default and asked for rectification plans. There are some encouraging signs of progress. The call centre performance is now at the contractual levels, but it clearly needs to be sustained. The number of backlog cases has fallen from a peak in December of around 21,000 to about 9,000 now—progress, but not good enough. There has been progress on the standard of houses as families move into them, which is substantially better than over the summer, but still not yet delivering against the contract— 

Mr Francois: We are tight for time—

David Williams: So, point 1 is that there is an immediate problem to fix, as Minister Chalk said when he was before the Committee last month. Our immediate attention is on getting the contract to work, because simply dropping now into a plan B would prolong an unsatisfactory situation. We are, however, reviewing how it was that we launched this contract in the expectation that it was going to deliver, at least within the first six months, when you would get a grow-in period, but it hasn’t. As I think Ministers have said in the House, we will keep a range of other options under review.

Q160       Mr Francois: Just quickly, when you say, “We have put our contractors in default”, what does that mean in layman’s English? Does it mean you have stopped paying them or have put them under some kind of special measures? What does it mean?

David Williams: The contract requires them to produce a rectification plan, and it unlocks the ability for us to withhold payments based on performance. We are withholding payments going forward while performance remains sub-par.

Q161       Mr Francois: From all three contractors or just one?

David Williams: I would have to check, but I think from all three.

Q162       Mr Francois: I think the Committee would just like to say that they are voting with their feet. In the Armed Forces’ continuous attitude survey—it is a hard metric—barely a third of Armed Forces personnel who answered are satisfied with the quality of the maintenance of their service housing. That is not anecdotal; it is a hard stat. I am sure all of you sitting there want the best for our Armed Forces personnel. We do not doubt that for a moment, but clearly this has gone horribly wrong. All of us on the Committee would implore you to do whatever you can to fix it. Does the General want to add a military comment?

Chair: Before that, I would just add that Robert Courts is going to be doing a Sub-Committee review of this, so I will give him the final point and then please do respond, General.

Q163       Robert Courts: Thanks. As the Chair has said, we are going to be looking into this as a Sub-Committee, and there is a lot I would like to go into. I want to touch on one point, which is about damp and mould. You have the rectification plan from December. On 14 December, you said, “Any reports of damp and mould are now investigated by a professional surveyor.

If the problem cannot be resolved quickly, if it is particularly severe or if a family member has a known vulnerabilityIf you have a child under the age of 5 in your home, or a vulnerable family member, then your call should automatically become an urgent task that will be responded to within 48 hours.” What reassurance can you give me that that is being carried out?

David Williams: We have made progress here. The way in which concerns about mould have been triaged has improved. In terms of having the kind of speedy response we would like to see, there is currently a constraint in our access to sufficiently qualified independent mould surveyors. In some cases we are going for an immediate “Can you deal with it with a clean and a paint while we wait for the surveyors to arrive?”

But I can share with you, probably in writing, some stats on where we are. At the end of January, the stats I have are that 3,600 cases of damp and mould were raised with our two contractors. We currently have been able to assess—that is the first stage, then the rectification—2,800 of those.

Q164       Robert Courts: Can you give us help with timelines on that? Is it 48 hours if there is a child involved?

David Williams: Let me get back to you on that. I do not have the immediate data with me.

Q165       Chair: General, I cut you off; did you want to say anything?

Lt General Magowan: I just wanted to talk personally about the state of the accommodation at Royal Marines Stonehouse Barracks and the state of some of the accommodation at the Commando Training Centre for our marines under training or, in the case of Stonehouse, trained marines. It is appalling.

Stonehouse particularly is absolutely appalling. As leaders, we need to address it. In terms of the here and now and the hard facilities management, we address it through making sure that FDIS works, and Mr Williams has explained what we are doing with FDIS. We also address it through the recapitalisation of SLA and SFA, and potentially in certain cases migrating from SLA to the future accommodation model—FAM. But the point you make has to be at the top of any senior officers’ list to go after when he or she goes to some of the accommodation blocks that we see across the estate—no doubt about it.

Q166       Mr Francois: The Second Sea Lord—was this Collingwood?

Lt General Magowan: Collingwood is terrible.

Mr Francois: I think he visited, and what he saw was so appalling that he ordered it closed basically there and then—or within a few days.

Lt General Magowan: Absolutely—100%.

Q167       Dave Doogan: General Magowan, I notice from your bio that you signed up in ’89; that was when I started work, which is not yesterday or the day before. Further to contractorisation point, I spent some time on the bases of all three services, and I noticed that, if there is a town nearby of any decent size, the contractorisation of the mess and catering facilities has created a hollowing out in some of those establishments.

You have young recruits who are signing up for the camaraderie, sense of self, and association that comes with that, and if they are far away from home, they find themselves stuck on a base with nobody at it all weekend. Because people are not using the mess, it may or may not be open, and it is charging the same price for its services as are being charged down the road commercially. I am sure that that stacks up on a balance sheet, but are you concerned that some of the material benefit of a life in uniform, for however many years it is, is being lost through the contractorisation of those softer services that uniformed personnel find on camp?

Lt General Magowan: Yes.

Dave Doogan: Right.

Chair: Thank you. As I mentioned, we will go into this in more detail. It is absolutely right that we are doing a sub-Committee report, and we look forward to Robert Courts doing that.

You have been very patient with us this morning. It has been very constructive and illuminating, and I think you certainly got the message from the Committee that we want to ensure that MoD spending is spent well. I am also pleased that we have heard for the first time—perhaps you did not mean to say it, Mr Start—the words “war footing” mentioned. We need to recognise that we are in for a bumpy decade. We need to move to a war footing, and that must be reflected in the Integrated Review refresh, which may or may not take place on 7 March.

I thank David Williams, Charlie Pate, General Magowan and Andy Start for their time this afternoon. I thank the Committee and the staff as well. That brings us to a conclusion.