Defence Expenditure

Lord Spellar Excerpts

Thursday 27th October 2016 Westminster Hall

[Dr Lewis]

As always, I am delighted to be trumped by my hon. Friend in that direction. That is an absolutely splendid intervention and I thank him for it. I hope the Minister will go one better even and think of something to rhyme with five.

[Mr John Spellar (Warley) (Lab)]

Yes, the threshold is important for a whole number of reasons, and we want to look at the overall level and get that focus of Government, but it is not the most important thing. The right hon. Gentleman might be about to come to this point, but we ought to be pressing the Government on what capability we are getting as a consequence in terms not only of materiel, but of manpower, and experienced manpower in particular.

[Dr Lewis]

The right hon. Gentleman is absolutely spot on, and of course that is what underlies my remarks about the fact that the figures are only, at best, the crudest guides. Nevertheless, they give us some sort of measure of comparison. Spending a certain amount of money on defence—or, should we say, investing it in defence—is not a sufficient condition for the reason that the vice-chairman of the Committee has just explained. It is, however, a necessary condition: if we do not spend enough, we cannot possibly have the potential. If we have enough to spend, we can consider how to ensure that we spend it in the most efficient and productive ways.

At this point, I pay tribute to the staff who help the Defence Committee to prepare our reports and, in particular, to one member of staff, Dr Megan Edwards, who did all the background research for the appendices to the report. They show, on as near as it is humanly possible to express the same terms, how much we have spent every year since 1955-56 up to the present day. That sort of original research work is of lasting value, because it sets into context the minuscule efforts that we make these days in comparison with the efforts that we had to make in the past. The reason that I single out Dr Edwards is that today is her last day working as a specialist member of the staff of the Defence Committee—our loss will be the Cabinet Office’s gain, and we wish her well in her new post and congratulate her on it.

Another aspect of the financial calculations that causes particular concern is the constant emphasis on efficiency savings. The most recent tranche of efficiency savings that the Government required from the Ministry of Defence was, I believe, some £0.5 billion, just before the 2015 strategic defence and security review. Some estimates put the aggregated total of efficiency saving requirements in recent years at something in excess of £1 billion, carried forward year on year. Theoretically, savings are ploughed back into the MOD. In practice, I understand from people who know about such things, it is hard to track that money, to apply those notional savings in concrete terms and to see where exactly the savings have gone in terms of new capacity.

A few days ago, on 18 October, that matter came up during a hearing on the Ministry of Defence’s annual report and accounts for 2015-16. The Defence Committee was interviewing Mr Stephen Lovegrove, the new permanent secretary at the MOD; Lieutenant General Mark Poffley, Deputy Chief of the Defence Staff for military capability; and Ms Louise Tulett, director general of finance at the MOD. They made an impressive trio of witnesses.

At one point, it was put to the witnesses that, of the almost £26 billion of equipment commitments that came out of the SDSR, almost a quarter really was new money, nearly £11 billion was so-called headroom or contingency, which is understood to be used up at appropriate points in the programmes, but the rest of it was in fact efficiency savings. It is therefore understandable if we feel a bit worried that what seems on paper to be a substantial commitment to spending large sums of money is, in a significant respect, notional, because it is dependent on the redistribution of money that the MOD already has but is supposed to spend more efficiently in some way or another.

[Mr Spellar]

May we forbear on the nomenclature of the civil service—the so-called efficiency savings? Efficiency, as I understand it, is when we are running a payroll office and using 100 people, but we bring in new equipment and only employ 50 as a result, while keeping outputs the same. Efficiency is when people find new and improved ways of undertaking their work. Everything else is cuts. We should be clear that many of the things we are discussing are not efficiency savings but cuts, and we should describe them as such.

[Dr Lewis]

The right hon. Gentleman perfectly exhibits the cross-party basis on which we try to find agreement on such matters in Committee, and the extent to which we succeed in doing so. He is of course absolutely right.

I do not intend to speak much longer, because it is excellent to see so many would-be contributors to this short debate, but I will first refer to the question that was put to Mr Lovegrove. We asked, basically, when the point will arrive at which an organisation can truthfully say, “We are just about as efficient as can be and, indeed, any further ‘savings’ that we make must amount to cutting into the bone, having already cut through the flesh.” The permanent secretary’s response was as follows:

“There may be a moment at which that happens. It is not on the horizon right now. There are certainly efficiency savings that we can get at in the Department, and our focus is on doing that and seeing whether or not we can go even further. It is only at that point that we would start engaging in the kinds of conversations that you suggest.”

With the greatest respect to the permanent secretary, who as I say made a good impression and was a credible witness in our examination of the annual report and accounts, we hear time and again from within the armed forces the same underlying fear: that we are in danger of creating a hollow force, which may have exquisite equipment—perhaps not enough so-called platforms, but exquisite nevertheless—but not enough people to man it.

The trouble is that short-term cuts—I beg your pardon; efficiency savings—can lead to long-term problems. That applies in particular to training. With the carriers coming on stream, the big frigate programme having to get under way and the new F-35 joint strike fighters taking over the maritime air role from the sadly missed Harriers, which will have filled too long a gap in our naval capabilities, now is the time when we should inject maximum effort into training. Yet we find ourselves in a position—perhaps for reasons of morale or under-investment, or perhaps because insufficient emphasis is being placed on defence in our national priorities—of struggling to recruit and retain the people we need even as we cut the size of the armed forces.

The Government have not broken any rules, but they have scraped over the line by the narrowest of margins. There is no guarantee that we will not dip below the 2% figure. People usually come up with the response, “Just remember that we are the second highest spender on defence in NATO.” I remember that sort of argument from back in the 1980s, when people who wanted us to spend less on defence—we were spending quite a lot in those days; between 4.5% and 5%—said, “Why should we spend this amount on defence when Germany and so many other European countries spend so much less than we do?” The answer, as the author of a short and pithy letter to The Times pointed out, was that the countries that we were being compared with were all on our side. We have to judge our defence expenditure by what our potential adversaries spend and what defence and attack capability they get for the money that they invest.

We do not want to engage in a race to the bottom. We do not want to preen ourselves on doing a good job because people on our own side are spending even less than we are. Our percentage expenditure on defence is lower than it has ever been—even on the new calculation, it is 0.1% lower than it was in the previous financial year. Something has gone wrong with our scale of national priorities, and the purpose of the Committee’s report is to draw attention to that, in the hope that the Government will renew their emphasis on their first duty: to keep our nation safe.

--- Later in debate ---

[Mr James Gray (North Wiltshire) (Con)]

It was just outside the constituency of the hon. Member for Bridgend (Mrs Moon) that Her Majesty’s Government first committed two or three years ago to the 2% target—or the 2% figure; I will come back to the target in a moment. I would be ungracious if I did not start by saying that I warmly welcomed that that was the case. Until then, through five years of coalition government, that had not been the case. It probably would not be the case—dare I say, without being too party political—if we had a Labour Government; people would seek to find savings from defence to spend on schools and hospitals. The first thing that we ought to say is that thank goodness we have that 2%. I am glad that the previous Prime Minister made that firm and rather surprising commitment at the Wales summit.

[Mr Spellar]

Will the hon. Gentleman tell me in which year under a Labour Government expenditure fell below 2%?

[Mr Gray]

The trouble is that under Labour Governments we always have wars and things so we have to keep spending up—that is the difficulty. However, the right hon. Gentleman is absolutely correct. I am not suggesting that the Labour party made cuts in previous years, but, from listening to some of the speeches produced by the current leader of the Labour party, it would be perfectly reasonable to expect that significant defence cuts would be made were Labour to be in power today.

[Mr Spellar]

Will the hon. Gentleman give way?

[Mr Gray]

If the right hon. Gentleman will forgive me—[Interruption.] If the right hon. Gentleman will forgive me—[Interruption.]

[Mr Gray]

Before the right hon. Gentleman leaps in to enter into a party political discussion of the matter, the purpose of the debate is not to have a party political pop across the Chamber—and of course I would not wish to tread unreasonably on the Opposition’s personal grief on this subject.

[Mr Spellar]

Will the hon. Gentleman give way?

[Mr Gray]

I would really rather not. We have not got very long—[Interruption.]

[Mr Spellar]

On a point of order, Mr Bone. As we are having a debate on defence, it is perfectly proper for the hon. Gentleman, who is normally much better behaved in the Defence Committee, to make partisan points. What I think is improper and verging on being out of order is then not giving way for a response, because I for one do not believe in unilateral disarmament either in the Chamber or in our defence policy.

[Mr Peter Bone (in the Chair)]

The right hon. Gentleman is very experienced and knows full well that that was in no way a point of order.

[Mr Gray]

I am most grateful.

[Mr Spellar]

Will the hon. Gentleman now give way?

[Mr Gray]

No, if the right hon. Gentleman will forgive me. We have a short debate and I have one or two things to say. I do not want to go on too long, but too many interventions of that kind will simply delay the proceedings. He knows perfectly well, because he and I are close friends—

[Mr Spellar]

Give way, then!

[Mr Gray]

I have the strongest respect—[Laughter.] Allow me to finish the sentence. I have the strongest respect for the strength of commitment by Labour members of the House of Commons Defence Committee to the defence of the realm. Perhaps the right hon. Gentleman is right in saying that I have been a little ungracious in talking about some other parts of his party’s approach to defence because I know the members of the Labour party on the Defence Committee are strongly committed to that.

[Mr Spellar]

rose—

[Mr Gray]

I am happy to give way.

[Mr Spellar]

May I thank the hon. Gentleman, my friend from the Committee, for giving way? I point out that in fact he cannot point to any Labour party policy. The policy of the party is decided at our party conference, as indeed is our commitment to Trident. In the previous Parliament, when decisions were being put off on Trident, there was an overwhelming majority in the Labour party to support the Labour party policy of renewal of Trident. It is the same for the defence budget.

[Mr Gray]

I am most grateful and greatly reassured by the right hon. Gentleman’s commitment both to Trident and to an increase in defence spending. I look forward to that vision being repeated by the hon. Member for Leeds North East (Fabian Hamilton) when he replies to the debate from the Front Bench. It is good news to know that that is what Labour thinks.

In all events, the debate is not about which party will spend more on defence. I think perhaps we should move away from that parti pris squabble and move on to discuss the report in front of us, which is a very well worded, calculated and researched paper. The first thing I would say, however, is that the Ministry of Defence’s accounts are second only to the Schleswig-Holstein question in being completely and utterly incomprehensible. I think there is nobody alive today who fully understands the MOD accounts, so the one or two accountants in the Department are well able to move figures around and fiddle with them in such a way that no normal human being can understand or follow.

Indeed, much of the language used is equally incomprehensible. For example, in paragraph 14 of the Government’s reply they are talking about the £11.2 billion of efficiency savings—we asked where they would find that. It lays out a few efficiency savings first and then says:

“A further £2 billion will be delivered through the reprioritisation of existing funding.”

They will save £2 billion through the reprioritisation of existing funding. They then go on to say that £2.1 billion that will come in from the joint security fund will in fact allow cuts in the ordinary defence spending. Therefore, that is not extra money coming in from the joint security fund at all; that is merely replacing moneys that otherwise were to be cut. There are many other examples of precisely the same thing.

Without a PhD in such matters it is simply impossible to understand exactly how the MOD accounts work and I am slightly concerned that the Government’s response tends not to try to clarify matters but to make them even more complicated than before. That makes comparators extremely difficult. It is very difficult indeed to compare our spending today with what we spent in the past. My right hon. Friend the Member for New Forest East (Dr Lewis) touched on this: it is perfectly true that when I was born in 1954 we were spending something like 7.8%—if I remember rightly from the charts in the report—and today we spend about 2%. Therefore, the cut has been gigantic. However, comparing what we were spending then with what we spend today is extraordinarily difficult because of the accounting procedures.

It is unclear whether things like urgent operational requirements, or several other things that occurred in the past, are included, not least because, as the MOD said in its reply, it keeps its accounts only for seven years. Therefore, if we ask officials about any financial matter before seven years ago, they do not know. They are unable to give answers on what happened in the 1950s, 1960s and 1970s because they do not keep the accounts. It seems to me simply bizarre that a Government Department should not keep accounts in perpetuity—it ought to be able to give an answer on what Government spending on defence was at the time of Waterloo if we asked the question sensibly. To say that it does not know for more than seven years ago is simply extraordinary. We therefore do not know how our spending today compares with previously because of that rule and we cannot compare our spending with other NATO countries for the same reason: it is all lost in the shrouds of mystery and antiquity.

My right hon. Friend made the extremely important point that 2% is all very well, but it is not a target and it is not even a floor—it is absolutely the minimum. In terms of the rhetoric, the Government appear as if they are claiming, “Haven’t we done well? We have achieved 2%.” No, never in the history of British defence before have we ever had to spend only 2% of GDP. Actually, that is the lowest figure we have ever been at. Moreover, if we were to listen to the previous Chancellor of the Exchequer and we were to face quite a significant recession post-Brexit—I personally do not believe that will occur, but he said so plainly—2% of GDP would presumably mean a significant cut in the pounds spent on defence. Therefore, the 2% figure is, to some degree at least, misleading. What we need to know is that this year we are spending £35 billion or thereabouts on defence and that that will increase every year irrespective of what happens to the economy.

The opposite applies as well. Supposing the economy were to grow at some fantastic rate thanks to Brexit—let us imagine that we see 2%, 3% or 4% growth—does that really mean that we will spend billions and billions of pounds more on defence than we have currently programmed to do? If so, how on earth will we find things to spend the money on? I am not certain that the 2% figure necessarily allows for sensible comparators with other Departments or that it is quite the right way to judge it.

We need to know how much the Government will spend and, as my right hon. Friend and the hon. Member for Bridgend said, not only how they will spend it but what they will spend it on. What we need to know is what we can do in defence terms—how many ships, tanks, soldiers and sailors and all the other things we need, such as cyber, will we have in the future? The 2% figure does not necessarily tell us that. It is a question of capabilities and not necessarily of money.

While I very much welcome the Government’s commitment to the 2%, which is certainly a step in the right direction, that by no means reassures me that we as a nation are ready to face the appalling threats we now face. Russia is a bigger threat to us today than it has been since the cold war, the middle east is in complete turmoil and much of the rest of the world is a disaster area and we are struggling to maintain a level of spending that we have never before seen.

It seems to me that we are in danger of failing in our primary responsibility of defending the realm by allowing ourselves to be fooled by a piece of camouflage: “Aren’t we being great? We are spending 2% of GDP”. Are we able to defend the realm? I suggest that we may well not be.

--- Later in debate ---

[Ruth Smeeth]

While I appreciate that it probably is, I do not think anyone could have anticipated the likely devaluation of the pound in recent days. I hope very much that that is the case, but we will see what happens in the long term when we get the full figures.

[Mr Spellar]

Is it not even more significant that, in giving this order directly to Boeing, the MOD did not seek to get any offset in other programmes in order to create work back in the UK?

[Ruth Smeeth]

I totally agree with my right hon. Friend. With the P-8A and even the F-35, we get only 20% of the build in the UK.

[Mr Spellar]

And the Apache.

[Ruth Smeeth]

And the Apache. There are significant concerns about British manufacturing capabilities within the current procurement programme.

As the UK comes to terms with our future outside the European Union, it is more important than ever that we maintain a strong independent military presence. I believe the Government recognise that. I again welcome their response to the Defence Committee’s report and their ongoing commitment to supporting a robust UK military. I for one believe these issues to be above party politics.