Armed Forces

Lord Davies of Stamford Excerpts

Monday 5th November 2012 Lords Chamber

[Lord Davies of Stamford]

I start by endorsing the tributes that have already been made in this House to our Armed Forces. I know, as everybody in this House knows and I hope the country knows, that those tributes are not ritualistic but deeply felt on both sides of the House.

I also thank the Minister for giving us this opportunity. He is extremely conscientious and serious in his duties to the House, and he has done very well by the House today in getting us this opportunity. I am not going to allow my great respect for the Minister to muzzle the things that I am about to say, but I want to say at the outset how much we appreciate that. I also welcome the noble Baroness, Lady Garden, to her new role on the Front Bench. Those of us who knew him, and all of us today, will be very sad that her husband, who had one of the most brilliant and original military minds that I have ever encountered, cannot be with us this afternoon to see her there, sitting on the Front Bench with those new defence responsibilities.

I am going to be very frank, because the situation requires frankness. The state of our Armed Forces is very depressing and worrying. All the serving officers and men whom I have had the opportunity to speak to recently—it so happens that I have not had the opportunity to speak to any servicewomen recently—are all of one accord. They say that morale is worse than it has been for at least 20 years, since the excessive cuts undertaken by the previous Conservative Administration in the 1990s, to which the noble Lord, Lord King, has already referred. In parenthesis, I may say that I opposed those cuts at the time in a pamphlet called Facing the Future, which I published jointly with a number of then Conservative Back-Bench colleagues, including Andrew Robathan and Julian Brazier. My views on defence have not changed since they were expressed in that pamphlet.

I used to think that the Conservative Party among all British political parties was the one with the best understanding of the importance of defence and the greatest sympathy for the needs of our Armed Forces. That was certainly true when I joined the Tory Party in 1974 and remained indubitably true, in my view, for quite a number of years after that. But in the 1990s, I began to wonder whether that was still true, and I wondered even more when I read the Defence White Paper of the noble Lord, Lord Robertson, in 1998. It is very difficult indeed to imagine that anybody would come to the conclusion that it is true today.

As the Minister said, the Government have made some tough choices; the trouble is that in my view those choices were completely wrong. For example, the Government decided to continue to give India £300 million in aid a year, a country that is building aircraft carriers and buying aircraft to fly off those carriers, while deciding that we could not afford to have a carrier strike force at all for the next 10 years. I think that was profoundly wrong. It might have been tough but it was absolutely wrong and a betrayal of the national interest. The Government have produced a situation in which our Army is now being reduced by 20%. That means that we can now deploy on a sustainable basis only something of the order of a brigade—say, 2,000 men and women with full supporting arms, as opposed to the 10,000 we have deployed in Afghanistan for many years past. That is a good example of the negative gearing effect of cutting your defence forces. I fear that our defence forces have now been cut to a point where they would simply not be able to respond to a whole range of all too easily conceivable scenarios.

The other problem with doing this is that you send quite the wrong signal to those people around the world who might be tempted to breach the international peace or even have designs on our own territory. I do not suppose for a moment that the Argentinians are at this moment planning to attack the Falklands. Cristina Fernández or Cristina Kirchner—I do not know which she prefers to be called—has said that she wishes to resolve the matter peacefully, but aggressors always have a way of saying at the outset that they intend to resolve the problem peacefully. I equally have no doubt at all that the raising of this issue in Argentina, and the terms in which it has been raised over the past couple of years, has not been coincidental. It is not unlinked to the fact that it is now clear that for 10 years we will not have a carrier strike force which would be required if ever the Argentinians succeeded in taking over the Falklands again. We would now be incapable of retaking the Falkland Islands in the way we did in 1982. It is a very serious matter which the whole country needs to take very seriously. That is why I am not muzzling the words that I am using this afternoon, as I believe that they are entirely justified.

The question arises of what you do about a situation like that. It is very easy for me to say, “Vote Labour at the next election and get rid of this awful Government”. I have said that and will continue to say it. However, I recognise that in reality you cannot entirely go back. It would be absurd to make a promise that we could entirely reverse the cuts that have been introduced and go back to square one. You can never entirely go back in history; we all recognise that. We need to think very carefully about what we do to try to make sure that we have the means to continue to make a positive contribution to the world’s peace. As several speakers have mentioned —I would say almost a majority of those who have spoken on both sides of the House this afternoon—we have played a decisive part in that in these many operations and difficulties over the past 60 or 70 years since the Second World War.

As I contemplate this matter, I think increasingly that the solution must be to do something which I know is counterintuitive for some people and would not be welcome to many distinguished members of our Armed Forces, but they might prefer it to having no effective defence at all: that is, to take very seriously the prospect of a European common defence policy. If such a policy is ever to produce any real savings and address the financial issues, which, of course, are real issues, it would have to be based on defence specialisation. You would no longer have everybody, including ourselves, having MBTs, light tanks, reconnaissance vehicles and utility vehicles or large helicopters, medium helicopters, small helicopters and so forth. There would have to be a degree of defence specialisation. That means that you would have to be certain in advance that everybody who was required would be there on the day when you needed to deploy within one coherent command and control system, which, of course, requires common foreign policy. These things are difficult pills to swallow for a lot of people and impossible, I think, for the Conservative Party because it is incapable of taking rational, pragmatic decisions on this subject as it is so imprisoned by its own emotional and ideological opposition to anything European.

[Lord Dobbs]

Will the noble Lord speculate on whether this European defence force that he is so keen on could under any circumstances defend the Falklands if there were another crisis?

[Lord Davies of Stamford]

Yes, indeed. First, it would not be a common defence force in the sense that you would have people from different countries serving in the same unit. That would be absurd. However, a common defence policy would require a guarantee on the part of all the other members of the EU with regard to all our domestic territories, including overseas territories. That would apply to the French, the Dutch and others who have overseas territories. That would be an essential part of the deal. I have no doubt about that at all. The noble Lord realises that that raises all sorts of issues but all of us need to look at these matters with a greater degree of realism because the alternative is impotence. We will all be spending a lot. The total defence spending in the European Union is in the order of about €200 billion, which sounds a lot but is very small compared with the United States. It must be something like a quarter of the United States defence spending. I cannot get the arithmetic completely right while speaking on my feet but it is a large amount of money. A lot of it is being spent completely ineffectively for the simple reason of the negative gearing effect to which I have already referred. These matters need to be considered. I cannot go into the detail this afternoon but we need to go into the detail on these matters. We need to consider them. I realise that this is considered in some quarters a revolutionary and, indeed, very obnoxious suggestion, but I have put it to the House that the alternative will be impotence, and that cannot be the right solution for Europe as a whole and for the future of a civilised world.

I would like to say a word or two about defence procurement. I say frankly to the Minister that I was pretty astounded by one of the things he said. I am sure that he was loyally mouthing the current government propaganda on the subject; that is what you have to do sometimes when you are a Minister, as I know. He referred to new equipment. I think that he said there would be new submarines, new ISTAR and new helicopters. What did he mean by that? As regards new submarines, as far as I know the Government—thank God—are continuing with the Astute programmes and the Successor-class submarine programme but are delaying both. That is not exactly new equipment. I suppose that by new helicopters the Minister means Wildcat and Chinook. It so happens that I was responsible for promoting, pushing through, negotiating and concluding both those projects. They are not new in any way. Far from adding to them, the Government are actually reducing them. They cancelled 10 of the 22 Chinooks that I ordered, so it is pretty rich to describe that as new equipment and put it to the credit side of the Government. I suppose that by new ISTAR the Minister meant the Predator system, for example, which we bought more of, and Watchkeeper, which again goes back to Labour’s time in office. One needs to be cautious about listening to some of the extraordinary government propaganda that comes out on this subject. We need a reality check from time to time.

We particularly need a reality check as regards the great deficit that the previous Labour Government are supposed to have left behind—the so-called £37 billion or £38 billion black hole. My next comment has been said before but it needs to be said again, because we continue to hear this dreadful piece of black propaganda. There is no such thing as the figures I have mentioned. You get to figures of that kind only if you make two assumptions which you cannot possibly make in good faith. One is that everything on our prospective procurement list would be procured. That never happens. I cancelled several things myself. I cancelled the medium helicopter project in order to finance the Chinooks, as the noble Lord no doubt knows. I cancelled the MARS tanker programme. One is always cancelling things for good military reason and switching to higher priorities in defence procurement.

The second thing which one can accept in good faith even less is the assumption, which has to be made to get to the figure that I have mentioned, that there would have been no cash increase. In other words, there would have been an enormous real-terms reduction in our military budget and our procurement budget for 10 whole years. In fact, the previous Labour Government increased defence spending by 1.5% per annum in real terms after inflation. Although the coalition will hold defence spending within a cash ceiling for the first five years it has always said that in the second five years it would increase the cash spending, so even the coalition is not pursuing a policy which would have led to the £37 billion or £38 billion figure. Therefore, it is time that we ceased to hear about the £37 billion or £38 billion.

I want to say something positive and helpful. I mean that sincerely. I hope it will be in the interests of the country that I say it now. You can always improve the defence procurement process. I think that we did so in my time, working very closely with General Sir Kevin O’Donoghue. We reduced the bureaucracy substantially, particularly the assurance process, and developed new models of open-book co-operation with some of our major defence suppliers, but you can always go further. However, there is one big problem that I identified which I was not able to resolve: namely, that we do not do procurement spending and procurement evaluation on a present-value basis. Noble Lords who have experience in the private sector will know that, in all significant-sized companies, investment appraisal and procurement is done on a present-value basis. In other words, what counts is the present value of the future stream of expenditure or the future return from investment and you compare that present value with alternative approaches or solutions to the same problem. That is not done in defence spending. In defence spending certain amounts of money are allocated to certain years and you have a limit you can spend within a particular year, which means you completely lack flexibility.

I will give the House two examples of where, in my time, we lost hundreds of millions of pounds for no good reason but the existing Treasury rules. One was during the shipping crisis in 2008. I realised that we could probably buy the MARS tankers that we had in the programme for two or three years later very much more cheaply by simply purchasing tankers on the open market rather than building them at enormous expense, which had already been examined and provided for. We had £1.2 billion in the budget for six tankers. I spoke to several shipping brokers and discovered that we could actually buy, on the second-hand market, tankers of the right capacity—30,000 to 50,000 tonnes, capable of refuelling at 15 knots at sea and so forth—for $50 million apiece. If you then spent some money putting on a helicopter pad, one or two bells and whistles, some armaments and so forth, it could not cost you more than $75 million as opposed to the £200 million which we had in the budget for each one of those tankers. It was a no-brainer but I was not allowed to do it. I went to the Treasury and said that we could save public money but it said, “No, no, no, that’s the rules, we can’t do it. Sorry, but you have to wait two or three years”. I told it that in two or three years’ time the shipping market would have revived and we would not be able to get that sort of deal. “Sorry, too bad”, it said.

The same thing happened with the Astute class. I wanted to buy the components and a lot of the systems for Astute-class boats 4. 5, 6 and 7 together in bulk, getting a considerable discount. I was told, “You can’t do it because all these things are allocated to individual years”. I worked up, with the National Audit Office, a proposal for the Treasury to change this and we had meetings with the Chief Secretary, Liam Byrne. I explained all this to my successor, Mr Luff, who was sadly sacked—I do not know quite why—at the recent reshuffle, but nothing has happened about it so I put it on the table now. This is something that needs to be examined. It can be done and I could go into great detail if I had the time. This is an opportunity and prospect which we cannot afford to ignore in the context of any genuine attempt to save public money and provide a more efficient basis for defence procurement.

[Lord Hamilton of Epsom]

My Lords, I should start by saying that I work for an American defence company called Curtis Wright. The Wright in Curtis Wright was the Wright brothers. Curtis Wright supplied many fighter aircraft to the US Air Force during the last war. After the war somebody came along and said, “We think you should look very closely at the whole idea of jet propulsion for fighter aircraft”. Curtis Wright looked at it very carefully and said, “No, this is not the answer”. Your Lordships will not be surprised to know that Curtis Wright are not in the production of fighter aircraft any more, but they are involved in a number of other technical areas in defence supply. It is always a great pleasure to follow the noble Lord, Lord Davies of Stamford, because—let us face it—he does not lack chutzpah when it comes to defending the actions of the previous Government.

I will deal, firstly, with the question of defence specialisation. This has a certain allure to it because what it means is that different countries in Europe would take over the sole supply of the capability of certain bits of defence. The very obvious answer to that would be that armour should be in the hands of the Germans. If the noble Lord, Lord Davies of Stamford, talks to his honourable friend in the other place, Gisela Stuart, who is German, she will tell him that the Germans have become completely pacifist. If we had this arrangement, and we decided we wanted to fight an armoured conflict somewhere, we could not do it because the Germans would not fight. There seem to be enormous problems. The noble Lord says that when this great unification of European forces was put together, they would have to sign up to looking after our colonies. The Spanish are extremely hostile to the idea of us defending the Falklands at all, and I am not sure that they are going to sign up to that in any way. There are enormous shortcomings.

I will move on to the great debate, which was raised by the noble Lord, Lord Davies of Stamford, about the size of the deficit inherited by this Government. Was it £37 billion or £38 billion of unfunded procurement over 10 years? Or was it a smaller figure? It must have been a pretty massive figure because otherwise we would not have had the devastating review of our whole procurement programme, cutting out ranges of procurement. The Harriers had to go, as did the maritime patrol aircraft and so forth. That would not have happened if there had not been a very serious problem which this Government had to address. I do not expect the Minister to answer this when she sums up, but perhaps she could write to me about it. Last Tuesday, my noble friend Lord Trefgarne gave lunch to Sir Clive Whitmore, who used to be the Permanent Secretary in the Ministry of Defence when I was there and in the time of my noble friend Lord King. Clive Whitmore, who understood politicians very clearly, was famous for saying all the time, “I have to remind you, Ministers, that I am the chief accounting officer of the Ministry of Defence, and if you want to spend money you have not got, I want a ministerial override”. As your Lordships know, a ministerial override is something that comes from the Permanent Secretary and has to be signed by a Minister. It basically says that “I, as a Permanent Secretary, advise against this particular procurement because the funds are not available and they have to be signed off by a Minister”.

The final signing off of the aircraft carriers was in 2009. The roof had fallen in on the whole economy, and we had complete disaster in every direction. It was obvious to a child of five that there was going to be no more money coming into the defence budget. At the same time, two aircraft carriers were ordered at a cost of around £5 billion. That was on top of a mass of other equipment which had been ordered but for which there were no funds whatever. What happened in the Ministry of Defence? Why were there no ministerial overrides? We look to our Civil Service to guarantee the continuity and solvency of departments of state. What went wrong that that did not kick in? What provision has now been made in the Ministry of Defence to ensure that this sort of thing does not happen in the future? Perhaps that could be put in a letter. We should be seriously concerned if we reach a position where things are being ordered in this way. This is always going to happen in political life as politicians believe they can buy people’s votes by putting out enormous orders and there could be no better way of buying votes than to have two aircraft carriers being built simultaneously in every shipyard in the country so the largesse could be spread as widely as possible. Why was there not a ministerial override saying, “The funds are not available for this, I therefore do not recommend it, and I am doing it only because I am ordered to by the Minister”?

[Lord Davies of Stamford]

Perhaps I can help the noble Lord and also defend civil servants whose reputations might otherwise be tarnished by what he has just said. We had the most conscientious and able Permanent Secretary and finance director in my time. There was no ministerial override because there did not need to be one as the carrier programme, like other parts of our programme, was funded and properly provided for within our defence budget.

[Lord Hamilton of Epsom]

That no doubt explains why the first thing this Government tried to do when they got in was to cancel the carrier programme, only to find that it could not be cancelled because BAS is very good at tying up such incredibly tight contracts that it would have cost more to cancel than to go ahead with it. I do not totally buy that: there is something seriously wrong here, and I do not think we would have the current difficulties if there had been a few more ministerial overrides in the past. Critics of my right honourable friend, Philip Hammond, the new Secretary of State, say that he is just a number cruncher who does not know anything about defence priorities. He understands very well the first defence priority, which is that you do not order kit if you do not have the money to pay for it. His second priority is balancing the budget, and he therefore takes total care that we are not going to run into any major crisis, such as the one we have experienced recently. His business experience will be valuable, and he is the ideal man to be holding the position of Secretary of State.

It is not just a shambles that we find in the administration of the Ministry of Defence. We used to be able to rely on men in uniform to do the right thing, but what have we seen? We have seen the humiliation of the retreat from Basra, which raises serious questions about the intelligence given to our military commanders before they went in. Was it a complete surprise that the Iranians decided to get involved in all the Shia militias there? The result was that we had to pull out. In terms of safe passage to get back to the airport, we had to do a deal whereby we would not go back in. The Americans were, to put it mildly, dismayed, and eventually the Iraqi Government took the view that such was the appalling shambles left behind in Basra that they had to go in with the Iraqi Army and US Marine Corps. Once they went back in, they certainly sorted out the problems there, and there has not been much of a problem there since.

Almost as a reaction to Basra, the British Army afterwards decided to deploy 3,500 men in Helmand province. What was the intelligence there? Did they not know that the Pashtuns in Helmand loathe all foreigners, and the foreigners they loathe more than any others are the British, because they still have not forgiven us for the wars we fought against them in the 19th century? The result was that we nearly lost that whole force of 3,500 men, but for the fantastic air power provided by NATO, which pulverised all the mud villages in front of it but would not have done an awful lot for hearts and minds in Afghanistan.

I am actually seriously worried about where the Ministry of Defence has gone in the past. My right honourable friend the Secretary of State has a serious problem of getting this thing back into some sort of order, both in terms of finances and, I hope, in getting involved in operational matters, because serious problems have been created for which we are paying a hefty price. I wish I could say that I looked to the future with confidence as regards the serious challenges facing my right honourable friend. He has an awful lot of work to do.