Ministry of Defence

Paul Sweeney Excerpts

Monday 26th February 2018 Commons Chamber

[Sir Edward Leigh]

That is an extremely good point, and I will come on to deal with the people side.

As the Defence Committee has pointed out, there appear to be some shenanigans going on in relation to how we reach the 2% target, and this is a really good opportunity for us to discuss money in detail and for the Minister to reply to these points. The criteria seem to change from year to year, with new bits—war pensions and other expenditure—qualifying when they have not previously done so. NATO is apparently satisfied, but this rather gives the impression that we are meeting our targets only by means of creative accounting, and when it comes to the defence of the realm, surely creative accounting is not good enough.

Let me say a word about procurement. What are our procurement procedures, and are we getting value for money? Professor Julian Lindley French testified, again to the Defence Committee:

“If you look at the $90 billion being spent by the Russians as part of their modernisation programme, the $150 billion or so being spent by the Chinese and what other countries around the world are doing, what strikes me is how few assets—both platforms and systems—the UK gets for its money.”

As a former Chairman of the Public Accounts Committee, I am talking not just about more money for the MOD, but about spending the money more wisely.

The MOD committed itself to new purchases arising from its 2015 strategic defence and security review before it established how they could be paid for. This requires the MOD to generate £5.8 billion of new savings from within the defence equipment plan itself, in addition to £1.5 billion from the wider defence budget, which is already under pressure. We never of course know what crisis may happen, and if a crisis happens and our troops have to be deployed, where will the money come from? In such a case, will we end up taking money from procurement that we had not expected to take?

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

I thank the hon. Gentleman for giving way on that very important point and for his excellent introduction to the debate. Does he recognise the issue of the defence inflation rate, which in recent years has been 3.9%, while background inflation has been just 0.8%, leading to a real depreciation in real purchasing power for defence? Is that not the root cause of the problems we are seeing with the attrition of defence capability?

[Sir Edward Leigh]

That point on purchasing power is a very pertinent one. I hope that the Minister replies to it, because it is a point well made.

Uncertainties and over-optimism—there is over-optimism—in the project costs mean that the final costs of the defence equipment plan may be significantly understated. The MOD’s cost assurance and analysis service reported that the costs in the 2016 plan were understated by £4.8 billion. Over a period of years, the MOD has failed to agree a workable way forward with the prime contractor on the procurement of a Type 26 warship, which has compromised maritime capability and placed further upward pressure on costs.

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[Sir Edward Leigh]

My right hon. Friend is of course a former Minister for the Armed Forces and really does know what he is talking about. The Government should listen to him.

There is a problem with morale. Those who perceive service morale as low increased by 12% on the previous year in the Army and 15% in the Royal Marines in 2017. The overwhelming majority, 74%, feel proud to serve—we are proud of them for feeling proud to serve—but only a third feel valued by their service. What is the point of training men and women if we fail to keep them?

[Mr Sweeney]

On retention, the hon. Gentleman referred to the reservists and the recruitment challenges that they face. My infantry battalion—a reserve battalion—has seen a significant influx of former regular soldiers echeloning through from the Regular Army as it has been severely downsized, including by, in effect, the disbanding of an entire battalion of the Royal Regiment of Scotland. The concern is how long these former regular soldiers will remain reservists before they move out altogether, because they have benefited from a transition payment. Could that financial incentive just be temporary, and will we see a further pressure on reserve recruitment in the longer term?

[Sir Edward Leigh]

That is a fair point. Pressures build on pressures.

In conclusion, the problems are many, but they must be tackled head on. Speaking personally, my record on spending and saving is clear: I think that the state should spend as little as possible. However, we also have responsibilities of absolute necessity, such as the defence of the realm. It is not pompous to say that—it is an absolute fact. That is the first responsibility of what we do in this House and we are falling short. The Government simply have to commit to spending more if we are to have the armed forces that this country requires. In order to maintain our independence—not just our sovereignty, but our freedom of action and ability to make our own decisions rather than be dictated to by circumstances—we need highly trained, fully manned, well-equipped armed forces. For a trading island nation on the cusp of Brexit and turning her face to the world, Great Britain must turn the tide of decline in defence.

I hope that this debate will prove to be a turning point, but that is up to the Government to decide. One thing is sure: further stagnation and cutting capabilities will set us back further. Once again, I am reminded of the wise words of Admiral Andrew Cunningham during the battle of Crete. Exposed to German air assault, his ships were taking heavy losses as they helped to evacuate the Army from Crete to Egypt. Some suggested that he should suspend the Navy’s part in the evacuation, saving his ships but ending the tradition of solidarity under fire among the armed forces. Cunningham knew that the Navy must not let the Army down and he refused. He said these words:

“It takes three years to build a ship, but it takes three centuries to build a tradition. The evacuation will continue.”

Our traditions of a great nation and great armed forces must continue. That is why this important debate must continue, too.

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[Mrs Moon]

My hon. Friend is absolutely right. What we have here is a consistent pattern of only about 15,000 deployable reservists. Despite the money that has been poured into the reserve forces, we have not increased their number, but we have massively decreased the number of regulars. Our Army capability is therefore shrinking. That is something that we must be very worried about, but what worries me even more is the fact that we are spending huge amounts of money while receiving little or no return.

[Mr Sweeney]

My hon. Friend has referred to the significant reductions in the regular forces. As was mentioned earlier, a large number of former regular service personnel have moved into the reserves, but they may be doing so on a temporary basis. That may explain why so few people—in real terms—are achieving their bounty qualifications each year.

[Mrs Moon]

I intend to talk about the reserve bonus scheme in the next part of my speech. I am sure my hon. Friend will welcome that.

Part of the problem is that, despite the theory that employers would be willing, and even encouraged, to allow people to take their time to go to, for instance, the annual camp, it is not happening. As people are under pressure to remain in work and to retain their jobs, they are not willing to give those 27 days. They are not able to make that commitment.

Further inefficient costs to the Army reserve can be seen when we look at the “regular to reserve” bonus scheme and its failure to retain personnel. The scheme was introduced in 2013 as a way of enticing former regular soldiers to join the reserves in order to keep their expertise within the military and pass it on to the new reserves who were being recruited. We were retaining capability, and also using the former regulars to train the reserves. The incentive for ex-regulars to join the scheme is, again, financial: a £10,000 bonus is paid in four instalments, provided that they meet the requirements of training and attendance at each stage.

As of October 2017, 4,350 ex-regular soldiers have joined the reserves under the scheme. At first that looks like a good number, but the question is, how many have been retained? In 2017, only 480 of those soldiers achieved all four instalments, which indicates a dropout rate of 89%. I accept that that figure does not take into account the fact that entry into the scheme may be staggered over the preceding four years, but it none the less demonstrates that retention of ex-regular soldiers in the Army reserve is a problem.

I can give an example. An ex-regular soldier who turned up at my house to do a piece of work had signed up for the reserve bonus scheme, and had found that once he had left the military and started work, the pressures of civilian life—being back with his family and getting into the new job—meant that he could not retain the commitment that he had thought he would want to ease his transition out of the military and into the civilian world. These are men and women with vital knowledge and expertise who are used to military life. Their retention is vital, but even with that offer of £10,000, there is not enough to keep them and for them to commit to what is being asked. This further suggests that the current model of the Army reserve just is not working.

The situation looks bad on its own, but if the cost of the scheme is taken into account, it looks a lot worse. Breaking down the entrants to the scheme into their respective ranks and assuming this distribution follows through the key milestone payments, and using these elements and combining wages and bonuses, the scheme so far has cost just over £29 million, with only 480 soldiers reaching all four payments. I am sorry to bat on about this, and I know the figures are boring, but I am deeply concerned. We have a reducing capability in our Army. We have been sold a pup, with a promise that the reserves would fill a gap in the regular forces, but that is not happening.

Defence is an expensive business—there is no getting around that—but it is also a business in which we cannot afford to lose highly skilled and highly able individuals willing to give the time and effort to get through their training so that they are deployable. I know that many Members of this House, including the Minister, are eager to fulfil our commitment to them so that they retain their membership of the reserves and their employability. I honour, and express my gratitude for, the service of all those reservists, but are we getting value for money in a way that allows us as a country to have the forces that we need? It is my concern that we do not, and the MOD’s own figures suggest that the reserves model as it stands cannot provide us with the numbers we need.

The challenges and menaces we face are very real. Many of our platforms are not fit for purpose and the readiness of our forces is just not in place, and we have heard about the disastrous Capita contract. I appreciate that the Minister has apparently suggested that he will resign if the military is cut further, and I hope he does not have to resign, because he is a good Minister, whom we trust, rely on and respect, but we also need the Minister to hear the concerns that we are expressing.

None of us want our Army to be damaged. All of us know that our personnel can, when fully trained and fully committed, be some of the best in the world; that knowledge is shared across our NATO alliance. But we are getting weaker, and that is unacceptable. I call on the Minister to look at how we are spending in terms of the reserve forces.

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[Mr Jones]

That situation was predictable when the system was set up. What is worse, I have heard stories about young people who have nearly got to the end of the selection process but do not get called back in, but then get a telephone call from some Capita call centre saying, “I’m sorry, you’ve failed. That is it.” I am sorry, but that is not the way to treat people who have tried to join the armed forces.

The right hon. Member for Rayleigh and Wickford (Mr Francois) makes a good point. When we had senior non-commissioned officers stationed in recruitment offices, they could work out how to handle the recruits and use their breadth of experience to explain what life in the armed forces is like. This situation could have been avoided. Unless something has changed radically in the last few years with injuries, I agree with the right hon. Gentleman. I had case in which someone had a childhood knee injury. That person had to wait six months for a decision and then the knee injury was flagged up as the reason why he could not join the armed forces. That cannot be acceptable.

[Mr Sweeney]

To give a personal example, I joined the Territorial Army back in 2006 with a good friend, who went on to serve in Afghanistan. He left the reserves and when he sought to rejoin, he was disqualified on medical grounds. That is someone who had actually served in Afghanistan and who did not have any obvious injuries.

[Mr Jones]

My hon. Friend raises a very good case from personal experience. This needs to be looked at. I would scrap the contract and take it back in house. The old system perhaps needed tweaking, but it was delivering.

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[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

Thank you for giving me the opportunity to contribute to the debate, Mr Speaker. Let me also pay tribute to the hon. Member for Gainsborough (Sir Edward Leigh) and the right hon. Member for New Forest East (Dr Lewis) for their efforts in securing the debate, and for their persistent scrutiny of the Government on defence matters, which has been of long-standing note in the House.

It is interesting to follow the hon. Member for Moray (Douglas Ross), whose constituency is the home of the Royal Air Force in Scotland—although, sadly, it has been much diminished since only a few years ago, when Kinloss was home to the RAF’s fleet of marine patrol aircraft. That yawning capability gap is just one of the many litanies of defence cuts that we have seen in the past few years, so I do not entirely agree with the hon. Gentleman’s glowing review of the trajectory of British defence capability in recent years. That speech aside, however, I have been struck by the consistent level of shock and dismay expressed about the extent of the reduction in Britain’s defence capabilities.

It is an established fact that there has been a steady decline in defence spending as a percentage of GDP. It has fallen from 2.4% in 2011 to 1.9% in 2016. Not only has it declined every year under the present Government, but it is lower than it was in any year under the last Labour Government, which rather puts paid to the mythology about Labour’s defence record. Those figures, however—damning as they are of the Government’s real commitment—belie the true criticality of the situation. A recently published letter from former defence chiefs described the 2% target as “an accounting deception”, and added:

“Most analysts…agree core defence expenditure for hard military power is well below 2%.”

As has already been pointed out today, the inclusion of pension liabilities and other elements that were previously excluded from core defence spending suggests that what we are truly spending is much less than 2%. I welcome the commitment by the Secretary of State to making the 2% a floor rather than a target, and I hope that we can reboot our spending to increase the percentage substantially in the longer term.

I intend to stick to some essential points to which I hope the Minister will respond. Not only is defence spending well below the 2% minimum target, but its effective purchasing power is being eroded year on year. The defence inflation rate is running well above the national rate. In 2015-16 the defence inflation rate was 3.9%, the highest rate since 2010, while the national GDP deflator was just 0.8%. We only know that because the Ministry of Defence calculates the figures in conjunction with the Treasury, but, as the defence analyst Francis Tusa recently noted, the MOD and the Treasury stopped calculating them last year, so the visibility of the real purchasing power of defence has now been lost. We must recover that visibility as a matter of urgency, because it is the only way in which we can really scrutinise the trajectory of defence purchasing power. I hope that the Secretary of State will commit himself to discussions with the Treasury about the reinstatement of the calculation, because it is vital for us to have the information in order to plan ahead.

In recent months the Army has been cut by a fifth, wages have been frozen for a sustained period, and—as we heard from the hon. Member for Gainsborough—no Royal Navy ships were on patrol in international waters over Christmas, which is shocking and unheard of in recent history. All that can be attributed to the funding gap of £21 billion in the equipment programme, which shows how underfunded that programme is, and reveals the gap in defence spending overall.

I referred earlier to the relentless decline in defence spending in recent years. It peaked at £45 billion in real terms in 2009-10, the last year of the Labour Government. Although it has been suggested today that there is currently a £10 billion gap, I calculate that if the trajectory of an average of, say, 1.7% had been maintained rather than cut, we would have seen real-terms spending of £53 billion by 2020 rather than the £37 billion that has been projected. According to my calculation, the real funding gap is £16 billion rather than £10 billion. Members may feel free to correct me, but I believe that if we extrapolate the trend of defence spending before the cuts started in 2010, we see substantially more defence spending. Perhaps that shows just how critical the situation is, and demonstrates the reality of the root cause of the cuts.

The present position is both absurd and depressing. We know what the solutions are, and addressing them is a matter of political will. The key themes of the debate have concerned the chronic underfunding of defence, and the failure to recognise the uniqueness of defence industrial capability and understand how we can get the most out of it. The hon. Member for Gainsborough asked whether we were getting the bang for our buck that we ought to be getting, and what capability we received per pound in comparison with our peer countries around the world. That is a critical question, and I think that we, as a country, should investigate it. How can we secure maximum capability? I suggest that we can largely blame the way in which defence is financed.

When I was in the shipbuilding industry, we designed and built complex warships such as Type 26 frigates. We were massively constrained by the arbitrary limits placed on capital expenditure. Like many other Members, I take issue with that. When a programme of that kind is being commissioned—possibly the most complex and the largest-scale defence equipment programme, indeed the largest-scale engineering programme, undertaken anywhere in the world—imposing of arbitrary annual limits on spending is ridiculous. We ought to finance such programmes in the same way as we finance other critical national infrastructure programmes, such as HS2, Crossrail and the Olympic games.

[Mr Kevan Jones]

Does my hon. Friend agree that when equipment such as ships is being ordered, the payback to the Exchequer in tax should be taken into account and the jobs should not be exported?

[Mr Sweeney]

Absolutely. My hon. Friend has made an excellent and salient point. He and I are both members of the all-party parliamentary group on shipbuilding and ship repair, which is currently undertaking a study of that issue. According to another study, conducted by the Fraser of Allander Institute at the University of Strathclyde, the overall benefit to the UK economy per annum from the shipbuilding industry on the Clyde alone is £366 million a year, in purely multiplier effects. As for the idea that we can competitively tender programmes overseas, we are losing the opportunity of industrial benefit as well. We are not just talking about the loss of core capabilities; we are talking about the loss of revenue and economic potential for our country.

[Mr John Hayes (South Holland and The Deepings) (Con)]

I know that the hon. Gentleman has no intention of being churlish or unhelpful. He will, I am sure, acknowledge that having a shipbuilding strategy, together with a maritime growth strategy, is a particular feature of this Government, which marks them out from their predecessors of all political persuasions.

[Mr Sweeney]

I do not accept that point. It was a Labour Government who, in 2005, introduced the first defence industrial strategy, which defined a far more robust way of delivering shipbuilding capability in the UK. It defined key industrial capabilities, and that is sorely lacking from the Government’s current shipbuilding strategy. I hope that there will be some improvement as a result of the ongoing discussions on the matter.

[Mr Hayes]

I cannot believe that the hon. Gentleman has misunderstood me. Perhaps I did not explain myself carefully enough. I commissioned the maritime growth study, and it was the first for donkeys’ years, so I am not quite sure what the hon. Gentleman means.

[Mr Sweeney]

That may have been a discrete maritime growth strategy, but the overall defence industrial strategy encompassed maritime aspects. However, I welcome the right hon. Gentleman’s efforts in that regard, and I hope that we can work constructively to improve the strategy in the manner that I suggested.

The funding of large-scale equipment programmes must be revisited as a matter of urgency, because it is not sustainable. The annual limits on key programmes that are multi-generational cannot be allowed to continue. When we were looking at the programme for the construction of the Type 26, we wanted to invest potentially half a billion pounds in reinvigorating the infrastructure that would support it, but because of the arbitrary in-year spending profile we could not invest in the infrastructure and facilities that would have benefited the programme throughout its life cycle, and we therefore lost that long-term benefit. For the sake of short-term savings, we are losing long-term efficiency in the generation of defence capability. That may be an answer to the question from the hon. Member for Gainsborough about whether we were receiving the maximum benefit. Perhaps if we sow the seeds of the maximum capability at the start of programmes, we will reap the benefits of efficiencies through the manufactures that result from those highly complex programmes.

Defence inflation and the need to pump-prime programmes at the start to ensure that they meet world-class standards are just a couple of the issues that we need to challenge if we are to get the most out of our industrial capability. I hope that the Secretary of State will take those comments on board.

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[Stewart Malcolm McDonald]

I understand that that was what caused it, but how did the MOD manage to get the calculations so badly wrong? When there is a funding hole of £20 billion just in the MOD’s equipment spending—before we get to estates, personnel and all the rest of it—why is no one being hauled over the coals? I cannot think of another Minister or Department that would be allowed to get away with that, but it is due to a fundamental problem in how this Government, this Parliament and Governments over many years have decided to fund defence. It needs radical change. Even if the solution that we think might be helpful is not the perfect solution, something has to give, because the situation is unsustainable. The NAO is clear that the result is that projects must be cancelled, delayed or scaled back. I therefore ask the Minister to make it clear to the House which projects are to be cancelled, delayed or scaled back. Can we have a guarantee that not a single project in Scotland will be cancelled, delayed or scaled back, because that is the road that the NAO says the UK Government is heading down?

The situation adumbrates the need for a new SDSR—one that takes account of the change in currency fluctuations and of the fact that Britain will no longer be in the European Union. Our current security policy is based on our being members of the EU, so we need a new one that takes account of the fact that we are coming out, because that undermines operational capability.

[Mr Sweeney]

The hon. Gentleman makes a point about the impact on real defence spending of things such as currency fluctuations. We are talking about the need for stability in the defence budget and for it to be fiscally neutral, which I think was the term used by the Secretary of State, so should the Treasury not give special dispensation to the MOD so that it is pegged to a certain real level of spending, which would be an automatic stabiliser that rises and falls automatically with changing valuations or with defence inflation rates?

[Stewart Malcolm McDonald]

There is nothing that I could add to make that point any better. The hon. Gentleman is absolutely right.