PAC hears evidence on the Defence Equipment Plan

The Public Accounts yesterday held an evidence session on the Defence Equipment Plan 2020-2030. Witnesses were:

• Sir Stephen Lovegrove, Permanent Secretary, Ministry of Defence
• Charlie Pate, Director General, Finance, Ministry of Defence
• Sir Simon Bollom, CEO Defence Equipment & Support, Ministry of Defence
• Air Marshall Richard Knighton, Deputy Chief of the Defence Staff (Finance and Military Capability), Ministry of Defence

The following is a partially-edited transcript based on voice-recognition software. A few words have been missed due to poor reception. The official transcript will be sent as soon as it is available.

Meg Hillier [00:00:48] Welcome to the Public Accounts Committee on Thursday, the 4th of February 2021. Today, we're examining the latest 10-year equipment plan from the Ministry of Defence published in the wake of what the government described as its largest military investment in 30 years, which was sixteen point five billion pounds over four years. But in the last five years or so, the National Audit Office and the department have identified a seven billion pound gap over that 10-year plan. And we want to see how that gap is being managed. That's the gap between the proposals being put forward by the ministry and what's actually affordable and investigate how that sixteen point five dollars billion will be used, given that a lot of it's already being committed for new major projects. So we want to know about the money, the gap and how the department is assuring itself on huge projects that it's dealing with. I'd also like to welcome today as a guest on our committee under the guesting arrangements, the Chair of the Defence Select Committee, our colleague, Tobias Ellwood MP.

[00:02:19] So before we get into the main session, we have some topical questions for you, Mr. Lovegrove. So first of all, I'd like to congratulate you on your recent appointment as National Security Adviser. Can you just advise us when you're expecting to move on from the Ministry of Defence? And if you can give us any indication of whether your successor will overlap with you or there will be a gap and how that's going to be managed.

Sir Stephen Lovegrove [00:02:46] I aim to be taking up my post as National Security Adviser and towards the end of March. The process for replacing me is underway sort of as we speak. So expressions of interest are being elicited from potential candidates. I would expect that there may be a short period of overlap or or none at all. I wouldn't expect there to be, as it were, an interregnum.

Meg Hillier [00:03:22] OK, so it'll be from one permanent secretary to another permanent secretary.

Sir Stephen Lovegrove [00:03:26] I hope we will have to see. I mean, that may be a perfectly fair supposition. I mean, I'm not going very far and I will certainly be trying to give as much assistance as it is wanted and guidance as is required from my new birth. I'm not really proposing to take a long time off between the two slots.

Meg Hillier [00:03:50] OK, well, I would hope that you're not trying to do straddle two horses at once. I think they're pretty big.

Sir Stephen Lovegrove [00:03:54] I'm so I'm certainly not going to do that. Both of them are full-time jobs, that's for sure.

Nick Smith [00:04:10] Thank you, Chair. I think the question is best put to Air Marshall Knighton. Last year, the prime minister talked about developing a space command to protect us from the likes of Russia and China. And we also bought a company called OneWeb for $500 million. Could you tell us how much the department is working with OneWeb to help protect our country, please?

Air Marshall Richard Knighton [00:04:39] Thank you, Mr. Smith. So on the space command point, you will perhaps have seen the announcement last week that Air Vice-Marshal Godfrey is going to take over as the commander of space command. That's the work on establishing that command is is is ongoing. And we expect to pull together the resources that are already working on space command and control and situation space to domain awareness in order to build that capacity and to provide us with in the first instance, this the situational awareness that you require in space as a real precursor to protecting our assets in space as to OneWeb specifically the role that one will play in it right now is one of, as a commercial provider, all of the Internet communications. But it's very clear that low Earth orbit constellations have a potentially important role to play in delivering both communication, resilience and also potentially delivering the mechanism by which we can deliver intelligence, surveillance and reconnaissance from space. So the part that the UK owns of OneWeb is very much seen as a business partner, BEIS lead at the moment. But the opportunities that the technology might offer to defence is something that's very close to the front of our minds. And as we think about how we improve and develop the UK space-based capability, the consideration of how we might use a constellation like OneWeb is one of those issues that we are addressing.

Nick Smith [00:06:43] Thank you for that, sir. Last week, The Economist described OneWeb as a low margin, low growth business, which launches its satellite from places like Kazakhstan and low-cost bargain-basement sites in Russia. Can you let us know if the military is investing in any further funds in OneWeb, which doesn't seem to be a very strong proposition?

Air Marshall Richard Knighton [00:07:10] So I can absolutely confirm that the media hasn't invested anything in OneWeb but as I said, what we have is a commercial company that provides Internet access. It's not being used for defence purposes. And as you rightly point out, there are aspects of its ground infrastructure where it launches from that would be of some concern if it were to be used for a defence or security purpose. But we're not investing in that. And that's not how it's been used. But as I say, the technology and the principles of low earth orbit constellation do have military utility. And that's one of the potential areas that we might invest in as we develop an experiment with our defence space portfolio.

Nick Smith [00:08:03] Thanks for that. I'm concerned about what I've heard about OneWeb. How much resource it has budget into the company and its worth yet has the MoD put into OneWeb's development, please.

Air Marshall Richard Knighton [00:08:18] So we haven't put any resources into OneWeb. We are interested in understanding more about the technology and how we might use that and how as that technology develops, we might be able to exploit that for defence purposes, but we haven't put any resources into OneWeb directly.

Meg Hillier [00:08:37] I'm now going to Tobias Ellwood, MP, chair of the Defence Select Committee on this issue.

Tobias Ellwood [00:08:42] Thank you, Chair, and thank you for including me today. Could I just to probe that further. You're almost distancing yourself away from OneWeb. Is it something that the MoD supported the purchase of? You say it's a low consolation orbit and you're looking at it. But from where I sit at the moment, it has no military direct military benefits, bearing in mind it doesn't actually work yet.

Air Marshall Richard Knighton [00:09:07] So just speak. My apologies if I've misled you in any way. I agree with you, Mr. Ellwood. It is a commercial satellite constellation that in its current form has no direct utility for the military. But the principle of the low earth orbit constellation and the technology that is required is to be able to make that constellation work that does have potential military utility. And a number of nations are talking about that. I'm in no way trying to distance myself. It's just a commercial provider of Internet connectivity at the moment. But the technology and the opportunity is potentially quite valuable to us.

Sir Geoffrey Clifton-Brown [00:10:21] One very quick question on OneWeb. We've invested half a billion pounds on this company. You're not really giving us any details this morning as to when we're going to see some results for this half a billion pound investment. Could you just put a little bit more flesh on what you've already said?

Air Marshall Richard Knighton [00:10:43] I'm afraid I can't. My understanding is that the UK government will, as part of the deal, have a number of seats on the board. But I'm afraid I was not privy to the business case that was part of the decision making around investment in what? So afraid I can't offer anything more. I think the business secretary might be in a better place to comment.

Peter Grant [00:11:21] Can I add my congratulations to those of colleagues on your appointment? Before we let you go, we have to ask you about the recommendations in a report last year, most of which you agreed to, and the report made, I think, six or seven recommendations, all but one of which you accepted. And also once you accepted all but one, you expect to deliver, done by the end of December last year, when you said winter. Colleagues will want to look at the recommendations and detail later on. But overall, can you tell me how many of those recommendations you have actually delivered on.

Sir Stephen Lovegrove [00:12:38] Well, the recommendation, number one, the department must [inaudible] ...the next equipment plan with affordability and long term sustainability at its core. We have done that. And the secondary recommendation: the promised integrated review must balance ambitions for the future capabilities and the affordable long term investment programme. We will be talking about that later on. And we certainly will be attempting to give you the assurance that we are balancing our ambitions with our resources.

[00:13:21] The next recommendation was about the nuclear infrastructure programmes and in particular getting the department and Treasury to consider greater flexibility to manage strategic programmes on a multi-year basis. We have effectively done that. The nuclear programme is looked at in a slightly different way to the rest of the programmes in the department, and certainly, our multi-year settlement allows us to definitely think about nuclear in a longer range than than than we have been able to date.

[00:14:03] The next recommendation was the department should demonstrate, it should decide how it's going to measure and demonstrate progress in transforming capability in a way that optimizes delivery of results. I have written to the PAC on that. I mean, we continue to progress those strands of work. And I don't think that anybody thinks that we have ironed out absolutely everything in our processes and procedures to absolutely the level that you or indeed we would like. But we are certainly attempting to do so around the acquisitions and approval's transformation portfolio project speed issues such as that.

[00:14:48] The next recommendation was on the Defence and Security Industrial Strategy. You suggested that we should set out our expectations of how industry will improve its performance and address endemic delivery and quality issues that afflict the sector. We are going to be producing the Defence and Security Industrial Strategy at the same time, I hope, as the integrated review. Drafts are in a very advanced state and we are very seized of the need to move from tactical value for money to strategic value for money.

[00:15:31] The next recommendation was that the department should set out clear metrics indicating what progress it expects to have made and by when against its objectives of improving the effectiveness of the reformed procurement process. My previous answer really refers, to be honest. This is part of the transformation programme. There is a portfolio of work underway designed to increase pace and precision into the acquisition of delivery programmes. You suggested that we should be reporting to the committee by 31 December 2020, and I believe that we certainly did write to you on that. There was a letter to the PAC.

[00:16:18] And then the last one was that the department should write to the committee as soon as possible, setting out its approach agreed with the NAO for reporting the equipment programme for 2020 to 2030. And we did write to the PAC in October 2020 to confirm our approach for reporting this year, which no doubt we will want to get into earlier on.

[00:16:46] So we have, I think, fulfilled all of the specific recommendations there. But I would say that some of them are sort of ongoing improvement recommendations. And I think we are we're very seized of the fact that we will need to continue to report to you and improve our performance across the waterfront.

Peter Grant [00:17:15] As I mentioned, another colleague will want to look at more detail at some of the responses to the recommendations. I think at one point you mentioned the committee has suggested that it should apply by the end of the year. Most of the time scales ... were actually said by the department, not the committee.

[00:17:45] One of the fundamental weaknesses that the Committee and the National Audit Office highlight every year is the management of a long term spending programme on a year by year budget. And that doesn't work for them any more than any other government department. In your reply to recommendation on that, you mentioned that [inaudible] programme had a contingency built in which was similar to what we had been asking for the entire equipment plan. But you also said there were no plans at the moment to extend that process to other programmes in the equipment plan. [inaudible] is estimated the cost to completion just over eight billion pounds. The total defence equipment plan is not far short of 200 billion. So if the progress towards a multi-year budget continues at that rate, it's going to take the best part of 25 years before the fundamental weakness is addressed. Do you consider that to be an acceptable outcome?

Sir Stephen Lovegrove [00:18:52] Well, if that were the time scale, I would certainly consider that to be unacceptable. But I don't accept the premise of the question. The Mod, even when it has been in a position where it has had to live in an annual budgeting cycle, has - and Treasury has been completely content for this to be the case - always effectively planned without necessarily the certainty of the money, but it has effectively always planned on a 10 year forward look.

[00:19:33] Every year we do our ABC annual budgeting cycle. ABC 21 is coming up quite soon. And that looks out for 10 years in the same way as the equipment plan looks out for 10 years and has to be approved by the Treasury. Now, whether or not in the past they have been clear that the money has always been there for that, they are very, very well aware of the fact that there are obviously financial commitments that we enter into and will have to be paid for. I would say that nevertheless, the lack of a more solid funding line in the last five years has been a very, very difficult thing for the department to manage around.

[00:20:23] And we have said on any number of occasions that we have been desperate for a longer-term planning horizon with the certainty of resources and funds, which we could really start making some strategic decisions around. And I'm pleased to say that the spending review of last year has given us that we now have four years of solid, guaranteed money. We know how much we are going to be able to spend. We know roughly where we are going to be spending it. There are some final decisions to be made now by ministers and therefore the whole of the programme is on a different basis to that which it was on the last time we had this discussion. So we are in the process of a really big inflexion point for defence. And I'm very, very pleased that the Prime Minister and the secretary of state and the chancellor have made the difficult decision in the current environment to put us in that position.

Peter Grant [00:21:29] I and others will want to look in more detail at the spending review announcement later on this morning. But just a final question from me for just. Do you consider the spending review announcement by itself solves what the committee and the NAO highlighted as a fundamental weakness in the way of the defence equipment plan is managed?

Sir Stephen Lovegrove [00:21:56] The spending announcement in itself gives us the basis for planning, which should give you and give us the comfort that you require and we have been desperate for to be able to get after some of these deep-rooted structural problems. Of course, it doesn't fix it by itself. There are going to be difficult decisions to be made. Ministers will be faced with some tough choices ahead. And unless those choices are made and then officials and armed forces personnel implement them effectively, then some of the problems will persist. So the decision itself is is is a great start. It's the right foundation. There is a lot of work to be done.

Sir Geoffrey Clifton-Brown [00:23:13] When you appeared before this committee on the 28th of May, I asked you whether we shouldn't have a defence budget that would try to deliver more on time and on budget. And you replied to me, we would very, very much like to do that. And it would actually be quite easy to do that. It was arguably what happened in 2010. So the last four defence budgets have been unaffordable. What's happened to the whole process since 2010?

Sir Stephen Lovegrove [00:23:46] 2010 got the defence budget into a place where it was affordable, but in terms of capability, arguably unbalanced and very understandably, given the economic situation at the time, the secretary of state, prime minister and the chancellor took out pretty much everything which was uncommitted. And as a result, the the the the budget became balanced, but some very, very important capabilities which are required to keep our service people safe and indeed the country safe were removed. 2015 sought to redress that particular problem by putting in quite a lot of those, replacing actually, quite a lot of the capabilities which were lost in 2010. And the maritime patrol aircraft is a very good example of that. And at that point, the budget became unbalanced in a different way. There was too much capacity and not enough resource.

[00:25:12] What we are attempting to do this time around is to avoid both of those traps and to make sure that the capabilities are properly designed for the future. We will no doubt be taking some risks in various areas, but it will be hopefully a coherent and sensible package of capabilities and it will be backed up by a proper resource envelope which will allow us to plan properly in the long term.

Sir Geoffrey Clifton-Brown [00:25:39] Without taking into account the strategic expenditure review, which we will cover later, you produced a budget which has got no contingency at all in it this year, and it's fully allocated over the next 10 years. So it doesn't allow any scope for any new equipment. Is that a really sound way to make a 10-year budget?

Sir Stephen Lovegrove [00:26:02] That is not what we will be doing. You're absolutely right about a contingency that we discussed that at the beginning of the year with the Treasury. And together we took the view that that was the best way to proceed. If they were going to be problems during the year, then Treasury was going to bear in mind that we had agreed not to have any contingency. So that was a sort of a joint decision to manage what was a difficult financial position.

[00:26:27] The point that you make about looking ahead would be true were it not for the fact that we are in the process of balancing the equipment programme and balancing the capabilities, retiring certain capabilities early, removing others and generally doing the sort of kind of dynamic design work that you would expect ahead of the review. That is the moment at which we will be able to get this exercise into balance, that resources and capabilities will be properly in balance for the next 10 years. What I guess I mean by that is that the situation that we have been persisting with for the last four years is about to change.

Sir Geoffrey Clifton-Brown [00:27:22] Well, I wonder if I think just identified a huge gap in the budget because you said you will be retiring some capabilities. So doesn't that mean, for example, in minesweeping, just to give one example, that you will need to replace them? And it doesn't seem to be any allocation in this budget for replacing those capabilities that you're retiring?

Meg Hillier [00:27:49] We will be looking into this later. If you can answer the more general point then we need to move on.

Sir Stephen Lovegrove [00:27:57] This equipment programme, which you are looking at at the moment, is effectively the continuation of the programme of record, which is broadly set in 2015/2016. The integrated review, which has not yet been published, will contain substantially different programme and capability choices to some of the ones that you can see here. So I'm afraid we don't have the integrated review in front of us. So I'm not at liberty to preempt the minister's decisions on specific capability choices. But what you have in front of us is it will look significantly different when this happens at this session happens with my successor next year.

Sir Geoffrey Clifton-Brown [00:28:42] My last short question for me. Can you just confirm the point that I am correct or the NAO has identified that this budget does not include any provision for replacing retired equipment such as I've just cited, the minesweeping capability? Yes or no?

Sir Stephen Lovegrove [00:29:00] This one does not. But that does not mean to say that that the next one will not either.

Sir Bernard Jenkin [00:29:21] Just a clarification on a detail about the Northern Ireland protocol which had strayed into the media. The suggestion, because there is now a de facto customs frontier between Northern Ireland and GB, that we are required to notify the commission if we are transferring arms or munitions across that frontier. What is the MoD's understanding of this situation?

Sir Stephen Lovegrove [00:29:48] I am not aware that any of our operational activity around the border is going to be impacted whatsoever as a result of that. I will look into that further to absolutely clarify that point.

Sir Bernard Jenkin [00:30:16] The question was whether you were required to notify the commission about transferring arms and munitions from GB.

Sir Stephen Lovegrove [00:30:23] I will have to get back to you on that. I'm not aware of the answer to that question, specifically.

Sir Bernard Jenkin [00:30:28] My expectation and yours I expect is that any arms movements within the United Kingdom are a matter of our sovereign right and not required to be notified to anybody. That would be my view. Would it be yours?

Sir Stephen Lovegrove [00:30:45] I think I would just like to get back to you with the specific details.

Meg Hillier [00:30:53] If you were able if you are able to get background information on that before the end of the hearing, we will come back to it at the end.

Sir Bernard Jenkin [00:31:05] On the question of the MoD's military assistance to the civil authority for Covid, the secretary of state gave a statement last month saying you about 4,700 armed forces personnel deployed and there are another 10,000 standing by. What is the situation now?

Sir Stephen Lovegrove [00:31:27] The situation is that marginally more, I think just over 5000 are now deployed, we have three main areas where we are assisting the national effort. The first is with the NHS itself, where we have 1600 medical professionals deployed into the NHS, 720 combat medics deployed into the NHS and 850 general duties personnel deployed into the NHS. On test and trace, we have been assisting with community testing programmes across the country, most notably in Liverpool and Manchester, where there are some thousands being deployed, and then we have some assistance on the vaccine that they have 42 quick reaction forces ready to assist local vaccination efforts. All of that personnel in those quick reaction forces are themselves vaccinated and they are sent around the country where the need is most.

Sir Bernard Jenkin [00:32:49] Can you split the balance of your deployment between England and Scotland? How much is deployed in Scotland?

Sir Stephen Lovegrove [00:33:21] I don't know the answer to that, but I do know that there is a significant number in Scotland. I can get you the specific details.

Sir Bernard Jenkin [00:33:42] And finally, on test and trace, you talk about supporting testing, are the armed forces assisting with tracing?

Sir Stephen Lovegrove [00:33:55] Not particularly, certainly not at mass. We have been doing quite a lot on the planning side, but those are sort of individuals, both the chief of the Defence Staff and I have a biweekly call with Chris Wormald, Simon Stevens and others in the health system to work out whether or not there are other areas in which the defence machine as a whole could be helpful. Sometimes that is about sort of kind of more mass deployment sometimes. The combat medics are an example of that. Sometimes that is about sort of got a very specific individual doing very specific things. So we did a red teaming exercise on aspects of the vaccine programme.

Tobias Ellwood [00:34:56] Regarding munitions movements. I think there is a NATO agreement with the EU which might be worth looking into to help solve that question. My question is actually just to do with the vaccinations and becoming a vaccinated island. We're doing incredibly well here. You'll be aware we stepped forward during the Ebola crisis to help other countries with RFA Argus, our hospital ship. It's a point I raised with the defence secretary and with the health secretary as well. I do hope the MoD can actually do, to start helping Commonwealth countries, Caribbean countries as well, using our own forces to roll out the vaccine worldwide.

Sir Stephen Lovegrove [00:35:34] Well, I hope so, too. To vaccinate at the moment is defence's main effort as it is the national effort, the Covid effort. And there is very little point, once we have vaccinated people on these islands, there is very little point in hoping that that is going to be the end of the exercise. The whole globe needs to be part of it. And we know that we will need to play our part.

Nick Smith [00:36:16] I want to take up the line of questioning have left after Peter Grant. We, of course, look forward to the integrated review. What would say about that is in 2010 and 2015, there were CSRs that accompanied those reviews. And so there were resources behind those reviews and gave a clear sight of direction of travel. That isn't the case this time. It's good that you have the 16.5 billion allocated in the autumn, but it appears that much of that money is already spent. And in the meantime, the present equipment plan, according to our estimates, has a shortfall of circa seven billion pounds.

[00:37:09] How are you going to make up that shortfall for the 2020 2030 equipment plan? I'm particularly worried about, in fact, the AJAX project, which is important to South Wales. That may be cut or left on the shelf. Can you give us the broader picture and a specific answer to what's happening with AJAX please?

[00:37:31] Well, I will hand over, to Air Marsh Knighton on AJAX. But the broader picture is that the 16.5 billion that the prime minister announced last year was avowedly in his own words, partly to deal with the financial difficulties of the last five years and which we. [inaudible]... In order to invest in new and battle winning technologies for the future. So there is no question that this is not 16.5 billion pounds which is being poured onto an already balanced budget, and therefore it is all going to go on new and revolutionary kit. That is simply not going to happen. It will have to go to dealing with the problems that we that we face. However, in the process of the integrated review, ministers will be in a position to take a series of decisions about capability enhancements and yes capability reductions in certain areas, which will go a very, very long way to getting this budget back into balance in any event. And then the 16.5 billion, as it were, can go on top of that, which will then get the balance of the programme absolutely back into balance and also provide the the certainty of funding for new capabilities that we all require.

Air Marshall Richard Knighton [00:39:25] So, Mr. Smith, just on AJAX, it's worth noting that AJAX outside of the nuclear programme is actually the biggest spending programme we have in defence. You know the factory well. The work that's going on there to build vehicles is progressing extremely well. And we expect to hit key milestones this year. And there is absolutely no question of that programme being cancelled. This is going to be the most modern vehicle that the army will have when it comes into service.

Nick Smith [00:40:09] Going back to Sir Steven, there has been an emphasis on the multi-criteria defence decision analysis exercise. And we know at the same time there's going to be a defence and security strategy being tabled to. When will parliamentarians have sight of that information so that we can be informed about the difficult decisions that you're going to have to make to balance the budget on the equipment plan?

Sir Stephen Lovegrove [00:40:47] The specific programmes that we're going to pursue and those which we are not going to pursue will come out around the time of the integrated review. We will be, as I say, at the same time, seeking to publish the defence, security and industrial strategy. And we will be giving, in any event, in some form, considerably more information about the specific defence programmes over and above both the defence and security industrial strategy and the integrated review again on roughly the same timetable.

Nick Smith [00:41:42] Because the budget has been in disarray for four years in a row. Can you tell us more about the uncertainties ahead that could affect the validity of the plan?

Sir Stephen Lovegrove [00:41:59] That's a very interesting question. We spend about 15 per cent of our equipment plan in either euros or dollars. The global economic position is a complicated one. I think you can assume that forex is going to continue to be something that we are going to have to pay a very close sort of attention to. And that could go either way. But it is something that we continue to exercise considerable vigilance over. I think the main thing, though, that I would say is that there are in at least two areas and they are the two biggest areas actually of our expenditure in the equipment plan, very, very significant debts that have been built up over a number of years, which we are going to have to deal with and renew. And the two areas I would highlight would be in our communications systems and in the nuclear enterprise. I mean, as you know, the nuclear enterprise is in the process of being renewed across the board, the submarines, the warheads. These are enormous programmes, very, very complicated programmes. And I would say that we will have to be very, very careful about watching increases there. And I'm afraid the other big area, the biggest second biggest area in the equipment programme of the submarines is I.T. and communications systems. There we have an extraordinarily complicated technological debt, which is very, very difficult to unravel. And we need to unravel because we are moving into warfare in a data and information age. That, again, is an area where I think there is there is definitely potential for costs to spiral. And we have seen a bit of that this year.

Nick Smith [00:44:29] The committee will look forward to your better understanding those two large topics in particular. Can I take you back to forex and the activation of the lightning two aircraft for the aircraft carriers? Our last report on those pointed to an 800 million deficit over time, increased costs because of forex going in the wrong direction. Have you updated that? Could you let us know if you're going to have to provide even more money to even buy the lightning two aircraft that you've made provision for?

Sir Stephen Lovegrove [00:45:12] I think Mr. Pate is going to be in a better position to answer that question, or even possibly Mr. Bollom.

Charlie Pate [00:45:25] I can come in on that. So the latest forecast cost of the lightning programme that's in the EP 20 report shows that actually against the approval of around 10.2 billion - that's the approved costs that we have - we're currently forecasting 8.9 billion. So we are substantially under the overall budget that we've set aside for the F-35s at this stage. That reflects three things. Actually, there is an increase in foreign exchange costs as part of that. But actually, a substantial review the SRO and the DNS have carried out have reduced costs. And also we've had overall reduced costings from the joint programme office in the States. And that is actually a continuing theme of this programme. The costs of the aircraft are reducing. Our focus on the F-35 really remains on supports costs and working with industry and our partners, partner nations on those making sure that we can restrain those as much as possible.

Tobias Ellwood [00:46:38] Can I just probe a bit further into this difference between the amount of money that's been allocated back in November - very welcome it may be - and the shortfall that you're currently facing now. I welcome the comment that says that you built up debts over the years. There's still a disparity and we need to be careful with disinformation and perhaps spin that 16.5 million is rolled out to say welcome, welcome, welcome. But actually, we remain to have a shortfall.

Air Marshall Richard Knighton [00:47:19] I think the first thing I'd say is the 16.5 billion is enormously welcome. It represents a 10 per cent increase in the defence budget next year. And I've been in the Air Force 30 years this year and we have never seen that kind of level of increasing investment in defence. So I think it's not a matter of spin. It is absolutely welcome. As Sir Stephen has said, there are - and this committee and the NAO have commented on it - is that there is risk in our programme and there is a level of underfunding that will need to be addressed. And some of that 1.65 billion is as the prime minister said in his speech in November, will need to go to address those risks and that shortfall in our funding. It's worth noting that we talk about the 16.5 billion, but we should remember that that is actually only over the first four years. And we've been given a planning assumption that we should use in the subsequent six years of the decade, by Treasury. And that will be the basis on which we would be establishing the equipment plan as we go through the integrated review and publish more details about defence. And that's in excess of 30 billion over that over that 10 years. So that gives us an opportunity to get up to the challenges and risks that we have in the programme to deal with some of that technology debt that Sir Stephen described, but also to start to see that shift in our capability to make it more relevant to the kinds of threats that we're going to face over this decade and into the subsequent decade.

Tobias Ellwood [00:49:04] My concern, though, is, is that without that integrated review, which allows you to define your Defence posture because you determine your ambitions or role on the international stage and indeed what your commitments are and the threats that are coming over the horizon, we're making plans over a 10 year period for equipment that we don't even know where it's going to be used or in what context because you've not been given that clarity of direction from the integrated review itself.

Air Marshall Richard Knighton [00:49:31] So I think that with a couple of things I'd offer it in an answer to that question. The first is that we are expecting an integrated review to be published soon. Defence and defence officials have been closely engaged in the development of that work. And as we said to the committee before, we've been developing our thinking, particularly from a defence perspective, on the role of the military instrument, on the priorities for a new capability and for our posture over quite a long period of time. We've been through the National Security Capability Review, published a white paper on the modernising defence programme. So this is an iteration of that thinking and work and that thinking and work have been applied to the development of the integrated review.

[00:50:25] So we think that defence and the central development of the integrated review are really well connected and we understand the kinds of priorities and roles that defence will have to undertake in the future and our understanding of the development of the threats, particularly the increasing threat in space from cyberspace and need to be able to act to defend against those things, to continue to deter are things that we really understand very clearly. The final point is around our conceptual response to that threat is really laid out in the integrated operating concept that the chief of Defence staff talked about last year. And you would have heard the Defence secretary talk about and that that describes very much the key components around deterrence, around posture, around the need to integrate our capabilities more effectively and across Whitehall and also the need to adapt faster. And that is a really good vehicle to describe and help shape the outcome of our thinking around the capabilities that we invested.

Tobias Ellwood [00:51:41] Okay, I understand that. But from the defence committee's perspective, we've studied this in detail. The threats that we see, the biggest geopolitical long term threat is China and its forward presence, encroaching and luring our countries that are friends with us, nudging us out the way. So forward defence posture, upstream engagement is critical. And what we're seeing here today, because of the pressures that this study that we're looking at today reveals, is that we're buying very high tech machinery but don't have enough money to fulfil our original commitments. So F-35 has been mentioned already. There's no budget that we see at the moment saying we're going to purchase any more than 48, and that's not enough to fulfil two aircraft carriers just to sustain it. And likewise, other aspects from Crow's Nest and the Merlin type 26, that type 31, type 32 was mentioned as well. These are all big promises that are being made. AJAX is in an interesting development, but you're the first person to say that this is going to be actually committed to. So lots of promises being made, Typhoon, Radar, Tempest and so forth. And yet what we're picking up is that if you want to fulfil any of these things, it'll be rather a niche, rather bespoke, but at a cost. And one of those will be the minehunters that have been mentioned and potentially a cut to 10000 personnel in the armed forces. And these are going to have a huge impact on our presence. We need to make the case that actually much of this budget is welcome, we need to actually need more than that if we want to have that Defence posture, surely.

Air Marshall Richard Knighton [00:53:20] So first thing is in terms of a posture, one of the things I've said to your committee, Mr. Ellwood and to the public accounts committee, is that one of the things that's very clear from our work over the last few years is that we do need to invest in the boring stuff, the support, the spare parts that enable us to support helicopter deployments around the world. Having invested billions of taxpayers money into new equipment, we ought to be one of the first priority is to make sure we invest in sustainment in support of that so we can use it and exploit it. And that is been a key factor in our thinking about investment plans in terms of F-35 specifically, I suspect this will come up later in the committee. But as we said before, we know that we need to increase the number of F35bs and the settlement gives us an opportunity to do that over this decade. And the final point, Chair just on mine hunting capability and to the earlier question, I think from one of the other members of the committee is that we have recently signed a deal with the French to manufacture autonomous mine-hunting capability that will give us a world-beating capability into the future. And that's how we're going to deal with the gap that would have otherwise been created. And that's really the leading edge of the commitments we'll make as a consequence of the settlement that we received in November.

Sir Stephen Lovegrove [00:55:03] Mr Ellwood, you mentioned broadly forward presence and having people out in the field and on the ground around the world, that is absolutely one of the core tenets of what we want to be doing in the future. It is writ large, I think, in the integrated operating concept. We want more of our people doing more things in more places, more of the time. We want to have less contingent force held at readiness. We want to be more productive. S we are going to be investing in, for instance, in defence staff around the world. We're going to be investing more in international liaison. We're going to be investing more in training teams in areas that we know it's going to make a difference and promote Britain's values and interests. So the point that I would make is very, very well understood, very well appreciated, and that we will be acting exactly in the way that he would like us to.

Tobias Ellwood [00:56:10] I think my concern, if I may Chair just to conclude this, is that these are absolutely well-intentioned. They come out in the strategic review from 2015 that you are to procure this equipment. But because we are not making the case to make sure that they are afforded, then everything is delayed. So the Warrior upgrade is delayed. Challenger upgrade has been delayed. The arrival of Boxer and even AJAX itself has been delayed. Crow's nest has been delayed. Even the support ships for the aircraft carrier has been delayed or indeed the numbers get cut as well. And unless we make the case, both of us, to the Treasury, then we will not get the more money. If we continued simply to celebrate that 16.5 billion, would you not agree with that?

Sir Stephen Lovegrove [00:56:55] I would agree with that. I can assure you there has been no slacking in representing Defence's case to the Treasury by anybody on the line from Defence today. We do understand and appreciate your support and agree with the points that you make.

Nick Smith [00:57:20] Just one specific question to the Air Marshal. This committee went to see Prince of Wales last summer, it's really great kit. But we were disappointed then that the US Marine Corps was providing so many F35s to compliment the carriers that we have at the moment. How many F35s will we have deployed by the end of this decade?

Air Marshall Richard Knighton [00:57:49] So we have got on order 48 F-35Bs and they will all be delivered by 2025, they will form the core of our operational fleet. We'll have two operational squadrons, plus an operational conversion unit, a training squadron. But as we've said before to the committee, as I mentioned earlier, we acknowledge that we need to increase that number. That's the part of the work we're doing at the moment with ministers as we establish the plans on the basis of the settlement that we've achieved. And I wouldn't want to get out in front of ministers and preempt ministerial decisions. But as we've said before are our expectation is that we will buy more F-35s in the second half of the next decade to improve that capacity.

Nick Smith [00:58:46] How many and by when?

Air Marshall Richard Knighton [00:58:50] I'm going to say the same thing again - that ministers haven't decided. And until they do decide, I can't tell you what that number will be.

Tobias Ellwood [00:59:12] I hear the pressures you're under, but you hear that the next batch of F-35s they're not going to appear until the next half, the next decade when technology itself and even protocols, doctrines and capabilities would have changed fundamentally. That seems very bizarre, that we're not able to then support the aircraft carriers now with a full complement because 48 isn't even enough to fill two aircraft carriers.

Air Marshall Richard Knighton [00:59:42] Two points, if I may. The first is to really reinforce the point that Sir Bernard has made previously, which is that we will generate greater value for money from our investment, particularly the non-recurring investment we made in the F-35 programme, as we increase the numbers, and that alongside the capacity that increased numbers will bring to our aircraft carrier capability is driving our thinking around the numbers that we should buy in the long term.

[01:00:16] And to Mr Ellwood's point about technology, one of the points about F-35 is it is able to be constantly upgraded. And as we move to a model in which capability is increasingly defined by software, the importance of keeping the software updated and capability updated through developments in software is how we will keep that relevant. F-35 is still going to be a world-beating capability well into the 2030s.

Meg Hillier [01:00:49] This committee and the defence committee have an abiding interest in this issue and a strong interest in the carrier strike group.

Sir Bernard Jenkin [01:00:58] We were just reflecting the beginning of this session how familiar this NAO report is and how we seem to go around the same houses every time. First of all, I commend your honesty and it's much easier for us to make ministers accountable when you just say that's a decision for ministers. That's just the process. But I think we should have more of that from officials when rather than pretending to carry the kinds of decisions that have not made. But looking ahead, do you remember we never brought a number of Apaches we were meant to buy. We never bought the number of Joint Strike Fighters we were meant to buy or the Typhoons. We never brought the number of Dauntless destroyers that we meant to buy. It's always the same case. So it looks as though we're in the same position again. We're going to finish up buying smaller numbers than originally envisaged. Is this just how it is? It's very difficult for parliament to make anything accountable if constantly the commitments were given just slip through our fingers.

Sir Stephen Lovegrove [01:02:29] Equipment purchases in the defence world are, I think, characterized precisely by what you have just said, that governments find it for a variety of reasons...eventually to find the money to buy the number and quantity of bits of kit that they announce that they are going to buy, and that is not something that is peculiar to the UK. That is the same in America, that is the same in France, that is the same in Germany. I think there are lots of different reasons for that. And not all of them are to do with people overpromising to do with entryism and all of those typical criticisms of defence procurement. I mean, I would identify a couple. One is I still don't think that we have a very good understanding of defence inflation, which is clearly different from inflation in the rest of the economy and has different drivers. And I think there is an analytical job of work to be done to understand why that is the case and whether or not there are better ways of either managing it or predicting it. And secondly, and this is probably the most important thing, these are immensely long term projects. So the F-35, we will be buying them for another 20 years or so. And they've been in the pipes for about 15.

[01:04:06] In the course of a project such as that, things change. So in 2015, the SDSR, which said that we were to buy 138 F-35Bs, there was no mention of the future combat air system or Tempest, as it is more snappily known. Things change in the course of these very long term programmes. Different capabilities come along which render things that you have yet to buy, possibly obsolete, or perhaps you need fewer of them or the threats change. And there is always going to be, I think, a degree of flux which is difficult to predict in a defence procurement programme of this scale and of this tenor.

[01:05:00] Of course, accompanying this is the constant billions of pounds shortfall in the budget to fund the programme that you're committed to. That seems to be a constant feature and the extra money arriving is not intended to fill that gap. It's to buy different new stuff. So how are you going to resolve that, or is that just another feature of being a permanent secretary in the MoD? And do you just have to pretend all the time you're going to get a quarter out of a pint pot?

Sir Stephen Lovegrove [01:05:41] The task we are engaged with right now is to, with the benefit of this additional funding, to look at the programme of record, to take things out of it, that we think that we have less need of at the moment and to reduce the deficit that the NAO has correctly identified. That's number one. Number two, then to apply some of the additional funds that we've got in order to fill that deficit, which I hope that will be as small as possible. And then number three, to identify new capabilities which are going to be of more use to fighting forces in the coming years. Now, all of those three things actually happened at the same time. That is the exercise we're engaged on at the moment. This year is the moment when we will be able, I very, very much hope to be able to get this into much more like a proper balance, something that we have not had for the last five years. There will definitely be tensions and flux, though, from some of the reasons I had mentioned in my previous answer. So I suspect my successor is going to be wrestling with things and no doubt cursing me on occasions. But we are in a much, much, much better position to be able to get this whole programme into balance now than we have been for some years.

Sir Bernard Jenkin [01:07:13] What is the MoD actually doing better to understand defence inflation? I mean, you've been sitting there for a long time and you don't understand it now what you will leave behind so that your successor will understand it?

Sir Stephen Lovegrove [01:07:27] Well, we do understand it a bit. What I think is probably the case is that we don't anticipate its effects on our programme as in a sophisticated way as we need to. And I think the way in which we deal with contingency is probably at the heart of it.

Sir Stephen Lovegrove [01:08:12] We constantly make the best the enemy of the adequate and the extra 30 per cent of cost buys you capability that you never use.

Sir Stephen Lovegrove [01:08:22] That has historically been a picture. I think we are a long way away from doing that at the moment. The Type 31 acquisition is a very good example of where we have decided to go for something which is slightly at the more utilitarian end of the scale rather than the absolutely super, super sophisticated, exquisite capabilities our military colleagues would call it. It certainly has been a problem. It's something that we are trying to eradicate. But as I say, contingency and how we deal with contingency and how we set contingency, I still think is probably quite a long way away from best practice.

Tobias Ellwood [01:09:14] You mentioned that there may be things that you're going to have to cut in order to try to manage a budget. Can you just expand a bit more on what projects are unlikely to be cut?

Sir Stephen Lovegrove [01:09:25] I'm afraid I can't really do that in advance of final decisions by ministers, Mr Ellwood. I mean, I do know that you know, the areas of prioritization that we will be going for will be the new domains in cyber and then space. We will be investing a lot in autonomous systems. We will be investing a lot in our networks and we will be investing a great deal in science and technology and research and development. I mean, not absolutely everything can be afforded. Certainly, there will be reductions in certain areas, but exactly the shape of that, I'm afraid I'm not in a position to be able to give you at the moment in advance of ministerial decisions.

Tobias Ellwood [01:10:14] But there is a concern that if you move to more autonomous systems, then the personnel will be affected. Can you give us a guarantee that at least the numbers in the armed forces will remain as they were intended in the last SDSR?

Sir Stephen Lovegrove [01:10:30] I would really defer to ministers on that particular point. Mr. Ellwood, no final decisions have been taken. I do know that the secretary of state is absolutely committed to an approach which is about outputs rather than inputs. He is keen to make sure that what it is that we have, whether or not it be people or whether or not it be kit, or indeed whether or not it be the networks and support networks that lie behind those, enables us to be effective where we need to be effective. That is what is driving him rather than specific input measures.

Tobias Ellwood [01:11:06] How do you then move to a position whereby you actually have the ability to have the additional headroom to absorb perhaps the unexpected changes or increased costs that the last four NAO reports have revealed?

Sir Stephen Lovegrove [01:11:21] Well, that goes back to my previous answer about contingency, to be honest. I mean, we have found ourselves being squeezed harder and harder and harder. And one of the consequences of that has been that contingency has been, by and large, taken out of the programme. We need to build some contingency back into it. We need to build some margin. I mean, this is particularly the case. And I've had a lot of conversations with the director-general of nuclear and the vice chief who is very involved in that way. That's particularly the case in nuclear. We need to have some margin which will allow us to take the right decisions without being forced down roots that are about sort of kind of immediate very short term money-saving measures. But it may be that Mr Pate has something to add.

Charlie Pate [01:12:26] We take various assessments of the risks that we have. We have 13 billion pounds embedded into our project costings for projects and senior responsible owners to manage the risk that arise as they're delivering their projects and then our independent cost assessors. This is in the report assessed that we have potentially 3.9 billion of risk over and above that we have included in the budgets. Set against that even in the equipment plan for 2020, we do have a contingency of over five billion. But as Sir Stephen says, as we go through the implications of the spending review and into equipment plan 2021, we really will want to assess exactly how much contingency is appropriate both for the conventional equipment plan and then, of course, we do have the contingency arrangements with Treasury.

Sir Geoffrey Clifton-Brown [01:13:26] Mr Pate, a technical question really following up Mr Smith's questions. In paragraph 19 of the NAO Report, it says that this equipment plan assumed foreign exchange movements will be funded by the Treasury. And yet in earlier replies, you were building in forex costs. Which is it? Is it the MoD funds forex or is it the Treasury that funds forex?

Charlie Pate [01:14:02] This particular reference in paragraph 19 of the report is about the in-year position. So in setting this year's budget, we made two assumptions with the agreement of the Treasury. One is that we would allocate all the contingency that I hold central on behalf of the department to the TLBs and that went into budgets. The second is that we saw that there was a risk on foreign exchange through the year, but that we wouldn't look to budget for that at the start of the year. And we would continue to discuss with the Treasury how we handle that through the year. And of course, you've seen sterling has fluctuated through the year and we are in discussion with Treasury as we speak on the impact of that further supplementary estimates and that final action for the year.

Sir Geoffrey Clifton-Brown [01:15:03] So now this is a really fundamental question. It's a very easy question, but I'd like a very precise answer. The NAO make the point that this equipment plan is underfunded in the first five years by four billion pounds a year. Now, it just so happens that that is quite close to the 16 and a half billion that you've just been recently granted by the expenditure review. How much of that 16 and a half billion will go into shoring up the shortfall of the plan? And how much is new money to go into new projects such as cyber and space?

Charlie Pate [01:15:42] So the difference in the budget in the SI years is not four billion a year, it's around six point six billion over the four years is what the report shows. As explained earlier, there are three elements that we are still assessing before we publish the integrated review and the defence approach to that. And then actually we'll put this in the equipment plan 2021. And that is, of course, what we are going to invest in new things going forward where we need to disinvest. And the prime minister was very clear when he announced the half-billion that there are less useful capabilities that we're going to have to retire or reduce the numbers of. And then the third element is how we put all of that together and come out. So I'm afraid I can't at this stage give you a precise answer as to what goes in there because we need to take those different elements into account before we show what the whole plan looks like.

Sir Geoffrey Clifton-Brown [01:16:47] When you made the case to the Treasury for this additional sixteen and a half billion, on what basis did you make it? What did you say that money was going to be used for?

Charlie Pate [01:16:57] So we were very clear that we had a gap in our funding as against the current programme records that existed since 2015. So we showed that. And actually, the equipment that you have in front of you today was part of that evidence. It's only it's a good proportion of the defence budget, but it's not the whole amount. We took that into negotiation with the Treasury as part of the gap. And we've come out with sixteen and a half billion, as I say, within that, we're going to have to invest in new equipment going forward. But we do need to tackle the the gaps that we do have across the defence budget.

Sir Geoffrey Clifton-Brown [01:17:37] So how I repeat the question, because I'm not getting the answer, how much of this 16 and a half billion will go on the existing budget and how much will go into new equipment? Just a very simple question.

Charlie Pate [01:17:50] I can't give you a number at this stage because of those different elements, particularly when we are assessing the basis of the current plan. So the current plan, and the prime minister was clear on this in his announcement, will change going into next year's plan. We have to price that first and then we can tell you how much has gone in, you know, what the budget gap was at that point and how much we've had to put 16 1/2 billion into these current programmes.

Sir Geoffrey Clifton-Brown [01:18:20] And if you can't give me an answer to that, let me try the question in a different way. You have a very ambitious plan, including cyber and space, which sound like very expensive projects, unmanned vehicles, unmanned aircraft, et cetera, et cetera. Are those projects anywhere near affordable with the 16 and a half billion that you have been granted?

[01:18:42] The sixteen and a half billion covers the next four years. And in those four years, we will continue the investment that we are already making in both of those areas and in our capabilities across the world.

Sir Geoffrey Clifton-Brown [01:18:56] You still haven't answered the question, is it sufficient?

Charlie Pate [01:19:01] What I was going to say is that we need to start those investments. These are long term investments. If you take the planning assumption from the final year, we have more money in there. And indeed, the NAO report shows there is headroom in the later years for us to invest further in these capabilities. There is a limit, actually, to how much industry can respond in some of these areas in the short term. And we have to build that realism into the plans as well. We can't just sort of put all of the money out straight away. So so there is an understanding of the priorities that we need and what industry can deliver in building up this plan.

Sir Geoffrey Clifton-Brown [01:19:49] So summarizing the position, is it this: that this plan, as presented in this paper, is unaffordable in the first five years? It looks as though the whole 16 and a half billion will have to go into affording what is in this plan. So what happens in the final five years? Where does the extra money come from to actually procure the whole of this plan?

Charlie Pate [01:20:15] So first of all, I'm afraid I don't agree that the whole of the six and a half billion will have to go into delivering this plan. The report shows there's a gap of six point six billion on these current plans over the four years that the sixteen and a half billion is provided for. But that is on these current plans. And as I've been explaining, the plans need to change. And we are looking at adjusting them to fit the current priorities of the government. And that will be set out within the strategic framework of the integrated review. Going forward, we take an assumption as to the budget for the full 10 years. We don't have that confirmed by the Treasury, but they have agreed with us that we can plan on the basis of a point five per cent increase on inflation year on year from year four. And that gives us significant headroom, as we've had in earlier versions of the plan, that we can take forward these key investments that some that you've explained and others that the Air Marshall was set out earlier.

Sir Geoffrey Clifton-Brown [01:21:17] So there are some significant items in this plan that this committee has taken an interest in that are not covered by this plan, things like decommissioning of nuclear submarines, the defence housing provision. Where is the money coming from for these projects?

Charlie Pate [01:21:36] So decommissioning of the submarines, the current requirement for those is within this plan, the housing requirements and the N0A report yesterday in that hearing we've got in due course is another element of the budget. That's the infrastructure plan. And that is I mean, that is why this whole approach is taking some time and spending review to be announcing the full outcome of that because we have to take into account all the different elements of the Defence budget, the three main elements of the equipment plan, what we spend on people and activity and what we spend on infrastructure. We have to balance all of those so that there is a balance, total budget going forward.

Sir Geoffrey Clifton-Brown [01:22:15] So when are we likely to see the infrastructure plan?

Charlie Pate [01:22:19] So as part of our and we are working on our annual budgeting cycle, we do that every year, as the name implies, we are currently doing that. And as part of the integrated review, I expect Defence to come forward setting out our overall plan for how we're managing the next four years. Then the equipment plan will set out the next 10 years as is normal.

Sir Geoffrey Clifton-Brown [01:22:43] So the question was when will we see the infrastructure plan?

Charlie Pate [01:22:48] So in line with the integrated review, which we're expecting in the spring, at some point.

Sir Geoffrey Clifton-Brown [01:22:54] The two will be together?

Charlie Pate [01:22:57] We are expecting to announce the Defence details very close to the integrated review, yes.

Shaun Bailey [01:23:08] I'm just following on from that line of questioning, Sir Stephen, earlier in the session, you said what a good idea of how the 16 billion would be used. Mr Pate, you've just said basically that you're not sure. Which one is it?

Sir Stephen Lovegrove [01:23:22] I don't think Mr Pate quite said that. We are not in a position to give very specific details about levels of very specific investments or indeed very specific levels of disinvestment ahead of ministerial final ministerial decisions. But I can assure you that the Treasury and the prime minister would not have granted us sixteen and a half billion pounds for the next four years on the basis that we had no idea as to broadly the areas that we needed to invest in and indeed some of the areas where we needed to make less investment. Those are sort of kind of well understood. Final details are all with ministers and it would be wrong of us to preempt those.

Shaun Bailey [01:24:24] Effectively what we're saying isn't until ministers have announced that we can't really say where that money's going?

Sir Stephen Lovegrove [01:24:35] Yes, I'm afraid that is the case. I mean, the secretary of state and indeed the prime minister have set out some pretty, pretty broad sort of directions of travel. I mean, in 15 seconds, there will be a lot of investment in R&D. There will be more investment in space. There will be more investment in cyber. There will be a continued renewal of the nuclear enterprise. There is a very big commitment to the future combat system. We have made statements about autonomous systems. We have made statements about expanding the Defence network across the globe. But equally, I'm aware that that is those are directions of travel. Specific equipment programmes and levels of personnel deployment will have to wait until ministers have made their final determinations, I'm afraid.

Shaun Bailey [01:25:29] We've got an estimated potential overspend that obviously is going to have to be dealt with somehow? Surely that whole 16 billion figure is not going to be used on projects like that? Surely there's going to be an element of the shortfall that's going to have to be consumed by that say. So how are you modelling that?

Sir Stephen Lovegrove [01:25:53] That is absolutely right. The whole of a 16 and a half billion is not, as I said before, new money going on, a balanced budget. It's not going on a balanced budget. The budget is out of balance at the moment. What we are engaged in doing at the moment is getting the budget, as it were, as much into balance as we possibly can. That will involve certain elements of a reduction in certain areas. And then when we see what is left, as it were, we will then be taking a view as to how much of the new capabilities we can afford. I mean, that is an iterative process. As I said before, all of those things sort of can happen in a very interlocking and interconnected way. But you're quite right to say that sixteen and a half billion is neither going all on new stuff, nor is it all going on fixing the problems that we've got. It will be going on a mixture of the two things. And the balance between those is a function of the many individual decisions that ministers are making now.

Shaun Bailey [01:26:50] So do you think is accurate then to really refer to this as a sixteen point five billion increase, given that part of that money is going to be tackled to a shortfall? I mean, the reality is it's not sixteen point five billion, is it?

[01:27:05] It is sixteen point five billion. It represents a 10 per cent increase in the Defence budget for the next four years, which is really extraordinarily substantial, particularly against the backdrop of the economic position that the country finds itself in at the moment. But what it is not is a sixteen and a half billion increase on top of a balanced budget because it isn't a balanced budget. The NAO is very clear, the PAC is very clear and we have been very clear ourselves in these and other public hearings with Mr Ellwood and others that this is not a balanced budget. We have never pretended that it has been.

Shaun Bailey [01:27:46] If I could just talk about how the department is balancing that budget. In the National Audit Office report, it states the departments is confident it plans to achieve 66 per cent of savings targets. And it assumes it will realize all the savings despite that which is reducing the savings they are confident of achieving. Can I just ask, how confident is confident, and how are you modelling that confidence in achieving these savings?

Sir Stephen Lovegrove [01:28:19] One of the things we have been modelling really hard is the maturity levels of the various savings and efficiencies...and there are thousands of them. It is not one big number. And every single sort of initiative needs to be assessed in terms of its likelihood of delivery, the scale of its delivery, the pace of its delivery, what the knock-on effects of its delivery might be. We are gradually maturing the basis upon which we do that. Our confidence levels are rising in some instances. And indeed, you can see that in the NAO, that has meant that our confidence in the overall efficiency target is actually reduced because we are a bit less confident now we know more about them than we were before. But it is that it is an ongoing process. There will never be a moment that anybody will be sitting in front of you and say to say that they are 100 per cent confident about an absolutely maximised cost efficiency and savings programme. That's just not the way that it's going to work. Sir Simon is responsible for a lot of savings initiatives. So he will have no doubt some views on that as well.

Charlie Pate [01:30:07] Just to emphasize Sir Stephen's point that we do grade our efficiencies by maturity level and we've got a further billion over this year into that top maturity level. So we now have really high confidence in two-thirds of the targets that we have embedded in the equipment plan. But there is two sorts of further comments I'd make that we don't want frontline commanders to be sitting back. And so it is right, in my view, that the targets that we do have on each of them are stretching the will therefore be gaps within the budgets because we need them to keep focused on this area. We also have a series of central programmes that we're running because we need to take a cross-defence view, particularly in our support and work and things like how we forecast and resource planning for support for equipment servicing schedules. We're planning and carrying them out more efficiently. That is a cross-departmental programme. As we get more confident in that, the savings from that will go against these targets. So I think with those two further points, it is right that we have challenging targets within the equipment plan. It will always be an area focus.

Shaun Bailey [01:31:31] That figure of 66 per cent then, that moveable?

Charlie Pate [01:31:40] Yes, of course. And we would hope, as it has over the last year, to continue to increase as we get greater confidence in those individual-specific plans, which we have many of we continue to assess. And sometimes the efficiency plans that we have don't work out. And so we will reassess again.

Sir Simon Bollom [01:32:08] If I can just sort of add to that really and perhaps provide some confidence to committee members that we have got a robust plan. From where I say I think we've got a much more a much tighter way of looking at efficiencies in the programme. And just in my own organization over the last four years, we've delivered or in fact, in ABC 20 going forward, we have managed to find 5 billion of efficiencies that will be baked into the plan. Perhaps in the past where we might have made mistakes is that we haven't had a robust audit of efficiencies going forward. But they the process that we've now got in place across the fence that we've been using in DNS for some years now requires efficiencies to be identified. They then go through a rigorous scrutiny process. And ultimately there's an audit pack that has to be produced to underpin efficiencies signed off by professional accountancy staff. So from where I stand, I think we've got a much more robust system. And if I give you a, for example, we have efficiency down in Danus, which I know other frontline commands. And so I've got three billion potential efficiencies in there. But actually, when you apply judgment against that in terms of the downturn, it's probably just going to be just over one billion. So it is very much in our own interests to look carefully at those efficiencies and make a robust risk judgment.

Shaun Bailey [01:34:09] Is there a risk that a 66 per cent figure could go the other way? Because it sounds like it was it can go up, it could go down. And finally, we've been talking a lot today about figures, actually. Let's talk a little bit about the personal as well. If I'm an aircraftman in the RAF, what's the impact of all of this on me?

Charlie Pate [01:34:40] There is a risk that the efficiency number could go down and we reflect that in our own equipment plan report, that is part of the range of the affordability challenge that we have. But I would say that we have in the pipeline several billion worth of efficiencies. We are developing those plans and they are coming to maturity month by month. So so we do have increased confidence and that is confidence is built actually year on year in driving, in in delivering, meeting these targets and increasing that 66 percent proportion. And one critical aspect, and this is an element of the investment from the spending review, is we do need to invest in driving out those efficiencies. That didn't really happen in 2015. But we took forward a very careful, detailed plans to the Treasury and they accepted that we needed to invest in areas like sports programme that I described earlier, or our digital structures and processes that will enable us to increase that efficiency delivery.

Air Marshall Richard Knighton [01:36:04] That's a really great question. And it's a an issue that I asked my team to think about all the time, which is what is this going to mean to the men and women of the armed forces? But I really do passionately believe that the future's very bright for the armed forces. I think the commitment that the government has demonstrated is the importance of the armed forces with the injection of the 16 and a half billion pounds of extra funding beyond the original budget plan illustrates the importance that this government places on the armed forces and with the introduction to service of new capabilities, with the opportunity for the armed forces to be more engaged, more involved around the world. I think it is a really exciting time for the young men and women, whether they join the Air Force. The only thing more than anything I know I would say this would not, but I do passionately believe that it is an exciting time and I would encourage young men and women who have talents and ability to come and join the armed forces way that we will train them, educate them. One of the things about the armed forces is our people are incredibly adaptable. We have throughout my career seen multiple different types of aircraft retire and be brought into service.

Meg Hillier [01:37:38] So you're basically saying that there's no particular knock on effect to personnel of these indecisions indelicately, but perhaps accurately on the equipment plan?

Air Marshall Richard Knighton [01:37:49] So our people will inevitably need to be trained as we bring new equipment into service and we expect in the future to require different balance of skills, more digital skills to more to do those sorts of things, and that will change. But actually, the systems always prove to be really very adaptable. And so I'm pretty confident that we'll be able to act quickly to the developing new capabilities.

Sir Geoffrey Clifton-Brown [01:38:25] Mr. Pate, you said that the plan was six point six billion short in the first five years. What I'm trying to get to is a figure as we sit here now, how much is this 10 year plan short in money?

Charlie Pate [01:38:45] The report is clear, seven point four billion.

Sir Geoffrey Clifton-Brown [01:38:47] Wow, your own cost assurance and analysis service says it could be up to sixteen point four billion. Given the record of the Defence budget, it always tends to be the worst case scenario rather than the best scenario. So where is this shortfall? Is it the seven point three in your view, or is it sixteen point four?

Charlie Pate [01:39:07] So we always set out a range, given that we're looking 10 years ahead and the report sets out clearly the different elements of risk within that, some of it's around the efficiency delivery, which we've just been discussing. Some of that is around foreign exchange movements. And then the other element is from the customer service, where they take a view on that project and challenge us somewhere where there may be further risk to come out. And as I said, we do have a contingency set against particularly the costing services view of our risk.

Sir Geoffrey Clifton-Brown [01:39:41] But the plan is fully allocated in terms of equipment, so there are actually there may be a contingency in that for the existing equipment plan, but it doesn't contain any money for new equipment, does it?

Charlie Pate [01:39:56] So there is a contingency, there is unallocated within the department over the 10 years, there isn't in the initial years, and that's one reason we needed the six and a half billion pounds. But if you then extrapolate that forward, as we've agreed with the Treasury on it on an increasing basis, on the manifest of commitments of naught point five percent above inflation, that does give us headroom in the later years of the plan for further investments beyond those that are already in the plan. And that will be set out in the integrated review and then in the equipment plan for next year.

Nick Smith [01:40:45] Mr. Pate on theissue of forecast efficiency's. It would seem to me that your answer was fuzzy. And it was best intentions there, but we're looking for more stringent applications of policy clearly. So why do you continue to ignore our recommendation not include savings that you don't have clear plans to deliver?

Charlie Pate [01:41:11] So so I apologize if my previous answer was a bit fuzzy. What we are trying to do and I think we have improved over the year and I think the NATO has reflected this is much clearer management information, much clearer understanding of the efficiencies that we have in delivery. And those that we have in planning and those that are sustainment describes are that that we have in the hopper. But we don't expect necessarily all of them to come to fruition. And we take we discount our expectation of the financial impact of that, those plans delivering depending on our view of the maturity of them. So those in the hopper, we are discounting very, very heavily. We're not budgeting on the basis of expecting a lot of those savings to come through. But I would go back to the point I made to Mr. Bailey that it is right that we have challenging targets within the equipment plan. We need to be driving efficiencies through the armed forces to ensure that we're providing value for money through the equipment plan.

Nick Smith [01:42:19] So it is good that you have targets, but you still insist on including savIngs you don't have clear plans to deliver.

Charlie Pate [01:42:30] We have embedded those targets and I think they are stretching, but really and we have tested and as part of the spending review negotiation with the Treasury, I think it is right that we have those in there is a challenge and we've been very clear about that in delivering those. The challenge is different in different years. And, you know, as we go into the four year spending review, actually at the moment, the plans looks pretty realistic in meeting most of those targets.

Tobias Ellwood [01:43:29] Type 26, is that now costed? How many are we going to have over the next 10 years?

Air Marshall Richard Knighton [01:43:35] It is costed, the plan is for eight, we've committed to three, which are in build. Decision around the commercial commitment to the second block of five is due in the next couple of years.

Tobias Ellwood [01:43:49] So still a question mark over funding of the remaining five.

Air Marshall Richard Knighton [01:43:53] I didn't say that. Mr Ellwood. We have budget line set aside for the eight. We haven't made a commercial deal. We haven't made commercial commitment to it. But the money for the programme is in the equipment plan and is in the numbers you've got in front of you.

Tobias Ellwood [01:44:06] Forgive me, that's very helpful. And the type 31?

Air Marshall Richard Knighton [01:44:10] Exactly the same situation. It's just not yet in build. That's at early stage in its design life. But we're committed to that and make a long contract for that.

Tobias Ellwood [01:44:21] OK, the prime minister mentioned the type 32 in his announcement of extra funds. Can you explain what that is? And is that funded?

Air Marshall Richard Knighton [01:44:29] The short answer is, I can't explain what it is, and it's not included in this equipment plan yet. What it references, though, is the prime minister's commitment to build more ships and to grow the surface fleet of the Navy. Type 32 could be just a follow on of type 31. It could look somewhat different. We will go through a process of what's described in the Defence technologies concept and assessment phase, which you'll remember Mr. Hayward, which is where will define the requirement, define the needs of what it needs to deliver and understand the timing associated with that. That work hasn't been done yet. But there's a very clear commitment from this government to grow the size of the surface fleet. And that's what type that to be part of that wider programme.

t [01:45:15] OK, thank you. And turning to the armed forces, we touched on AJAX and Boxer. I presume those numbers are the same and the costings are there and it's budgeted for. What about Warrior and Challenger upgrade?

Air Marshall Richard Knighton [01:45:27] So we've spoken before about Warrior and Challenger. We are not yet in a position with Warrior to make another commercial decision or investment decision. Challenger is going through the process of decision making, and I anticipate that the long term judgments around both Challenger and Warrior will come out with the integrated review and the detailed plan that we set out as part of those announcements around the integrated review.

Tobias Ellwood [01:46:05] What about the Typhoon radar upgrade?

Air Marshall Richard Knighton [01:46:09] The NAO report identified that as an unfunded aspiration. It's an important part of developing the capability of Typhoon. And it's one of those investments that we're considering as part of the integrated review.

Tobias Ellwood [01:46:24] And from a financial perspective, which is what this committee focuses on, cyber and space. Will they have their own separate budgets that we'll be able to analyze what they do, separate the other three services.

Air Marshall Richard Knighton [01:46:41] No is the short answer in terms of having a completely separate budget, but will we be able to set out the investment patterns of our space and cyberspace? Yes, we will be able to do that, but they'll be managed through our top-level budget system within the department.

Tobias Ellwood [01:46:55] So maybe that's something France, the United States, for example, got their own space commands. Maybe this is something that will well venture into it. And my final question, if I may Chair to do with the personnel and the manning side of things, will there be any changes on that front?

Air Marshall Richard Knighton [01:47:08] Well, I'd refer you to Sir Stephen's previous comments on the workforce.

Peter Grant [01:47:30] Air Marshall Knighton, you'll be aware the prime minister announced additional funding as part of a spending review. It also gave some pretty detailed commitments as to new capabilities that that money would be used for. What assessment have you made of the cost of the commitments and of the scale that would be required to deliver them?

Air Marshall Richard Knighton [01:47:55] Did you have anything particular in mind or was this more general question?

Peter Grant [01:48:00] No, the prime minister made some specific promises to the House of Commons on as part of the same statement. For example, if promised, warships should all be with what he described as directed energy weapons destroying targets with inexhaustible lasers. And for them, the phrase running out of ammunition would become redundant. Is it part of the existing equipment plan to all of our warships using high energy directed-energy lasers instead of conventional weapons and ethanol? What is the cost of adding that to the plan?

Air Marshall Richard Knighton [01:48:38] So we have a programme of what we describe as a novel weapons programme, an element of which includes a number of different mechanisms to use directed energy as a mechanism of attacking or knocking out targets. This technology is still relatively nascent. We can use laser technology energy or RF radio frequency energy. But what's quite clear to us, I think, is that the opportunity that this offers in the way the prime minister describes is for bottomless magazines. And the idea that we would not need to re ammunition because it would be delivered through electrical and electromagnetic energy is a potentially significantly game changing capability for delivery of defence capability.

[01:49:36] We think that we are much closer now than we were five or 10 years away from delivering this capability and into the hands of soldiers, sailors and aviators as a capability that will actually deliver the effect. We have plans that we understand to develop a laser weapon for ships. And we are intending as part of our investment in greater investment in research and development to fund that work. And the overall cost of that in terms of delivering that right across the street is not yet known. I don't think the prime minister is committing directly to fixing it to every warship where he was painting was a future in which modern technology would transform the way in which we operate. And that's going to take many years for us to transition through that.

Nick Smith [01:50:34] What's your assessment of the cost of delivering on the promises that the prime minister made when he announced this money? He also made promises of protection from satellites, drones, that the response would be determined using artificial intelligence. What is the estimated cost of where we are now of making that a reality?

Air Marshall Richard Knighton [01:51:08] So some of those elements are already in the programme, so we already have aspects of the programme called dismounted situational awareness for our soldiers. We are going to invest in electronic warfare capabilities in the land domain and similarly for our ships and in the air domain as well. So there are a whole range of things that are already in the equipment plan. There are some things that we will need to add and that we need to be part of the considerations specifically around the integrated review, but also more generally as we think about the development of capability in the future. So one of the key components of the integrated operating concept is this ability to adapt at times. And one of the pieces of our analysis points to is the pace of change of technology and the importance for us to actually exploit that technology in the delivery of modern capability and to do it faster than our adversaries. So I think we the idea that we need to move away from this is that we will have a fixed budget for 20 years and we know exactly what to do. What part of our thinking is about making sure that we do leave some headroom in the budget to be able to exploit this technology as it evolves so that we can deliver it more rapidly. So I can't give you a very specific answer on what the Prime Minister was describing in terms of an impression of the future and what it might look like rather than specific commitments to projects and programmes.

Nick Smith [01:52:53] Sir Stephen, what status does the prime minister's statement have to you when you hear him promising all these things will be delivered? Does that mean you immediately swing into action or do you wait for specific instruction to start costing and some of the programmes?

Sir Stephen Lovegrove [01:53:21] The prime minister mentioned some of those all of those technologies, really, because he had been extensively briefed on the kinds of things that we wanted to be able to do. I mean, he didn't come to them up out of nowhere. They are all realistic possibilities for the technologies that are going to help us win battles in the future and what we want to put money. He said rightly, that we are going to put six and a half billion pounds into R&D and S&T. over the coming period, and that will help to mature some of these very, very cutting edge technologies. Now, some of them are going to be more successful than others. I mean, that is just in the nature of developing new technologies. So exactly how much money we're going to end up spending, I think is is is, um, is obviously unclear at the moment. But is the commitment there to significantly double down on these new technologies, significantly get ahead of the curve, put our fighting men and women in a better position with respect to their adversaries as a result of technological advancement? Absolutely. Yes, it is. Exactly how much money there's going to be for these things. We'll have to wait because we'll find out how effective they're going to be in due course.

Nick Smith [01:54:46] I know you've been asked a number of questions about how the additional 16 billion will be allocated, and you've explained that you're not able to tell us that. Who will take the final decision as to how much of it is used to plug the funding gap and how much of it is genuinely new money? And can members of this committee, and indeed all members of parliament expect to get that information?

Sir Stephen Lovegrove [01:55:10] The decision will be taken collectively by the prime minister, the chancellor and the secretary of Defence. And obviously, the prime minister will have the final say in these matters. We are aiming to publish at the same time as the integrated review or very near to it in time to on the documents, the Defence security, industrial strategy and another specific Defence publication which will give more detail. So it will be dependent on the exact timing of the integration review.

Sir Geoffrey Clifton-Brown [01:55:47] Sir Stephen, can I ask about skills, particularly financial skills your department only has in its financial department 41 percent of people who are professionally qualified in finance, the total BS have financial shortages of a third in the Army and the Navy in their financial sanctions. How can we expect proper financial budgeting if you don't have the skills in the department and the TLBs?

Sir Stephen Lovegrove [01:56:35] I think you can expect and you should expect and we would expect it of ourselves to have proper financial budgeting and forecasting and whether or not we have a gap in skills there, it will not be an excuse that we would put forward for not having robust forecasts. So I wouldn't want to pray that in aid at all.

Sir Geoffrey Clifton-Brown [01:57:13] Do you or do you not in the department at the TLBs have sufficient financial skills?

Sir Stephen Lovegrove [01:57:19] We do not. But that does not immediately equate to the fact that I do not have confidence in our forecasts. There is always going to be a degree of variability in the forecast, but it does not arise from that particular problem.

[01:57:31] What I do agree with you, though, is that only having 41 per cent is a number which I am not happy about and we have got plans to improve that. But they are not moving as fast as I would like. I mean, Mr. Pate has the detail on this, but he, too, is dissatisfied with that as a percentage.

Charlie Pate [01:57:57] It will take time because we need I mean, this to so we can do it, we train our own people and we bring new people in and we have done that. We're increasing in the tens at the moment sort of year on year. And I would say that the gaps that you highlighted in a couple of the security and in the parts of their finance teams focused on the equipment and of course, we have many tens, if not hundreds of financiers, particularly in DNS who we rely on.

Sir Geoffrey Clifton-Brown [01:58:36] Paragraph two-point one three says because of the way it is organized, the department delegated model cannot access the tailpiece financial information to challenge these judgments. So what's wrong with the system if your people in the department can't challenge the TLBs in their financial judgments?

Sir Stephen Lovegrove [01:58:55] That is something that we are seeking to change even as we speak. Again, I would defer to on the details to Mr. Pate, but it is definitely the case that in today's world, the head office main building in a whole variety of areas needs to be able to take a well that's consolidated position. So it is I agree that is something that needs to change.

Sir Geoffrey Clifton-Brown [01:59:32] A real indictment, I think, on the whole system is in paragraph one point one five, and I quote, because the department's evaluation of risk and uncertainty in the plan's cost is not comprehensive, the full extent risks may not be visible to decision-makers. That's a shocking indictment that you don't know what the full extent of the risks are in your department.

Sir Stephen Lovegrove [01:59:56] No, actually, I don't think it is. I think it is an enormous department with many, many thousands of programmes. I believe that the vast, vast, vast majority of the risks are available to us. No doubt there will be some which we are not a not cited on. The NAO has said may not be visible to decision-makers. That is a matter of opinion that I don't necessarily agree with.

Sir Bernard Jenkin [02:00:55] Sir Stephen, you were going to give us a definitive answer about the NIP.

Sir Stephen Lovegrove [02:00:59] I can do that. I can confirm there is absolutely no requirement to notify the commission about movements of Defence personnel or equipment between Great Britain and Northern Ireland. There is a national security exemption in the Northern Irish protocol, which applies. And we've taken steps to ensure that both the customs authorities and the contractors supporting UK Defence are fully aware of that situation. And I have just had confirmation from Kuehne+Nagel that moves are taking place and they are happy with the process.

Sir Bernard Jenkin [02:02:19] On skills the balancing of the plates on the ends of the canes in the circus act is how the government programme seems to work. But what would you recommend to your successor in terms of how you can budget better and control and manage budgets better in terms of the capability and skills that you've got? What is the recommendation to your successor?

Sir Stephen Lovegrove [02:02:45] One of them would certainly be around the area that Sir Geoffrey just mentioned. I do not believe myself that the recommendations of the Levine report were quite followed as much as they should have been, insofar as it recommended that there should be empowered frontline commands with an extensive range of delegations and a strategic and powerful centre. I think that we probably swung the pendulum a bit too far in the direction of delegation to the frontline commands. And we have lost a bit of the muscle memory and the muscle power in the centre to be able to look across some of this stuff as much as we probably ought to. Now, we've changed quite a lot of that, but I think that I would encourage them to continue with full vigour the changes that we are making to make absolutely sure that the centre knows exactly what's going on, or at least to the extent that it needs to in the frontline commands such that it can make properly balanced investment decisions. Proper risk analyzes taking into account the full range of Defence activity and priorities.

Sir Bernard Jenkin [02:04:18] The Levine question is very interesting because I've seen time and again how an individual brought in to transform things does say while he's there and then the impression that lasts more than a few months or years. And indeed, that was his own verdict on his previous visit to the Defence Department in the 1980s. How do you impact change like that in the culture of the Ministry of Defence, in the attitudes and behaviours of officials so that those changes become a permanent change in culture?

Sir Stephen Lovegrove [02:04:55] Changing culture is a slow and tricky process. I mean, there are certainly some things that you absolutely need to do. I mean, you need to make sure that they're properly resourced. We can certainly change procedures, authorities and delegations, I mean, we do that kind of thing sort of all the time particularly around the personnel area, for instance, where we know that we are going to have to change our terms and conditions if we are in a position where, you know, front line commands are changing the terms and conditions of their personnel without reference to the broader picture, we are going to get ourselves into a very, very, very difficult pickle, which will be very difficult to find our way out of. So there does need to be a degree of central control and central authority that is respected.

[02:05:58] It is respected at the moment that it needs to sort of kind of go further. And there are plenty of governance changes that we can make. But it's mainly about having a sort of kind of collective leadership which is consistently dedicated to having this at the top of mind. I mean, it needs to have enough space to not get distracted by the urgent and the shorter time frames and to make sure that the longer term ... vital for the health of the organization, not taking care of as well.

Nick Smith [02:06:41] I want to pursue a little bit further on the issue of one word, which I raised at the top of the section, Mr. Pate. I've got a letter here from Nick Smallwood, who's the chief executive of the government's Infrastructure and Projects Authority, and he says in the letter that the government is open to considering how alternative technologies, including one that may be able to contribute to PNT and positioning navigation and timing resilience in the future through that space-based PNT programme. Could you say if the MoD has got a budget line on the space-based programme, please, and an order of magnitude? How much is it?

Air Marshall Richard Knighton [02:07:30] The space-based Precision Navigation Timing programme is a programme being run out of the Cabinet Office. In Defence, we have a number of lines of funding to help with resilience for precision navigation excuse me, decision, position, navigation and timing. But they are partly associated with specific equipment. But Defence is playing its full part alongside other departments like the Department of Transport in that space based position navigation type of work, which, as I say, is the overall risk is being managed through Cabinet Office, but is a specific part of the programme being run by the UK space agency. We're not funding that work directly. We, as you would imagine, we are really we care very much about the resilience of our pantie capabilities. So we have a number of budget lines across a number of projects.

Nick Smith [02:08:43] Please can you get back to me on that PNT activity and whether or not OneWeb is receiving any moneys through that arrangement.

Air Marshall Richard Knighton [02:08:51] So I can assure you that right now, OneWeb is not receiving money through that arrangement.

Shaun Bailey [02:09:02] And finally, just one final question from me. We've obviously we been raised by many, many members of the committee today around the need to be up to date in terms of technology and in terms of sort of the fast pace of change. I just wanted to ask, given what we were talking about for efficiency savings and modelling, how are we going to be able to ensure reactive procurement? Because it certainly sounds like in this space we are being reactive to changing needs is absolutely vital. Are you pigeonholing yourself a bit here in terms of how we are managing produces some of the savings, how confident you are you going to be able to keep up with the pace of change, you know, globally?

Sir Stephen Lovegrove [02:09:41] So far, it's a very, very good question, the fact that all three of us wanted to come in and believe probably four of us wanted to come in and answer it testifies to that point. I think we are well aware that in the new domains of cyber and space, our historic acquisition procedures are inadequate and they do not respond to the incredibly rapid pace of change in those areas. And they are not amenable or susceptible to setting a requirement and then having a rather stately process of acquisition and three years later ending up with the piece of kit....projects that are kind of before it comes into operation. In the three as what traditional domains, what we're talking about here is the effectiveness of our equipment is really less about the platform and more about the software development that goes on the platform. And we need to bring the kind of acquisition techniques that are more associated with the tech sector into not only when we're buying things from the tech sector, but also into the areas of more traditional equipments that spend some time in the states with the acquisition machine over there. They are wrestling with the same problem and have got some very, very interesting ideas about it. The Germans are certainly wrestling with the same problem. I'm not so sure about the French. We are conscious of this and that is why acquisition reform is one of the things that I'm not merely in a traditional improving value for money sense, but also in a much more fundamental sense of, you know, is this the right way to buy kit, which is going to remain relevant. That is something which is very close to the top of our minds at the moment. And we are working hard on it. But as I say, others will will have other things to say on that. It's a really important topic.

Shaun Bailey [02:12:02] But surely is not the case in order to be able to achieve these ambitions, we need affordable equipment to be the base, to build that off. So is surely the priority has got to be getting that nailed down first?

Sir Stephen Lovegrove [02:12:12] Yes.

Sir Bernard Jenkin [02:12:23] I was going to ask finally about the integrated security review, which, of course is shared across the government, and your responsibility for that will continue in your new role. Would you like to be able to say anything about that continuing role in respect to the integration review now? And in particular, what do you take with you from the Ministry of Defence?

Sir Stephen Lovegrove [02:12:54] You're right. OK, we'll continue to have some responsibility for the integrated review.

Sir Bernard Jenkin [02:13:14] Does NSA actually have the lead.

Sir Stephen Lovegrove [02:13:22] Yes, David Quarry is in the lead at the moment. I'm obviously getting much closer to it and I have a session on it this afternoon, in fact, actually. But it's my appointment was announced only a day or so after it was decided. So there hasn't been a lot of that hasn't been a lot of lead into this for me. I think that what I would say is that we need to - and I think the documents will do this -broaden the definition of national security quite radically. And that's probably right.

[02:14:06] We must be unapologetic about protecting what we have and what sets us apart and what gives us an edge. We must be unapologetic about thinking through aspects of public health, through the lens of critical national infrastructure and the kinds of decisions that are, you know, attendant on that lens being applied.

[02:14:36] We must be clear-sighted about where our interests lie and where the economic interests and the and our Defence interests and the security interests that are in conflict and if needs are sought, are going to make choices rather than hope to have absolutely everything in play at the same time. But I think the main thing I would say is that I think we need to think really quite carefully about what constitutes national security in these very complicated and problematic times. And I think a broader definition is required, which then brings in more of Whitehall, which then brings in a slightly more problematic bureaucratic exercise. But that is a price that is worth paying.

Meg Hillier [02:15:42] Can I just ask about the integrated review? Have you got a timetable for that, Sir Stephen? Do we know when we're going to get?

Sir Stephen Lovegrove [02:15:48] We are still aiming on the Spring. It's not in my gift at the moment. And indeed, even when I'm NSA, it will not be in my gift. It will be the prime minister's document. But that is what he has said. I would hope that it would be sooner rather than later. I am keenly aware of the committees and lots of other commentators' desire to see what's in it. And I appreciate that. I understand this and we will do it as quickly as we possibly can.

Meg Hillier [02:16:28] You will be a uniquely qualified National Security Adviser who understands the impact of that document on the equipment plan. So when you say sooner rather than later, is there a plan planning your department, current department to publish a full assessment of the equipment plan once that integrated review has been published?

Sir Stephen Lovegrove [02:16:47] So and whether or not we will be doing an equipment plan in quite the way that this process is investigating, I think is a question. We certainly do anticipate putting out a document which gives you and other commentators much greater clarity about the investments, disinvestments and the granular projects that we are going to be pursuing in a way that we, unfortunately, have not been able to do today.

Meg Hillier [02:17:41] But that does not mean that actually you might come up with some of the points that Mr. Ellwood was raising, you know, decisions about what you do and what you don't do as a result of the integration if you will. That revision or assessment of the equipment plan possibly includes stopping certain projects, if that's what the integrated review demands of the department.

Sir Stephen Lovegrove [02:18:02] Yes, I mean, I have no doubt that they will be they will have to be disinvestments in order to make room for the investments that we need to make for the fight that we may have to wage tomorrow and indeed are increasingly having to wage today.

[02:18:18] OK, well, that's a very big, big point to finish on, but we appreciate that until you have that integrated view to we've all seen it, we won't know what that is, but we will be waiting with bated breath. And I think the Defence Select Committee, our sister committee and ourselves will be wanting to crawl all over that. So thank you very much indeed for your time.