Ministry of Defence Annual Report and Accounts 2010-11 - Defence Committee Contents


3  Assessing the MoD's performance

Content of the Annual Report

38. The Coalition Government has pledged, under its "transparency agenda", to make more government information available to the public to help improve accountability and deliver economic benefits. In June 2010, the system of Public Service Agreements ended and instead departments are to be held accountable to the public based on the data they use to manage themselves rather than data produced solely for accountability. Each government department now reports its performance against the priorities and objectives set out in its business plan reflected in a set of performance indicators based on:

  • the resources used by the department in delivering services called "input indicators"; and
  • the outcomes of departmental policies called "impact indicators".

39. As the NAO said in the MoD Departmental Overview:

Government needs robust, timely information on context, activities, costs, progress against its objectives, and the cost-effectiveness of its activities. It also needs to be able to interpret that information, by reference to trends, expectations, benchmarks and other comparisons, to identify problems and opportunities. Departments need reliable information on which to design and deliver services and monitor quality, be confident about their productivity, and drive continuous improvement.[41]

40. In November 2010, the MoD published its Business Plan for 2011-15. The MoD published its performance to date against its input and impact indicators in the Annual Report and Accounts 2010-11. This is reproduced in table 5 below.[42] As can be seen, data against most of the indicators has yet to be developed and will be provided in the Annual Report and Accounts for the first time in 2011-12. There is no comparative data from previous years for those indicators which are recorded. The Annual Report does not define these indicators in sufficient detail for readers to be able to judge the MoD's performance without reference to other documents. For example, we asked the basis for the assessment that 88 per cent progress had been made to a stable and secure Afghanistan, Mr Thompson told us that it was a measure of the build up of the Afghan National Security Forces—an International Security Assistance Force target.[43] Ms Brennan acknowledged that the performance was not 88 per cent against a full range of indicators of what is happening in Afghanistan, for example on the quality of governance, the economy and security.[44]

Table 5: Ministry of Defence business input and impact indicators
Input
Impact
Indicator
Data
Indicator
Data
Additional cost of operations in Afghanistan, per Service person deployed
£340,947
Progress towards a stable and secure Afghanistan
88%
Additional cost of new equipment (urgent operational requirements) for operations in Afghanistan, per Service person deployed
£56,632
Number of Service personnel deployed to support civil agencies (e.g. police and fire service) during emergencies
3,2411
Cost of standing military commitments/tasks and contingent operations per committed Service person This is a new data set and will not be reported until

Quarter 2

Number of attaches and advisors deployed in support of conflict prevention and defence diplomacy activities 110 covering 143 countries
Average percentage by which the cost of the MOD equipment programme varies compared to forecasts in year
0.15
Number of Service and MOD civilian personnel deployed on all operations in a year New data set. Not available until 2012
Cost of major force elements, per ship, per brigade, per aircraft (fixed wing), per helicopter Ship: £28M2

Brigade: Not available until Jul 11

Aircraft (fixed wing): £6.5M3

[Helicopters: Not available at this time, to be reported from Quarter 2].

Number of Force Elements (typically ships, aircraft or ground force sub units) showing critical or serious weakness against the total number of Force Elements for Strategy for Defence priorities
8 (30%)4
Cost/Benefit ratio of the major change and efficiency programmes being undertaken by Defence
1.755
Average number of months that the MOD equipment programme is delayed in year
0.39 months per project6
Percentage of non-front line costs versus front line costs, split by Service New data set, to be reported from

Quarter 2

Percentage of Service personnel that are deployable
92%
Direct personnel costs, per Service person
£49,000
Percentage change in filling skills top 3 areas where there are insufficient trained Service personnel to meet the specified requirements Royal Navy: 9/12/47

Army: 31/46/62

RAF: 25/14/15

Direct personnel costs, per MOD civilian
£32,000
Percentage of Service personnel (split by officers and Other ranks) who are satisfied with Service life in general Officers: 70%

Other Ranks: 57%7

Defence spending as a percentage of Gross Domestic Product Not available until Quarter 2 Overall public favourability of the UK Armed Forces
88%8

Data source: MoD

MoD notes to the table

This figure includes those held at readiness, number covers the period 1 April 2010 - 31 March 2011

2 FF: £386m / 14,DD: £142M / 5

3 Tornado: £722M/136, Typhoon: £615M/71

4 Defence attributes 27 Force Elements against Strategy for Defence priorities. Out of these 8 are reporting critical or serious weakness which represents 30%.

5 For every £1 spent the MoD gains an additional £1.72 This CBR [cost benefit ratio] was calculated from data provided by programmes within Level 1 of the Defence Change Portfolio (DCP). The DCP has very recently been subsumed into the new Defence Transformation Portfolio, and so any future CBR will be calculated for spend to save programmes within Tier 1 of this new Portfolio.

6 Total net slippage of 15 months reported in-year against 38 projects.

7 Key AFCAS 2010 findings, from 31 Mar 2011 Report

8 Polling conducted March 2011.

41. In the light of the changes to the reporting framework and the lack of quantifiable data, we asked the MoD how we could assess the MoD's performance. Ms Brennan told us:

There are two things that affect the way we have reported the performance in the Annual Report. One is the change in the way that the Government as a whole directed that we should do Annual Reports and Accounts and business plans. There is a new approach to business plans and to annual reports with the standard approach to reporting, [...].

The second thing is that what we have reported in here comes from the reporting and the analysis that we do in the Department in order to manage the Department—our own quarterly and annual performance and risk reporting. We had a big review of that about 12 months ago and we concluded that we did not have a system that was sharp enough in bringing things forward for the Defence Board in its previous configuration. We have not yet taken the new Secretary of State through one of these quarterly performance reports, but with the previous Defence Board we concluded that our system was not sharp enough in helping us focus on the key areas for performance. We rewrote that performance report, but unfortunately those data, which have led to much better performance discussions in the Board, cover both secret and non-secret data. It has therefore proved more difficult to extract information in order to be able to provide it to the Committee.[45]

42. We recognise that the changes the MoD has made to its reporting framework and the Annual Report and Accounts are in line with changes to government-wide reporting requirements. It is, however, apparent to us that, even when information against the input and impact indicators is reported in the Annual Report and Accounts and in the quarterly reports on the MoD Business Plan, we will be less well-informed than in the past. We recommend that the MoD review its performance reporting to identify further and more useful information which can be made available to Parliament and the public. The MoD should explain the nature of the indicators in the Annual Report and Accounts so that a reader can understand the indicators without reference to other documents. The MoD should also provide a commentary on their performance against these indicators.

43. Following the evidence session with the PUS, we asked the MoD for the basis of their quarterly reporting system to the Defence Board. We were told:

The Quarterly Performance Risk Report (QPRR) reports against the nine Defence Board Strategic Objectives (DBSOs). These are:

  • DBSO1: Current Operations
  • DBSO2: Standing Military Commitments
  • DBSO3: Contingent Capability
  • DBSO4: Defence Diplomacy
  • DBSO5: Transforming Defence - this includes an update on progress against SDSR and SRP (Business Plan) commitments
  • DBSO6: Service Personnel
  • DBSO7: Civilian Workforce
  • DBSO8: Equipment Plan
  • DBSO9: Affordability - this includes an update on implementation of PR outcomes.

The QPRR also covers recommendations and an overview of risk, and provides an update on the progress against the Defence Board direction from previous reports. The QPRR as a complete reporting pack is for SECRET UK EYES only. The Department is analysing which of the DBSO reports could be released to the Committee at RESTRICTED. As soon as that work is complete we will provide the requested information. [46]

44. We are concerned that the MoD is hiding behind security classifications in order to deprive the Defence Committee of the information it needs to scrutinise the MoD. We do not accept that we should not see, in confidence, material classified higher than restricted.

Cost of current operations

45. The additional costs of operations in Afghanistan fell from £3.820 billion in 2009-10 to £3.774 billion in 2010-11. Ms Brennan told us that the additional costs of Afghanistan were likely to continue to fall:

Some of the additional costs in Afghanistan will start to decline, because with investment in major equipment, in order to be useful by 2014, you reach a point where you have passed the hump of that major expenditure, but the point of it being net additional expenditure is that there are always surprising and unexpected things that happen that require us to spend more money in Afghanistan, but, in general, we would expect that trajectory to be downwards.[47]

46. In the Government response to our Report on Operations in Afghanistan, the MoD said it could not provide a meaningful estimate of the full costs of operations:

In a few cases it might be possible to identify elements of the defence budget which are directly deployed on operations—such as service salaries. For example, it would be possible to calculate a proportion of the MoD's overall pay bill that might apply to the 9,500 Service personnel deployed to Afghanistan. However, this figure does not represent a true cost of operations in Afghanistan, as the MoD incurs the cost regardless of the operation. Furthermore, this figure excludes the military personnel based in the UK and elsewhere who support Operation HERRICK either directly or indirectly—including equipment engineers, aircraft loaders or the personnel in procurement teams. For this reason, most attempts to estimate the total cost of MoD's involvement in Afghanistan cannot arrive at a meaningful figure.[48]

47. Ms Brennan confirmed the MoD's decision not to attempt to calculate the full costs of operations in Afghanistan or Libya:

We do not give a cost of the operations overall because, if you are undertaking an operation, some of it you do out of personnel, equipment and stuff you already have to hand, and some of it is net additional cost of military operations. You would have to attempt to hypothecate how much of a brigadier was there only because it was Afghanistan, and how we would have had that brigadier or that piece of equipment performing a function.

There has been a tradition for some time that, in relation to operations, we say that the Ministry of Defence has a set of capabilities that it has for being ready to do things. Then if it goes on operation, the net additional cost it incurs—which is quite a complex issue we debate case by case and line by line with the Treasury—we pay for separately. We do not try to wrap up all the costs together.[49]

48. We fail to understand why the MoD does not wish to understand the costs of its current operations. While it is true that personnel would be paid, and equipment procured and used, largely for training purposes, even if the Armed Forces were not engaged in operations, their deployment brings with it costs in terms of training opportunities cancelled or deferred and the costs of extra wear and tear on equipment which will eventually have to be met. We fully realise that it can only claim additional costs from the Treasury but, surely as part of its lessons learned, it needs to know what its total costs were.

Withdrawal from Iraq and Afghanistan

49. We asked the MoD about the cost of the withdrawal from Iraq, Ms Brennan told us that she did not have the numbers to hand:

We did an analysis and went through a lot of work, and are quite pleased with the thoroughness with which we did it, because it has shown us some lessons for Afghanistan: what was worth bringing home, what was worth the cost of bringing it home; what was better to destroy in situ; what should be gifted and so on. I cannot tell you off-hand what the numbers were from that. We did go through a comprehensive process.[50]

The MoD subsequently told us it would draw together the information on the equipment gifted, destroyed or lost in Iraq and provide it at a later date.[51]

50. Ms Brennan told us that the MoD has a programme for the withdrawal from Afghanistan and is discussing options with Ministers:

We are indeed looking at all of those things, and more. We are looking at what is in Afghanistan at present; what we ought to leave behind; where, if at all, there should be any gifting of what remains behind. That is both equipment and estates. We are looking at what will be the routes for bringing things back. We are therefore looking at the transport arrangements for that. We are looking at what we do with it when we bring it back.[52]

The MoD gave us some more detail about its plans for withdrawal subsequent to the evidence session:

Ten years of operations in Afghanistan have led to the accumulation of a substantial quantity of equipment in-theatre. During the next few years the UK will be required to provide continued support to UK operations, enable and sustain transition to an Afghan security lead, sustain any UK personnel who will remain in theatre after the end of 2014, and draw down and recover personnel and equipment from Afghanistan to the UK. Our overarching objectives for completing the drawdown and recovery from Afghanistan are to limit the risk to our Service personnel while recovering equipment in an efficient manner that achieves value for money for Defence and the UK. Additionally, it is key that we drawdown "in good order" to protect the UK's political and military reputation and fulfil our responsibilities to Parliament and the taxpayer.

Detailed planning is underway to address these substantial logistic challenges. While lessons learned from the drawdown and recovery in Iraq have been incorporated into our initial plans, the exercise in Afghanistan will be significantly more demanding. Afghanistan's land-locked location and complex regional lines of communications will make the drawdown and recovery from Afghanistan challenging. Work is ongoing to address these issues and we are exploring a range of approaches to address the challenge in order to ensure that we strike the right balance between delivering value for money for the taxpayer and seeking to complete the process expeditiously.

Within theatre we are already reviewing equipment levels to ensure that materiel that is no longer required is disposed of in the most efficient manner and that the extant supply chains are being utilised effectively. To ensure best value for money is achieved we will be balancing carefully the requirement for returning materiel to the UK with the benefits of selling, gifting, or scrapping locally. National policies for sales, gifting, scrap, and remediation will be coordinated with ISAF.[53]

51. We look forward to receiving the information from the MoD on the costs of the withdrawal from Iraq, in particular the costs of the equipment that was gifted, lost, destroyed, returned to the UK or sent to Afghanistan. We recognise that there is a balance to be struck between returning equipment from war zones and destroying or gifting it in situ. The MoD should provide us with its current outline plan for withdrawal from Afghanistan including the costs of equipment to be gifted, destroyed or returned to the UK.

Readiness

52. Readiness is defined as the varying levels of preparedness at which the MoD hold military forces in order to respond to emerging operations. The MoD measures the readiness of individual force elements and then aggregates the results to determine overall readiness. Examples of individual force elements include armoured brigades in the Army, ships in the Navy and squadrons of aircraft in the RAF. In its Annual Report, the MoD said that 8 out of 27 Force Elements were reporting critical or serious weaknesses and that:

The readiness of the Armed Forces for contingent operations beyond Afghanistan has improved gradually over the past year and is expected to continue to improve. The MoD's priority remains to recuperate some key capabilities and then, as conditions allow, further contingent capability.[54]

This year as part of the Defence Performance Framework we changed the way Readiness is reported to enable us to focus on what can be achieved with all the Force Elements combined rather than with each Force Element individually. Previously Readiness reporting was based on 103 Force Elements which were individually weighted. The weightings produced percentages of Force Elements that showed critical or serious weaknesses. Under Defence Plan 2010 Force Elements were regrouped and Front Line Commands asked to report against Strategy for Defence priorities; weightings were removed. This led to more accurate reporting against the funded position and a better indication of where critical and serious weakness remains.[55]

53. It is not possible to compare this year's performance directly with that of previous years. Ms Brennan told us that despite the change in reporting on contingent readiness, performance had remained similar to previous years.[56] She said that she did not know if there would be more or less Force Elements reported at critical or serious weakness next year.[57] She also told us that the MoD was concerned about readiness levels:

The whole of the Ministry of Defence is concerned about the fact that we have been stretched for a very long time in Afghanistan. The stretch in Afghanistan clearly means that you are bending all your efforts to Afghanistan and that is your priority. Inevitably, in terms of your readiness to do other things, that is something that you seek to build up as best you can, but the priority is Afghanistan and the military tasks.

In the SDSR, we said we recognised that we were heading towards a Future Force 2020, and we were aiming to improve our readiness for contingent capability out at that point. We know we are going through a difficult period of years before we reach there, but it is one of the subjects that we measure [...] on a really regular basis. The Defence Board looks at it quarterly. It looks at particular areas and says, "Do we think this is a serious risk and we need to do something about it?", and if so, "How can we shift resources into that area?" Then, in a more detailed way, the Vice-Chief of the Defence Staff does this theatre capability review, when he is looking at the specific requirements in Afghanistan, and now, more recently, in Libya, to ensure that we are looking across all those force elements and making sure that we do not have gaps, particularly in what we require for the operational campaigns.[58]

54. Due to the changes in the reporting of readiness levels, it will not be possible for us to identify trends in the performance of the MoD for some years. The statement in the Annual Report and Accounts that the readiness of the Armed Forces for contingent operations beyond Afghanistan was expected to continue to improve appears to have been contradicted by the PUS's statement that she did not know if more or less Force Elements would be reported as being at critical or serious weakness next year. We are concerned that the MoD is focusing its efforts on improving its readiness by 2020 which we believe is too far away. The MoD should make strenuous efforts to ensure that readiness levels do not deteriorate still further.

Savings

55. The 2010 Comprehensive Spending Review required the MoD to make a 25 per cent cut in the spending of its non-frontline organisations, and a one third reduction in administration costs, including a commitment to £800 million of savings.[59] Ms Brennan told us that, for those areas responsible for making the required savings, money had been taken out of their financial baseline and that they had identified individuals responsible for accounting for those savings.[60] Mr Thompson said:

The financial target over the spending review period is to generate £4.3 billion. There are a series of measures to do that. For the current financial year we need to deliver £336 million; £669 million next year; £1,355 million the year after and £2,059 million the year after that. [...] actually we are slightly ahead of target. We are at just a shade over £4.4 billion. In relation to the current year we are on target. We expect to meet the budget this year so therefore the fact that it is baked in, we can measure the specific things which we undertook to the Treasury that we would do. We do that on a quarterly basis and report that to the board and the Secretary of State so that we know whether we are on track.[61]

56. We note that, under its current plans, the MoD asserts that it is on track to make the required savings demanded in the last Spending Review. We will return to this subject in future inquiries into the performance of the MoD.



41   National Audit Office, Departmental Overview: A summary of the NAO's work on the Ministry of Defence 2010-11, September 2011, www.nao.org.uk/publications/1012/departmental_overview_mod.aspx Back

42   Ministry of Defence, Annual Report and Accounts 2010-11, HC 992, p 8 Back

43   Q 61  Back

44   Q 75 Back

45   Q 57 Back

46   Ev 25-26 Back

47   Q 66 Back

48   Defence Committee, Operations in Afghanistan: Government Response to the Committee's Fourth Report of Session 2010-12, Eighth Special Report of Session 2010-12, HC 1525 Back

49   Q 76 Back

50   Q 79 Back

51   Ev 26 Back

52   Qq 91-92 Back

53   Ev 26 Back

54   Ministry of Defence, Annual Report and Accounts 2010-11, HC 992, para 2.30, p 20 Back

55   Ibid, para 3.3, p 26  Back

56   Q 93 Back

57   Q 100 Back

58   Q 95 Back

59   Spending Review 2010, Cm 7942, October 2010, para 2.82, www.hm-treasury.gov.uk/spend_sr2010_documents.htm Back

60   Q 105 Back

61   Q 105 Back


 
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Prepared 25 January 2012