I call to order this evidence session of the House of Commons Defence Committee on the Ministry of Defence annual report and accounts 2024-25. It is a pleasure to welcome our esteemed panel, all of whom have featured in previous evidence sessions. We have with us Jeremy Pocklington, the permanent secretary at the Ministry of Defence; Rupert Pearce, the national armaments director at the Ministry of Defence; and Air Marshal Tim Jones, the deputy chief of the defence staff for force development at the Ministry of Defence. It is also a delight to welcome Aneen Blackmore, the director general finance at the Ministry of Defence. I will kick off with you, permanent secretary. It has now been three months since you took charge as the permanent secretary at the Ministry of Defence. What are your initial impressions of the MoD and its way of working?

It is a privilege to do the job; I am delighted to be here. I am struck by the pride and commitment of the people working in the Ministry of Defence, both those in uniform and civilians. There is deep expertise and talent in the Department, a real willingness to go the extra mile, to overcome obstacles and to get things done. I have seen the determination, ingenuity and bravery of our military as well. I have seen that in Main Building, in Northwood, in Portsmouth, in High Wycombe and while overseas. It is clear that the demands on the Department—on Defence—are rising. Right now, our armed forces are defending our people, our interests and our allies in the Middle East. We continue to provide Ukraine with equipment and training, and have a leadership role in the coalition of the willing. In January, I accompanied the Defence Secretary to see President Zelensky in Kyiv and could see with my own eyes the role that we play supporting the defence of Ukraine. I am also struck by the rising threat in the High North, and Russia remains an ever-present threat to this country. The pace of change is visible in the Department. That is about the rising risk, at a time when the US is asking us to do more in NATO. We need to be ready for wars of necessity, rather than just wars of choice. I am also struck by the technological change that the Department faces. That is visible in Ukraine; I think that it may also be visible in the Middle East, whether that is the rise of autonomy, of new digital forms of warfare, the importance of consumables—drones—that we are all aware of, or the role of electromagnetic warfare in space. The environment in which we operate is changing. The SDR is the right response. It is focused on being warfighting-ready, being NATO-first, being an engine of growth, and on innovation and the importance of a whole-of-society approach. But there is a huge exercise to do to deliver. What are my priorities, coming into the job? We need to finalise the defence investment plan—I know that we will come on to that. We need to deliver Defence Reform, which is about how we need to operate as a Department to meet the new challenges. Of course, we also need to provide that policy and strategic support to Ministers on operations.

Thank you very much for setting the scene. I note from your biography that you do not have any experience in the Ministry of Defence per se. You started off your career in 1997 at the Treasury, before eventually taking on the permanent secretary role at the Housing, Communities and Local Government Department and then becoming the permanent secretary at the Department for Energy Security and Net Zero. How do you think you will be able to manage this huge role without that relevant experience in defence?

I have got deep experience running Government Departments. You have alluded to that. I have been a permanent secretary for over six years, so one of the most experienced permanent secretaries in Government. I have a lot of experience working on some of the most complex and difficult projects in Government. That was very visible in my role in Energy Security and Net Zero, where I worked very closely on the nuclear enterprise, in particular with the Ministry of Defence over many, many years. So I come with deep knowledge of some parts of the work of the Department, even though I have not worked in Defence. I think deep Treasury experience is very valuable as well, having spent approximately 15 years there as well as in other roles in the centre of Government. I have leadership experience, I have the commercial experience, and I have the Whitehall experience. But it is not for me alone to lead the Ministry of Defence, and I think one of the advantages of the system we are putting in place through Defence Reform is that we bring together people with different skills at the leadership of the Department. I am delighted that Rupert is here, with his deep commercial knowledge and expertise, to be our National Armaments Director, and obviously we also have the Chief of the Defence Staff, with deep experience in the military, and the Chief of Defence Nuclear as well.

It is good that you mentioned your work with the Treasury, and my colleagues will no doubt come on to the Chancellor’s remarks in recent Treasury Committee deliberations. I will move on to something that you yourself said when you came with the Secretary of State, back in January. You said that you envisaged moving away from annual budgetary cycles to a more strategic budgeting cycle. How is that going?

I did talk about that in January. That is where the defence investment plan will be key. Ultimately, as part of Defence Reform we are moving away from the old annual budget cycle to a new approach based on focusing on our strategy first of all. That will underpin the integrated force plan, which Air Marshal Tim leads on, and that will feed through to the defence investment plan, which will be a 10-year plan setting out a long-term plan for the Department. I know there is huge anticipation for that plan. We are working flat out to finalise it now. That will then underpin the work of the Department. Of course we need to make it as right as it possibly can be, but also recognise the need to refresh and update as time goes on. But having a long-term plan will be very important.

The other thing you mentioned during the last session, permanent secretary, was discussions with the Defence, Security and Resilience Bank, or other financing options. We do not seem to have had any further movement on that. Which option will the Government and Ministry of Defence be pursuing?

I have in front of me a press release issued by the Treasury this morning. I do not propose to read it out, but there is a joint statement from Finland, the Netherlands and the United Kingdom on joint defence financing and procurement. It relates to the multilateral defence mechanism, which I know will be familiar to the Committee. So there is an announcement, a joint statement made this morning by the Treasury, and I think the Chancellor is referring to that today.

Right, so we are proposing to go with those particular nations. We are not thinking of supporting the Canadian Prime Minister’s initiative—which a previous panellist in our Committee sessions also mentioned—with the Defence, Security and Resilience Bank? We are not going with the Canadians?

This is our focus. We have said we want to work with other countries as well. I know you have been particularly interested in this area. We have not endorsed the Canadian proposal. I think we have made that clear. But we continue to work with a range of allies, and of course developments, proposals, can evolve. This is a fast-moving space. I do not want to go beyond the statement that the Chancellor is making this morning, though.

Permanent secretary, you will be very well aware that, for several months now, the Committee has been very much engaged in this, because we feel that not only is there a lack of public finance for increasing and accelerating investment in defence, but we do not seem to have the vehicles to accelerate private investment into defence either. I therefore hope that this is the first of many such announcements, but we look forward to future engagement. We have a couple of supplementaries on this particular issue, starting off with Alex Baker.

Permanent secretary, is there an understanding that the MDM solution—basically a joint procurement mechanism—solves a different problem from a multilateral bank?

Can I bring my colleague in on this?

We have talked about this in the past, and we obviously look at both the DSRB and MDM solutions, and we are also looking at—

But these are not to be compared and contrasted; they solve different problems.

I think there is overlap between the two, but you are right: the MDM has this additional capability of joint procurement.

One is to buy stuff and one is to sort out the fact that businesses in my community cannot borrow the capital they need to be able to expand their businesses to meet the need. These are two different solutions, and it really pains me that you are putting them on a piece of paper and comparing and contrasting, and deciding to choose between them when they deliver two different things. I really want to be able to see that the MoD understands the difference between these two solutions.

We do, and we are open to both solutions. Indeed, beyond that, we are working hard, through the DIAG, to produce our defence finance and investment strategy. Alongside that, we are growing relationships very powerfully with financial institutions in the UK to do exactly what you are looking for, which is to provide much broader, deeper access to funding, particularly for smaller and innovative companies in the UK, and to make the MoD very much a partner in that process. So, it is not just international multilateral institutions that are the solution to that; there are many and various tools that we are using.

The only universal solution to the issue that I have found—and I have spent a year of my work looking at this—is a multilateral bank that gives credit guarantees to our banks, so that they can lend much more freely to our supply chain. That is the only way you are going to fight defence inflation. I really want to be able to see that the MoD understands that this is not an either/or. It seems to be presented as, “We are doing MDM, so we are not doing DSRB.” That is a fundamental misrepresentation of what these two solutions are about.

Just to be absolutely clear, I don’t think Jeremy said it was either/or; he said it was both/and. And we continue to look at lots of different solutions. One of the most practical solutions for us, I believe, is essentially putting ourselves in the room when financial institutions look to lend to younger companies. We can provide huge value for lower levels of investment—a few million here, a few million there—through our long-term demand signals, through our customer commitments and through co-investment as well. Those are all things that are being advanced very actively between us and the financial community.

It is a slight discourtesy not to let us know, as a Committee, that this announcement was coming before you appeared in front of us. I do not think that is a great look, frankly, for the MoD.

I apologise for that. I was not aware myself that it was going to—

Well, I am very sorry that you have been cut out of the loop, permanent secretary.

The precise timing of the Treasury announcement would be a matter for the Treasury, but obviously I apologise to the Committee.

We will await the statement. Obviously, I have now got the press release and circulated it to the Committee—which I think should have been done beforehand by the Department—but it is not absolutely clear as to whether this is a demand side intervention or a supply side intervention. Is its purpose to buy more kit, or is its purpose to support institutions that deliver kit to demand from the MoD?

I believe it is both. The thing that I have seen inherent in MDM—

So the MoD could borrow using this facility, to supplement the investment that it is making through the national spending process.

Yes, in order to provide—

And companies could borrow in order to supply the demands made by MoD for more kit. Is that right?

Yes, I believe so, although from what I have seen in the announcement, this is an evolving—

So you have not been consulted either.

Well, we have had discussions with Treasury around the different choices available, and we have said what you would expect us to say, which is that we strongly support the creation of multilateral institutions to do exactly what Alex talked about: provide more liquidity into the system, both for our supply chain and for us in terms of multilateral procurement. Obviously, multilateral procurement supports lower cost and interoperability. It looks as though MDM will establish a capability for us to tip NATO common matériel into—

MDM is the new vehicle.

Yes.

It is just slightly odd, because if it is supplying demand alongside sovereign spend, it is astounding to me that it would not have had a closer relationship with your office—the National Armaments Director—because you are deciding how much kit needs to be provided and when, against a particular demand signal. It has now said, “We’ve got more demand because we’re using this MDM facility to provide it.” It seems very odd that you have not been more consulted on the aggregate level of demand this is going to generate.

We have been working closely with the Treasury, as you would expect. It is obviously a Treasury announcement today, but our teams work very closely and are in regular dialogue on this issue.

Is it 0.1% additional demand? What level are we talking about?

I don’t think we can answer that at this stage, because we are still at what looks like a very preliminary stage in the formation of MDM.

It sounds like whistling in the wind by the Treasury, frankly. This does not feel like a real thing, because you have not been adequately consulted, and there is no scale on it. We will have to see.

I understand your close interest in this. That is not a fair characterisation of the announcement today, but there is more work to do to establish the detail of this. This is an important step forward in establishing the international commitment on this.

So the point is, this is really an “in principle” matter. You have not put any numbers around it yet. That is part of the next phase.

Exactly. There is further detailed work to be done.

That is helpful. Thank you.

Alex Baker wants to come in very briefly on this.

We have joint procurement mechanisms. We pay into NATO. We have the NSPA.

And the OCCAR as well.

And the OCCAR. Does the Treasury even know that we pay for these solutions, which from what I can see, we are not using, yet we are putting all this money into now setting up a new mechanism? I think that is a bit of an insult to NATO. Germany is using the NSPA. Major nations like the US are using the NSPA, yet the UK—

And we do as well.

Barely, from what I can see. There are huge tax incentives for using the NSPA, yet we do not use it, and then we are creating our own version of it.

We do use NSPA and OCCAR quite substantially across our larger portfolio. Many of our larger portfolios are joint propositions with a number of nations.

Can you get us the list of where you are using NSPA? I asked the Secretary of State for it, and I have not had it yet.

Sure.

That seemed to open a Pandora’s box. We have a couple more supplementary questions. I have asked Members to be as brief as possible, because we need to move on to defence modernisation aspects.

Rupert, you said that you are working very hard through the DIAG to produce a defence finance and investment strategy.

Yes.

The DIAG is the Defence Investors Advisory Group. We have not seen a lot of media on the defence finance and investment strategy, because obviously people are talking about the defence investment plan, which has been delayed by many, many months. The Strategic Defence Review made a number of recommendations. We understand that the DIP will try to fund some of those, but we have not had any information on whether any of those recommendations will not happen—we assume that some of them cannot be funded. What is the difference between a defence finance and investment strategy and what is coming in the DIP?

The DIP is about how we use our public resources to deliver on our 10-year ambitions and, ideally, to give a 10-year demand signal for industry to react to, as part of the effort to transition from a transactional relationship with industry to more of a strategic one, so that they can invest for the long term against our long-term ambitions. The defence finance and investment strategy is purely focused on bringing private capital into that story in two ways. The first is our ambition to be much more of a partner with private capital to support the needs of our supply chain. We do not want industry to just come to us with their wares; we want them to be well funded, particularly in terms of our ambitions to work with SMEs and to drive more UK innovation. As part of that, we want to be an active partner in bringing venture development and infrastructure capital to our supply chain. That strategy will articulate how we do that. When I was last here in December, we talked about the need for us to do the necessary work to clear the path between us and private capital. Private capital has struggled to invest in defence for all sorts of reasons. We need to reduce those barriers and bring private capital in. The other area that we want to look at is the opportunity to enhance our resources to invest in our own programmes and, again, bring novel financing structures, where they offer value for money, to enhance our resources around our programmes as well. The DIAG is the group where we sit alongside many different financial institutions from the City of London to look at the opportunity and find out how we can work better together and clear the barriers between us and private capital.

Let’s move on to defence modernisation.

Permanent Secretary, in answer to the Chair’s question about why you think you can handle the defence brief you said that you had six years of experience as a permanent secretary. Can I take you back to your time at DESNZ and the ECO4 home insulation scheme, about which I think the Public Accounts Committee said it produced the worst and most excoriating report that it had ever written? You are quoted from when you gave evidence as saying, “the Department did not oversee these schemes in the way they should have done.” I am interested to hear you refer to the MoD currently as “we”, which was very heartening. Let’s hope that “we” does not become “they”. Can you tell us what you learned from that experience and how it has made you a better permanent secretary at the MoD?

The ECO4 scheme to which you refer was, as I discussed at the hearing, an overly complicated design that relied on multiple different parties.

Unlike the MoD.

Just to be clear, because you asked about my role, it was actually introduced before I became the permanent secretary. What the report shows, and what we discussed in the hearing, was that the moment that we became aware of the problems the Department was quick to react and respond. That was actually what the hearing was about. If you look at all the hearings that I attended as the permanent secretary, we talked about world-first design and approaches on complicated mega projects like carbon capture, the delivery on renewables and the enormous progress on our nuclear programme, including the final investment decision on Sizewell. That project shows the importance of oversight of projects, the importance of thinking about design, and the importance of pace of change and simplicity of approach. Those themes are quite common to Defence Reform, which is where I suspect you are moving on to with your next question.

Of course, oversight is one of those antonyms, isn’t it? It can be a positive or a negative, depending on the context. You described Defence Reform as the “how” the Department is going to operate. Coming back to the ECO4 issue, when you came in, did you receive a blueprint which you are operating to, have you had the opportunity to review the Defence Reform programme, and have you changed it in any way?

I have arrived during a transitional phase of Defence Reform. We are moving to a new stage of the implementation phase from 1 April. Before taking the job, I was obviously well aware, and I very much support, the programme of reform that we have under way. It is designed to improve accountability in a very complex organisation, which you are very familiar with. We need to simplify those lines of accountability, which it will do, and it will allow us to work faster and respond to those challenges that I talked about in my opening statement—the rising threats and the importance of delivering the SDR. We have made good progress on implementing Defence Reform. In the time that I have been there, we in the leadership of the MoD have made very important decisions with the Defence Secretary. From 1 April, we will have the areas set up, with budgets allocated by area. The single investment budget is a big part of the reform that Rupert will be responsible for delivering. Next month, we will start to stand up the portfolios about how we partner and procure with industry, which are at the heart of this reform programme. Military Strategic Headquarters—Air Marshal Tim is here today—will act as the capability sponsor, setting out the effects that are required. Rupert’s NAD group will then lead on the procurement and the oversight of that. We will stand up those first portfolios next month, including the space and the lethality portfolio.

You said in your answer that you and the Secretary of State have made some important decisions in your time so far. Could you give us a sense of what the top three are?

I think I have already started that—the decision on the portfolios and the confirmation on the areas. A final decision that I would highlight as being important is our approach to overseeing finance in the model. We have decided that all finance teams in the Department will report as a function through to DG Finance to help us ensure that we get that single set of standards of management information in the Department. That was a really important decision to help ensure that we get that transparency of approach overseeing our budgets.

I asked you whether you have changed anything. You said you have made some important decisions in implementation, but essentially, the blueprint that you inherited for Defence Reform has survived your review of it?

I am committed to implementing Defence Reform. The way I would describe it is that there was a lot of progress on the operating model—on the blueprint, to use your word—but these were outstanding issues, the detail of which had not been resolved or designed. With other senior leaders, here today and elsewhere, I have been filling in those really important design questions that have not yet been answered.

When it comes to defence procurement, are you expecting Rupert to do as you have done, which is take decisions within the broad operating model, or do you expect him to come back to you and say, “I have looked at this procurement set-up. It is not fit for purpose and I want to change it”?

Rupert can speak for himself, but through Defence Reform, we need to empower our senior leaders within an overall framework—within a set of budgetary controls—so that they can improve processes to drive things faster. Ultimately, reducing the time it takes to contract for new capabilities is absolutely key for Defence Reform. We are making progress, but there will be further changes as Defence Reform beds in. As Rupert continues to lead his area, I am sure he will want to make further changes, but he can speak for himself, since he is sat next to me.

I would just like to quickly add that Jeremy is being a little modest. He has brought in a drive towards simplicity. One criticism you could level at the MoD is that we do love our complexity, which does not help you move fast. I am focused on accountability in my organisation. I found that the complexity did not help, and that, to some extent, we had portfolios orthogonal to programmes. I do not like blurred accountability. Jeremy has been great in helping me to get that right. We have also been driving the number of ALBs in the organisation down together. It has been great to work with Jeremy in his push towards simplicity. None of us in the quad should be slow to call out things that do not make sense: that is what we are here for. When I came into the organisation, I found a few things that did not make sense: too much complexity, ambiguity about accountability, and too many cooks sometimes. We needed to create much more clarity about the roles. We have a procurement organisation, an innovation organisation, an export organisation, a supply chain organisation and a delivery organisation, and we needed to get the right people in the right place. The road map was not there when I came in, but it now is. You would expect us to lead like that. All I can say is that Jeremy is very much part of that.

Further to Mr Jopp’s question, could you provide us with a list of ALBs, please?

Of course.

Perfect.

You talked about the pace of change, which does not sound very fast; I do not think the MoD could be accused of moving swiftly at the moment. At NATO headquarters earlier this year, Elbridge Colby discussed that pace and told European allies that they needed to prioritise warfighting effectiveness over bureaucratic and regulatory stasis, moving from thinking about what the plans are and what they might like to implement in a few years’ time to actually producing stuff. Do you recognise that stasis within the MoD?

The priority of being warfighting-ready was central to the Strategic Defence Review and is absolutely fundamental to our thinking in the Department. I recognise the incredibly important role that the Department and civil servants have in supporting our military in that. Obviously, that is happening in a context where demands on the Department are rising, which is obvious in the Department, and to everyone in this room and to the Committee. We need to finalise our investment plan, which will provide clarity about our plan for the years ahead. I reassure you that that is not stopping us. We are still getting on with things. As the Defence Secretary said in Parliament yesterday, more than 1,200 contracts have been signed since the election. This month, there have been important announcements on, for example, new medium helicopters. We are getting on now, but we obviously need the investment plan as well.

On the investment plan, which is much talked about and very delayed, you talk about some of the contracts, but industry needs to know exactly where that money will be spent before they prioritise. We are already hearing from some businesses that they are shedding staff. This is a time when we need to be taking on more staff and securing those skills within the workforce. If businesses do not have that plan in front of them, to understand where those contracts will be in the long term, those businesses, and we as a country, will suffer. Trying to build them up where they are already hollowed out will be a challenge; if we do not see the DIP, we will have a much bigger challenge. When will the DIP be produced? We have heard that it is with you, so it is your decision. What is the delay?

We are working flat out to deliver it—

We have heard that so many times—“flat out”. Could you tell us a time?

I know there is huge interest and expectation in its delivery. I do not have a date to give the Committee today, but I reassure you that we are working hard to deliver it. It is an important document. I could not tell whether the “you” was directed at me personally, but just to be clear, it is a Government document that needs to be agreed and will set out our plans for 10 years—

We have already heard that it is with the MoD. So the Treasury has passed it to you, it is with you, and it seems that it is stuck in the system somewhere. What is causing the delay?

We are working flat out to agree the plan with everyone across Government. It is incredibly important that we get this right. It is the first time in 18 years that the MoD has undertaken a zero-based review of its budgets, line by line, including its capabilities, infrastructure and people. It is important that we get it right within the context that we are now facing. We are working incredibly hard, and it is a very high priority. We will publish it as soon as we can.

“As soon as we can” does not help those businesses that are having to make tough choices right now. We have planned for future wars in 2029, 2035—whenever it is going to be—but we are now looking at having to be warfighting ready and need stockpiles of munitions. We need these decisions to be made now. If this is just about there not being enough money within the envelope that you have been given, we need to know that now.

There is no disagreement between us about the importance of providing those demand signals to business and investors; I completely understand that. But we need to get this right in a world where demands on us are rising and the context is shifting. The reassurance I would give is that we are getting on with things. I agree that there would be additional value in setting out that long-term plan, but we are getting on with things, guided by the SDR. Rupert and his teams are incredibly busy. I talked about new medium helicopters, but also this month we have issued a really important contract for the mobile fires platform. We are going to have large-calibre barrel production using British steel produced in this country for the first time in a decade. Businesses of different sizes are benefiting. An SME in the midlands has won a contract to produce new spare anchors for our carriers. We are supporting our sovereign industrial capability.

These are all really welcome additions, but what we need is the full plan. The one business that got that contract will understand exactly what they need, but all the other defence businesses out there do not have that until you produce the plan.

There is no disagreement between us on the importance of having a really clear plan. We are working incredibly hard on producing it. It will be the first time that the MoD has produced a plan based on the integrated force planning approach, using the IFC approach that Air Marshal Tim leads on for the Department. We are approaching this in a new way to make it more robust. We want to make it as right as possible—we need to ensure that it is right.

But can you understand why we are so frustrated with the delays? Imagine, in any other business, if somebody was saying to their team that this has to be done by autumn, and it was now spring, and all they were getting back from the team was, “We are working flat out.” We have no idea of a timescale, all we hear is, “We are working flat out.”

As I said, we are working incredibly hard. It is a very high priority for the Department. We want to get the investment plan published just as much as the Committee wants to see it—

I will leave it there, because we are clearly not getting any further on this.

The value of it is well understood, but we need to get it right, and it is a Government document, so it needs to be agreed in Government.

I think we will all agree with that. I will come on to the National Armaments Director. In the session before Christmas, in response to my question you said, “We are talking about days, not weeks or months. We are very close.” Did you knowingly mislead me and the Defence Committee, or were you just taking a stab in the dark?

Probably neither. I am inexperienced in this, I will admit, and I got it wrong. I felt that was where we were, but the complexity of the work has taken us from where we were then, through Christmas and the new year when things drop away, and when we began the new year in earnest it has taken longer than I expected. Everything Jeremy says resonates with me. It is an extremely complex 10-year reset. There are so many moving pieces. It has just taken a lot longer than I thought it would to get this right and to agree it across Government. That is why it is hard to give an estimate of time. We are genuinely working flat out to get this done, but it is a very, very complicated situation.

I take on board your apology, but it is an absolute mess because—

Yes, I’m sorry. Tan, I should have apologised. I didn’t actively mislead; that was what my judgment was, given what I saw in front of me. I was wrong, and I do apologise to the Committee for that.

Thank you for that. Obviously, we are coming up to purdah. If that document does not appear in the next couple of weeks, we are going to be looking at May and beyond. It is an absolute mess, but let me hand over to Ian Roome.

It will be some comfort to you, Rupert, that I asked the Secretary of State just before the Christmas recess and he said to me in the Chamber, in Parliament, that it would be done by the end of the year, which was the end of 2025, but here we are today.

Thank you for that.

At an event this weekend, I was with trade organisations and they told me that some of the smaller SMEs, which this Government are supposed to be supporting, are having to lay people off, because they do not have the DIP. Yes, we can paint a rosy picture and say we are working flat out, but could I ask you what the detail is? Does it have to go through a thousand signatures in the MoD before it gets passed? What is the actual detail on what is holding up the DIP in the MoD? In deep, minute detail, what is the problem? We have been told on many occasions that it will be done next week, next week, next week. What is the minute problem that means you cannot say, “I am going to have this done by next week”?

I fear, Mr Roome, we might risk repeating the same conversation that we have just had.

You have given no detail, though.

This is a fundamental reset of our plans. I have explained that it is based on the Integrated Force approach. Tim can set out to the Committee more about our thinking there, our logic flow around that, and why this is the right approach to underpin the delivery set out in the Strategic Defence Review, but it is a fundamental reset of our plans and our approach. It is the first time the MoD has done that in 18 years. But I am not going to provide a running commentary. That is not what officials can do in public and that would not be an appropriate thing for me to do, Mr Roome. The members of the Committee will be aware that there are limits on what we can say.

So would you say that this would be a good idea in future? If you were in business, you would set out your strategy, and you would have your funding that went along with that to pay for it. Do you think that in future it would be a good idea, when an SDR is produced, to have a fully costed SDR? Would that help, so that we would not be in this situation? Your investment plan would be there with your Strategic Defence Review.

The only observation I would make, Mr Roome—obviously I was not in the MoD last June—is that the context has shifted over the period since the SDR was agreed. Plans at the time were sensible, but the world has shifted. We are seeing the growing, increased threat from Russia, the US asking us and others to do more in NATO, increased activity in the High North, and now activity in the Middle East. That is the only observation I would make on that.

Let’s now delve further into defence acquisition with Fred Thomas.

This is a question for Rupert. You will be aware that last week the Chancellor appeared in front of the Treasury Committee and told the Committee: “There have clearly been failures to get value for money with defence spending over a number of years”. That is the Chancellor of this country saying that, in their opinion in the Treasury, there has been a failure to get value for money in defence. Meanwhile, we have heard that we have any number of groups trying to guide defence away from that, such as the DMSO Industry Advisory Group and the Defence Industrial Joint Council. Since coming into the Department from the private sector, what is your sense of who is more influential in deciding defence acquisition between the Treasury and the MoD? Noting that we also have the defence and economic growth taskforce, which is not in the MoD but held in the Treasury, what has your experience been of understanding the relationship between the MoD and the Treasury?

The Treasury ultimately hold our purse strings, so they are highly influential in peering over our shoulder and trying to make sure we spend our money as wisely as possible, which is absolutely right and proper. There are other bodies such as NISTA that look specifically at our larger programmes, which are among the most challenging for us.

When you say, “Peering over our shoulder and making sure that we spend the money wisely,” how does that work?

There is the budget process, which we are talking about now in terms of setting our long-term financial objectives and marrying those up with our ambitions and making sure that that money is spent wisely and appropriately. That is part of the formation of the DIP, but it will also apply in-year through the RDEL and CDEL challenges that we face every year—that is normal.

What is the relationship, then, with No. 10 and with briefing the Prime Minister? Any large strategic document or investment plan has to have prime ministerial sign-off as well.

We obviously work very closely with the Prime Minister’s team, the National Security Secretariat in the Cabinet Office and the Treasury. We have collaborative working relationships. We all have respective roles to play in those discussions, but the reassurance I will give you is that there are constructive working relationships and good communication between all involved.

One of the things that people want to understand about Defence spending money wisely is deciding how to spend money. I have a question for you, Air Marshal Tim. In the new Defence Reform structure, with understanding what we need to acquire, we have been picking up signals that there is some confusion within the Department. I want to give you the chance to clear that for the record, because the Treasury and No. 10 need some clarity. UK Defence Innovation sits in the NAD group, but a lot of the innovation teams that have existed for several years basically sit in MSHQ under your team, if I am not wrong, including Army Futures, Navy schemes such as the DCTO and others that have quite big budgets and success including CSOC, which is defence and digital, and within that, jHub doing acquisition. How is that really working, and what is the relationship between frontline command and decision making around what we need to acquire?

That is an excellent question, because the interaction between the MSHQ and the NAD group is key to that. You mentioned a few of the frontline command innovation teams, and I think it is right that there are innovation-focused teams close to the frontline, because that is where a lot of the best ideas work, where the operation insights come from and where lessons are learned most quickly. Having those innovation teams there is good, but it is also right that within the NAD group there is a focal point for innovation, because the danger with innovation is that a thousand flowers bloom; we have lots of science projects going on and that is an inefficient way of spending money and going about innovation. It is about getting the balance right—having those who are closest to the reality of operations coming up with the innovative ideas, with the focal point in the NAD group to bring that together.

In layman’s terms, who decides what we need?

The MSHQ is ultimately the brain that decides what the requirement is, driven by capability planning and operational demands. That is my job; I pass that demand signal to Rupert’s team. How I describe that is important, because what we are used to doing is flinging a bunch of very specific requirements over to the delivery agent—10 of this, four of this, red ones, green ones, etc. We are trying to move away from that. We still need to have those kinds of conversations, but what are the operational problems that we are trying to solve? It is being able to have that conversation in a clear way, which allows Rupert to then exercise the authority he has to go and explore the market and understand with industry and start-ups what the ideas are that then come to life to solve those problems.

Can I amplify that just a little?

Very quickly, Rupert.

There is a difference between innovation and procurement. What Tim and I want in innovation is a thousand flowers to be blooming—good ideas; we are not going to regulate for good ideas. At the centre, we are going to cohere it to make sure that we can fund it, support it and scale it, if it is successful. Those become future capabilities. In terms of procurement, when something is ready, whether that has come from an innovation engine or outside, Tim sets the outcomes he wants and the capabilities he needs, and it is a job for the NAD group to go and find that for the best value in the best way possible.

In that process—identifying the need, finding the solution—whose job is it to make sure that they are adopted and used by the UK military? Which one of you does that?

We come back with options. We go out and look at the world and figure out what the best series of options to bring back are. We do that collaboratively. We sit around a table and say, “Here are the options to deliver what you need in the right way at the right time,” recognising that the NAD group is not just there to support the armed forces. We have other agendas, like driving SMEs and UK innovation and supporting exports.

So adoption and integration of these technologies into the force is not part of the NAD’s responsibility?

Yes, it is.

It is. So it is not part of MSHQ’s responsibilities?

Well, it is naturally a collaborative exercise.

It might sound like I am being pedantic, which you find amusing, which I understand. As you will be aware, the criticism from around Europe and the world is that the UK does this phenomenally badly. It is quite a serious point, actually. When we field a force at some point in the next few years, and they do not have the right technologies, because they have not trained in it, have not changed their tactics and do not know how to operate with it, it will no longer be funny. There is no one in this Defence Reform that you have just described to me in the past five minutes whose job it is to make sure we are adopting technology into the force, rather than just buying it.

Let me answer that unequivocally: it is the job of the national armaments group to do that and to cohere that and to drive it. Obviously, we have a customer to work with to do that, but the responsibility for planning for that, resourcing for that and then implementing that plan is inside my team. You are absolutely right—historically, we have been slightly over-optimistic in terms of two things: one, the pathway to operationalisation, and two, the costs and requirements of in-life service and support. Those are things that have been thought of as “tomorrow’s problem.” What we are trying to do inside the new model, through Defence Reform, is plan for that up front much more appropriately, so that we create a much tighter, well-funded, properly resourced plan to lift and shift a capability that has been developed through programmes—often a series of different programmes—into MSHQ.

I think one of the things that it has suffered from in the past is us not being clear enough about what the operational problem we are trying to solve is, so you get these projects starting and then they do not get across, as they say, the valley of death. That is because we were not clear enough about what we want to use this thing for. That is what the MSHQ, under me as the capability sponsor, is now charged with doing. It is my job to decide what that demand signal is, to decide when it has been met, and then it is for Rupert to exercise his responsibilities as he has described.

Right now, I would describe it as pretty troubled. There is too much red. Over the years, that proportion of red has grown to just over 20%, pushing 25% now. That is too high. Overall, you can be more sanguine. Our own DMPPs are at 67% on track; it is 65% for the GMPPs that NISTA report on. I want to see that number go up. I want to see red turning to amber and then to green. There is a big body of work going on to try and do that. Naturally, those programmes are among the most complicated long-term programmes that we have.

Yes, you are absolutely right, Mr Twigg.

Affordability and the DIP is one aspect of that. When I look at them, I think far more that most of those programmes are not over budget but delayed. The big factor for GMPPs is them sliding to the right. They are sliding to the right for a range of things. A lot of the programmes are bleeding-edge, or at least leading-edge, technology, so there is a big technology-risk quotient in there. Many of them are subject to the vicissitudes of supply chain problems. If you look at what has happened over the last few years, we had a lot of supply chain issues. Many of them are multi-party, with other countries involved. It is just a very complex situation to manage.

Yes, predominantly, because what we have discovered with Wedgetail is due to the timing. We thought we were going to get an aircraft that was largely proven out of Australia, but in fact the time difference between the Australian version of Wedgetail flying and our own has meant a much higher level of obsolescence and new certification of new components. That has caused very significant delays in the programme. We have also found that Boeing has been a troubled partner. They are working very hard and trying very hard, but as we know—it is well publicised—they have had difficulties inside their own aircraft programmes, and that has led to a much higher level of scrutiny at the certification process inside Boeing. That is not a bad thing, but it has led to delays.

Yes, I think— Derek Twigg—so it is not even coming close to resolving what was a central feature of the SDR in terms of the troubles you have.

Yes, I agree with that. Software programmes themselves are inherently very complex and difficult to manage over long periods of time.

Yes.

That is not a voluntary thing; it is a set of objective criteria that are applied to our programmes. There is one thing I would like to offer the Committee: I am very happy, in private session, to dive deep with you into any of these programmes, or a group of them that have the highest priority for you. We can do that in a classified environment. I am very happy to do that.

Shall I answer that? The chief of Defence Nuclear is obviously not appearing before the Committee today. What I would stress about this programme—which was visible to me in my last role, but is very visible to me in this role—is the significant recapitalisation that is under way in that whole system. What that means is that there are nine programmes with a whole-life cost above £10 billion—that is the number that I have to hand. These are highly complex, often first-of-a-kind programmes, and often as those programmes develop we discover and learn new things as we go. It is obviously the highest priority of the Department, and is managed very robustly—

The recapitalisation is a major national endeavour. I am confident that the Department has the leadership in place to tackle the challenges, but I do not want to underestimate the scale of the work that is involved. That is how I would characterise it.

Yes. Again, it is a complex programme, partly dependent on the DIP. It is a multilateral programme now, with several nations. It is a good example of an OCCAR programme. Yes, it is concerning that that is marked in red, and we are working very hard to turn it around.

Block 2, which is the next phase of this programme, is dependent on the DIP being launched and us having the money to move forward with the programme.

I think it is 2028. Let me check that, if I can get to it quickly. Otherwise, I will come back to you.

Yes. It is a three-phase process, beginning with some of the underlying—

There is no scenario in which it is relevant for the current situation that we are dealing with today.

It is very important that we adopt it. It is a core capability for our hybrid Navy, without question. It is a cutting-edge, next-generation capability to move to full automation.

I probably owe you a better answer than a straightforward percentage, because the targets are constructed in a way that does not lend itself to that kind of statistic. The NATO targets that we are now working to, we signed up to last summer. The Defence Secretary signed those ahead of The Hague summit in the summer of last year. There is then a series of interactions with NATO, where they come and review our plans, and they will look at our forward planning and assess our trajectory against those targets.

We have a 19-year period to meet the target.

By definition, we are not meeting the targets because they are set over a long period of time for us to meet them.

The defence investment plan and the integrated force plan, which I write, are designed around those NATO targets so, subject to the defence investment plan, will determine the rate and pace at which those targets are met.

By definition we are, because the nature of the targets is that they are higher than where we are now, because we are pivoting to a warfighting headmark, which is not where we are now, and it is the same for all allies. It is a recognition that where we have been over the past 20 or 30 years with the armed forces is not where we need to go in the future. That is why the targets have been deliberately set at an ambitious level.

I have a quick question that relates to the criteria change that we have been discussing. Some of the lines have been amber, red or green for years. What has changed in the criteria that means that you have suddenly decided that they are too sensitive to be discussed? We have reported on them for a long time—Dreadnought in particular. Suddenly this year, it has been decided that they are to be greyed out. What criteria change brought that about?

I do not know, I’m afraid. I have not been involved directly in any of the shifting criteria. We are talking about NISTA decisions—or decisions that were taken a long time before I joined.

Let’s give you an explanation. I don’t think that we have the answer in front of us; let’s give you an explanation on that. We will write.

Sure. We look forward to receiving that in writing.

That would be useful. Going back to the delays and where we are with Dreadnought, would you agree that when we make decisions slowly in the MoD or in Government, that delays these programmes?

Dreadnought is the highest-priority project in the Department in the highest-priority portfolio that we have. There is no connection between progress on that project and the DIP. We are making sure that we are prioritising it. Indeed, there has been a huge effort to improve productivity up in Barrow. I think that the Committee will have visited to see the work with BAE Systems—

Yes, we have.

That is under way to improve productivity on site, as part of our work on that programme.

Would you agree that past delays in decision making within Government and the MoD slowed that down?

It is very hard for me to comment on the detailed past history of this programme. The broader point I am making, and it includes all these programmes, is that historical under-investment means that recapitalising the nuclear enterprise is a hugely challenging exercise.

Okay. When these are all sliding to the right and going into the red, and you were talking about damage to the supply chain and issues that slow other things down, would you agree that every day that the DIP is not produced matters? We have got a saying in BAE: every day counts. What do you think the cost of delaying the DIP has been to those smaller businesses within the supply chain?

There is no disagreement between us on the importance of getting the DIP out as soon as we possibly can—

I realise that; we go back to the same answer. But what I am trying to get across—

We recognise the demand signal and the benefit that provides to businesses. The reassurance that I am giving the Committee, while there is no disagreement on that top line, is that we are getting on and delivering 1,200 contracts—

We get that. What I am saying is—

Increasing numbers of contracts are being awarded in Britain, and we are prioritising and protecting our largest and most important programme.

With all the delays that happen within MoD, that makes procurement much more expensive. Although we are looking at the DIP and making sure that you get it right, would you agree that ultimately the longer it is delayed, the more expensive all of these programmes become?

I slightly fear that we are going to go round again. We need—

That was a really simple question. When are you going to produce it? And would you agree that the longer the DIP is delayed, the more expensive these programmes become?

There is value in publishing the DIP for the demand signal. But we are getting on and issuing contracts; 1,200 contracts have been issued since the election. I know the concern that exists, which is that delay drives up costs, because money is more expensive in the future—

Yes, we only have to look at the Dreadnought programme to see how that happens.

But the point that I am making is that we are getting on and delivering now. The Defence Secretary has been clear about that. We are prioritising delivery and productivity in our largest programmes. I think schedule is incredibly important; that is what I have learned from overseeing very large projects in my last role. I think that is very obvious as well in the context of the MoD.

I have one final question and I will leave it there. Would you agree that although the DIP is in the process of being delivered, and however well you want to deliver it, the delay is damaging small businesses and our supply chain?

I think there would be value in providing a stronger signal to the supply chain. But we are getting on and we are providing as much confidence as we can by issuing contracts. There is no disagreement on the importance and the value of this, even if I will use my words, if I may.

I just want to pick up on Derek Twigg’s point about NATO capability targets. Air Marshal, could we deploy a heavy division to Europe if the need arose?

We have a number of land capabilities and—

Yes or no?

I think that is subject to where we are with our current equipment and our new equipment that is coming in at the moment. We know that we are short of where we want to be in terms of heavy capabilities.

I will take that as a no. How about a heavy brigade?

Again, those are in our plans, but we are in the process of investing in Army modernisation in order to do that. That is something that we are recovering to over time.

A heavy battlegroup?

I probably owe you a better answer than one I can give you off the top of my head on the detail of the specific disposition of the different force elements. I would say that we know that land modernisation is important. One of our targets under the NATO defence planning process is for a strategic reserve corps, which as you know comprises divisions and brigades. Those targets are set at a level where we are not at the moment. That is why the defence investment plan and the integrated resource plan that I am working on are designed to get us there as quickly as possible, so that we can be in a position where we can meet our warfighting headmark obligations under NATO. I am not going to make any bones about it, but we are not where I know we need to be in terms of meeting those future NATO capability targets. That is why our plan, rooted in the NATO demand signal and those force elements that you are describing, lays out a time and a sequence for where we spend the marginal pound in order to best get back towards those targets. However, we have a lot of investment to make, undoubtedly, to get to where we all need to be. All allies are in the same boat here, and it is a challenge all right, but it is a challenge that the defence investment plan is designed to allow us to meet.

Thank you. That is actually very clear.

In a follow-up to what Mr Twigg was saying, in evidence to Parliament last year, the MoD revealed that the 10-year forecast costs for the Defence Nuclear Enterprise had risen by about £10 billion—I think you just mentioned that figure—to roughly £130 billion. Have there been any further cost increases? Has that had an impact on the wider Defence budget? Have you had to slow or stop any activities to fund key programmes?

I am afraid that I do not have in my head the 10-year, whole-life cost estimate for the Defence Nuclear Enterprise. That will obviously be part of the investment plan. It is our highest-priority programme, as the Committee will know and expect. I would say that it is not a case of trading off one against the other; we need to look at the budget as a whole. The Defence Nuclear Enterprise a very large portion of the budget—essentially between 20% and 25%—so it is a very significant element of our budget in the MoD. What we are doing is driving not only delivery, but efficiency and value through that budget. On your final point about whether it is a trade-off, I should of course mention that it is held in a separate ringfence, so we cannot do that trade. It is ringfenced in the estimates process in order to prioritise it and protect the budget. That also prevents us doing trade-offs the other way.

You also have the contingency within that as well, don’t you? I can see that you have spent something like £3.37 billion of that contingency fund at the moment. Defence Nuclear has access to multi-year funding and to the contingency. Would the same approach benefit wider defence acquisition?

I think for all large projects in government, there is a case for looking closely at multi-year funding. We all know that very large projects are hard to balance on an annual system. The reality is that it is not possible for Government to give every large project that freedom or flexibility; that is the reality of the government and system that we have that still have an annual approach to budgeting. We need to maximise our use of flexibilities as best we possibly can to drive efficiency. One of the things that we will be looking for Rupert to have is the flexibility, if you like, to veer and haul, as we say in MoD, between his different budget lines to manage pressures and identify opportunities within year.

You mentioned early on that the SDR talks about NATO first. What does NATO first means to you?

The capability input into the defence investment plan starts with a conversation about what NATO wants from us. That is based on a conversation that we have with NATO about the missions, the tasks and its expectations of the UK as a good ally. We go into that—it is a lot of detail and a high classification—and we pull that through into the specific capability investments. There is a lot we can do right now, and we have a good relationship with NATO, but as I was just explaining, these targets—in the land domain particularly, and others—are deliberately set high to get us to the warfighting headmark that the SDR requires us to meet. Fundamentally, NATO first is rooted in what the NATO operational demand signal is. That does not mean that it is about only the NATO demand signal; of course, as you look across the armed forces, there is utility in lots of different areas that can be used for non-NATO tasks. There are a lot of UK sovereign tasks that are important. There are a lot of out-of-area—as they say, so outside Europe—tasks: crisis response and the things that we have been used to seeing over the years. They all fold into the plan in the end but, at the core of it, it is fundamentally about taking that NATO operational demand signal and translating that into the specific investments that we need over time to get up to those targets in the most economical way.

From a procurement perspective, there is also that NATO element too with common procurement, looking to be as interoperable as we can be into NATO, and working with NATO around supply chain resilience, innovation and the adoption of new technologies. There is a NATO flavour to all these questions and we need to, ideally, position ourselves within that stream. I would love us to lead in some of those streams as well, including on the development of a more integrated fighting force model. From a procurement perspective, we get involved in all that.

Thank you. Let us get on to operations, readiness and the future force.

One of the significant linchpins of the SDR was this idea of a digital backbone. That integrates our whole force from reconnaissance surveillance and all the other sensors to effectors, shooters and all the rest of it. It is fair to say that, without that backbone, the individual elements of the force do not work. There are loads of things that will go into that digital backbone. Forgive me for reading from a list, but here are some of them: Skynet 6, new style information technology, the land ISTAR programme, LETacCIS—forgive my pronunciation—and a bunch of other things in the programme, often showing red or amber. The SDR sets out a timeframe for having this future force by 2035. Obviously, that is a ridiculous timeframe in the current threat environment, but let’s just go with it for now. Are we going to get those IT systems—those digital backbone systems—in a place where we can actually deliver this future force, even by 2035?

You saw what the SDR said about how we got here. Its implication is that, in general, we have been underfunded and under-resourced for those digital programmes; they have been one of the first places people go to execute cost control, in time-honoured fashion. The SDR recommended that we should not do that any more. The DIP very much focuses on the digitalisation of our armed forces as a real key priority—that takes us back to the DIP, of course; I do not want to rehash that again. The DIP takes that very seriously and contains significant investments in the core components. You are absolutely right, Mr Martin, that for us to get to a digital targeting web, which is the ideal outcome—being able to outthink our adversary through the speed of our processing of our situational awareness to an effector step—we have to have our digital backbone in place, our highly assured communications in place, our data sorted, our AI sorted and so on. There are a lot of modules that have to come in lockstep to create the system of systems that makes that work. It is probably the single most important set of programmes we have in the DIP.

To pick up an earlier theme around simplicity—I like the phrase system of systems, as that is exactly what it is—many of these projects started out at different times. In the old way of working, the specification would be set, there would be something bolted on, and so on and so forth, so we ended up with a bit of a mess. This is a zero-base review with the DIP. In using the DIP to drive simplicity through lots of those systems, are any of them being brought together in a way that gets us to this digital backbone quicker and in a cleaner way?

Yes. Modern thinking around this is to make sure that you have systems as open and as modular as possible, so that you do not have horrendous integration issues as you start to bring these pieces together. That is very much the design philosophy inside Defence Digital around these programmes. It also means that you do not become captive either to a single relationship or to something that has become out of date and needs to be replaced, or you might want to go in a different direction. We are trying to build for long-term agility in terms of our IT and our IS architecture. That is the underlying design principle of all this. Then you have a whole series of complementary capabilities that are moving forward together. The other thing that I think is changing—Jeremy talked about it—is the move to a portfolio approach. I am instituting a dozen or more portfolios across Defence, which give us an ability to roll up a series of underlying programmes and look at them systemically and strategically as a set of linked capabilities. You can assume that, when we are looking at the digital targeting web and the pieces that go into that, we now have a much stronger lens to have a conversation about that at a systemic level, which we have lacked in the past. That has meant that things could drop off the edge of our eyesight and we would miss them, with a domino effect. Now we have a much stronger grip on that.

Many of these programmes were started a long time ago. To what degree are we locked into stuff that means that we cannot open up the architecture, for instance, and get these different elements to work together better, inhibiting that systemic thinking you are extolling?

That is an ongoing thing that we are reviewing and keeping very close to. At this stage, my Defence Digital team are telling me that we are not irrevocably locked into anything, and that we are working hard to ensure that we improve our agility in terms of swapping people in and out. In all this, you have to decide what it is you have to own, what it is you have to build yourselves, and then what that buys you in terms of long-term agility and flexibility, not being locked in and not being condemned to sole source forever and so on. That is an overarching design principle of what we are trying to build. I always liken S2 to going to a coffee shop and buying five cups of coffee. We want to own the bit of cardboard in which the coffee sits. That is ours. We are much more loose about our ability to swap in different types like mocha or latte, but we have to have the ability to corral and orchestrate our supply chain.

That is very MoD, because you only get four cups of coffee in those carriers, rather than five.

I was going for a dozen, and then I suddenly realised—maybe two hands.

I have a final point on organisational design. Incentives are important. Organisational design basically aligns personnel and teams’ incentives towards outputs. With the portfolio approach you are talking about, we could have a digital bucket and so on—perhaps in your answer you could give us some examples. Are you then going to reorganise the NAD group around those portfolios so that you have things delivering together—a system of systems—rather than a more cluttered, disparate approach?

No, I am not, because I want accountability for delivery to be very surgical. The portfolios are a strategic and systemic lens for conversations between the NAD group and MSHQ to make sure that we are looking at the baskets of capabilities that go together to deliver a particular set of capabilities and outcomes. That is a huge step forward for us in making that conversation strategic.

So that portfolio approach is held at your level?

Correct. Options commissioning and portfolios, which is the front door for the national armaments group vis-à-vis MSHQ, will have portfolio directors who will run the portfolios. That will provide a very strong strategic conversation about sets of capabilities. Once you greenlight a programme, I want that programme to land in a group that is specialist—Defence Digital or Defence Infrastructure, for example—and for them just to get on with it. I do not want them distracted by wider strategic considerations.

The accountability would go from you to the director of Defence Digital to the project lead—one, two, three—and then the portfolio approach, which might bring together a whole bunch of stuff, sits at your level, which is the interface.

Correct. Let me give you an example. There will be a space portfolio, because space is clearly a domain that operates across the whole of MSHQ. It is an area that is congested, contested and unbelievably dynamic. In terms of the underlying programmes that deliver a space capability, you are going to have a lot of infrastructure, software and equipment. All our underlying programme delivery officers are going to be working hard on delivering components of our space capabilities. We want to be able to roll all that out and look at it as a system and through a strategic lens. That is what we do.

As fascinating an exchange as this is, we are unfortunately being defeated by time, and there is a lot of ground still to cover. My request to Members and the panel is to be as concise as possible in the Q&A.

It is all very actively happening.

We are talking about a lot of legacy programmes. Derek Twigg—because that is what Mike Martin was addressing.

Mr Twigg, those are legacy programmes that were greenlit often years ago. What we are now pivoting to is how we do stuff better going forward.

I hope they will not. The whole architecture of our procurement going forward is changing radically. We are trying to avoid development, so we just go shopping instead of developing. We are creating segmented procurement so that we have new segments where we keep it simple. The whole—

Fair enough. Rest assured, I intend to come back next year and be able to show you examples of things that have moved through the new procurement system.

I have a very brief yes/no question for you, Rupert. When you are going about doing procurement and you are looking at companies to potentially acquire from, are you under any policy or direction to bias towards British companies?

Yes.

You are?

Yes.

I have a really quick question. How quickly can you shift your policies when it comes to prioritising? We recently visited Plymouth, where we have very little space for graving docks for maintenance, yet we have a problem with the number of Astutes at sea. How quickly would you shift a decision to, say, take apart one of our old submarines against actually repairing the ones that we need?

We will react to the facts as they are. We are trying to inculcate much faster decision making.

The only thing I would add is the importance of segmentation here. We are talking about challenges at hugely different levels, with hugely different markets and industrial structure. We need a very different approach—this fast cycle you are alluding to—in relation to what are sometimes called consumables. That is obviously a very different sort of project from the availability of dock space at Plymouth, which requires a different sort of planning and is a major infrastructure project that needs to be thought about as such. Segmentation is a big part of that.

Air Marshal, last week we saw a significant briefing in three different newspapers against CDS. Can you recall this ever happening to a serving commanding officer at a time of conflict?

I probably would not want to take you up on speculation in the media. There is a lot going on in the Department at the moment and in the country, clearly, and I am not privy to a lot of those conversations. I am not privy to that press speculation. I probably cannot comment on something that I am not close to.

I asked you a historical question, which was whether you could ever recall, in the past, any commanding officer being denigrated by No. 10 during a time of conflict. Can you recall it or not? It does not matter if you can or can’t; I am just interested in whether you can.

I think it is speculation. I will probably resist the temptation to get into it. It is not something that I am close to, and it is—

It is not remotely speculative. Anyway, here is the quote: “The truth is he’s lost the confidence of No 10. He has failed to give the Prime Minister military capability, but also diplomatic and political credibility.” That was in The Spectator. The Financial Times said that the head should “face scrutiny for the failure to send more Royal Navy and British Army assets to the region in the run-up to the war”. Did you read that? Did you note that?

I have not been paying much attention to what has been in the press over the past week.

The Chief of the Defence Staff will have been briefed on this. Is he aware of it? What is his reaction? How does he feel about it? What is your view of this kind of briefing?

I have not spoken to the Chief of the Defence Staff about that.

Okay. Well, may I suggest that you speak to him on our behalf? I am sure I speak for the whole Committee when I say that this is a deplorable piece of briefing that no Government should be associated with, and I hope you will send him the very best from this Committee. I hope colleagues will join me in that. The second point is really a question for you, permanent secretary. Obviously, Israel and America have attacked Iran. We are in a time of conflict. Do you think that has invalidated or revealed weaknesses in the SDR?

The events in the Middle East and other recent activity are confirming that the SDR is the right direction of travel for the Ministry of Defence. The focus on being warfighting ready to deal with the risks that we face today, NATO first, the focus on growth and innovation, and the focus on thinking about the whole of society—they remain just as valid and important as they were. As I said earlier in this hearing, it has been increasingly obvious, since the SDR was published, that the demands on the Department are higher and have been rising. Directionally, it was the right direction.

Okay, but does it show any weaknesses in the SDR?

No, it confirms that it was the right direction, but the context is even more challenging than we anticipated.

National armaments director, do you share the view that the recent conflict has not shown any weaknesses in the SDR?

Yes, I do. I think the strategy is absolutely the right one, but what it is doing is illustrating that we need to move at pace and that time is critical.

Let me suggest several areas in which the SDR now looks quite weak. First, the capacity to deploy military force is much slower than was anticipated even in the SDR. Secondly, it looks like we have limited force mass, certainly by sea—as demonstrated. Thirdly, we have evident long-term constraints on our maritime capacity. I take it that you do not disagree with any of that?

I do not disagree with any of that, but the SDR is designed to deal with all those issues.

The SDR talks about a “NATO first” strategy, but what this has shown is that actually the Middle East is not a secondary theatre; it is arguably the most important global theatre at the moment—so that invalidates the SDR. Do you accept that?

It was NATO first, not NATO only. That is the key point that the strategy makes. The Defence Secretary has been clear that although our focus is on the Middle East we should not forget the threat of Russia. There is war in Ukraine at the moment and increased activity in the High North. It is NATO first, but not NATO only because we recognise that there are the wider roles and alliances that we have, including with countries in the Gulf.

I am sure the answer to this question is no, but do you think it is a possible criticism of the SDR or, indeed, the Department, that they were withdrawing assets from the Gulf and were very slow—six weeks’ notice has been mentioned in the media—to send HMS Dragon, and that this reflected their preoccupation with NATO and not with world energy supplies and the strategic defence of the UK’s energy position?

I am obviously well aware of the debate on this. I think the extent to which the Department had pre-positioned assets and resources in the region since the start of the year has perhaps been under-reported. Those defensive capabilities are very important. They were additional F-35s and Typhoons to Cyprus; additional Typhoons as part of the joint squadron to Qatar; radar and counter-drone systems. Ground-based air defence had also been deployed. I understand that 400 extra personnel had been deployed, so action had been taken. Since Iran’s retaliation has become clear, further action has been taken with the deployment of additional support, such as Wildcat helicopters, drone-busting capability and Merlin helicopters with their radar. Of course, Dragon—which you referred to—is also en route.

It was obviously never contemplated that Dragon would be needed, or it would have been sent in the way that the other missile systems were deployed, as you have described. They never contemplated that Dragon would be needed, and it had to be sent afterwards when it was realised that Cyprus was at risk.

Significant capabilities were sent. I recognise that these are difficult decisions that have to be made. I know you are well aware of the challenges that my Department faces. We have to look at the full landscape of risks that we are dealing with, including the threat from Russia. I am struck today by the breadth and scale of the deployment that the Department has, in addition to the activity in the Middle East. However, I do not disagree in terms of the challenges that we face and are dealing with. The SDR is the answer, but there is a long way to go to turn the corner.

The defence investment plan was promised by the end of the year in the SDR—which is another defect in the SDR. When you say that the Department is stretched, of course that’s right. Is it right that the Treasury made available some additional contingency funding to meet the current concern?

It did as far as the supplementaries.

Okay. The Treasury realised that the fact that we were in a conflict allowed it to release some money, even though there was a separate argument about the defence investment plan?

The Committee will be aware that we have a well-established process with the Treasury where, when we have unplanned military operations, we seek the net additional costs from the Treasury in order to ensure that we can support our military colleagues. That is a well-established process.

In a recent exercise, it was reported that a brigade was essentially wiped out by a Ukrainian-style drone attack. We have many drones businesses in this country—part of our sovereign capability—that can sell to Norway, Denmark, the United States and even into Ukraine via Kindred, but not to the MoD for the defence of this country or for other uses because there is no demand signal. Is that something that you recognise, and when are we going to see some change?

I do not particularly recognise the lack of a demand signal, because I see us working every day with British drone companies. Indeed, we seem to be attracting drone—

I mean sovereign British drone companies. I do not mean outsourced, foreign organisations setting up here. I am interested in sovereign capability. I think we should all be interested in sovereign capability, because that is what is going to count.

I do not disagree with you, although if you look at some of the companies setting up here who are not sovereign, they are none the less growing jobs and skills, bringing their intellectual property into the UK and collaborating with us. It is not entirely black and white, but I agree with you: I would love to see British-formed sovereign assets as well. I see very exciting British companies probably every week.

And you support that, in line with the comment you made to Fred.

One-hundred per cent.

An emphasis for you would be on placing your bets—your investment—as National Armaments Director more on the sovereign side of that equation, if you can, for relevant capability.

Absolutely. Even if it was not a British company, we are still looking for sovereignty in terms of location and access for operations.

How do you think about foreign companies where we know that the ultimate loyalty of the company will not be to British interests, and where the IP is not held as a sovereign matter in this country?

Obviously, that is a concern for us in MoD when we come to operate—

Presumably, you try to indigenise the application of the technology, even if you could not indigenise the core technology, so it became part of our sovereign—

Yes, but that is not always possible, and we have to deal with the art of the possible. When you look at the nature of the capability, can you get it in Britain—yes or no? If you cannot, can you get this foreign capability into Britain—yes or no? If you cannot, are there ways in which we can mitigate issues of sovereignty and operational ability in terms of control when you are using that foreign capability? You work your way through a series of choices.

That would include a counter-drone capability, as well as drones.

It includes any capability that is of any kind of mission criticality. Sovereignty and usability in operations are key criteria as you buy.

Let us move on to defence finance with Alex Baker.

Director General Finance, we were very appreciative of the National Audit Office taking the time to help us prepare for this session, and we were interested in their opinion from the audit of the accounts in 2024-25 that you could not sufficiently support the valuation of assets under construction to the tune of £6.1 billion. They put that down to a “lack of effective departmental oversight”. That is pretty damning. What do you have to say about that?

It was a disappointing finding for us on the back of the audit. I will say a couple of things to reassure the Committee and I will then talk a little bit about the specific issue they found. Clearly, the MoD manages a huge and complex organisation, and the finance function, and our processes and controls that underpin that, are critical to the Department. I think the financial process and the control regime we have in place are robust and effective. None the less, recognising the risk and complexity, we would never be complacent about how they operate, and we have a number of programmes in train to—

Do you think that was effective?

I was going to give you some reassurance about how we are approaching it more broadly. If you want to jump straight to this issue—

I think we need to jump in to the actual issue, because I do not think any of us are particularly reassured at the moment.

In relation to that particular issue, assets under construction relating to our AWE balances moved back into the MoD’s boundary in 2021. They are a complex set of legacy balances. The NAO found that the Department was not able to provide sufficient audit evidence in the time available, and so it was a limitation in scope. It was not a finding around the appropriateness of spend and does not impact the spend available in future years. In response to that, we looked at the specific issue and more broadly at the whole control framework around it. In response to the specific issue, we looked at those balances at pace with AWE finance teams and DNO finance teams. We think that we will be able, throughout the audit process for this year, to provide evidence to support the majority of that balance. We have been working closely with the NAO around our methodology to be able to work through, as you can imagine, hundreds of lines of data to support the £6 billion balance. Alongside that, and as importantly—this is the culture that we have in Defence, when we find an issue—we are looking more holistically across the piece. How did those processes work? If there were control failures, where were they? In this case, the interface between AWE and the Department is more complex than we would usually see. Without getting into technical detail, we fund AWE through a trading contract, so how we expense and record the assets is more complex. To strengthen that, we have refreshed the accounting guidance we have given to AWE and provided training and support on what that looks like. We have also added in extra control checks to ensure that that is embedding. There will be additional impairment reviews and sample checks to assure that what is happening is what we need to happen as we go forward.

This did not just relate to AWE, from what the NAO said to us. It said that it identified several other balances that were unsupported in line with accounting standards. This is pretty basic stuff that we would expect you to be able to get right.

I cannot talk to the specifics of what else the NAO shared. We had two qualifications on the accounts. We just talked about the assets under construction. The other qualification related to a regulatory point where we did not have a sufficient budget for legal and resettlement costs for the prior year period. That arose not through a failure in controls or process; that followed some further work that we undertook in the Department following the disclosure in the House of the Afghan data breach. Following that further work, and in conversation with the NAO, we updated an accounting judgment around how we should record resettlement costs. That was not a failure in control or processes; it really reflects the complexity of the accounting judgments that are required.

You can understand why we are concerned. This is billions of pounds of public money, and you fundamentally could not tell our audit function what this was.

Absolutely. It was a really important piece of work for us to carry out at pace. To reassure the Committee, there are things that we were not able to do in the time available with the NAO. That is partly in recognition that we were on a delayed timetable to publish the accounts, as a result of having to do some additional audit work to support the resettlement schemes, and we wanted to be able to lay the accounts and be transparent on where the Department was currently positioning. I am absolutely not complacent about how, when we do find issues, we quickly address them and underpin the control framework. My opinion is still that the financial control framework within the Department is effective and robust. It is open to regular assurance both through internal audit and external audit, which is absolutely critical to us in ensuring the robust operation of the framework.

Can you assure us that we will not have these problems in the next round of accounts?

For the assets under construction, we have carried out that work. Subject to audit, we will be able to report effectively and within our financial parameters this year. The MoD is a hugely complex organisation. I want to ensure that we have a culture within the finance function of really high professional standards and professional curiosity, where we raise issues when we find them. We need to fix the immediate and think about how we continue to strengthen our controls and operating processes. That is fundamental to how we operate.

Okay. Can we come on to the supplementary estimate that we obviously saw in February? We saw that the capital DEL budget for single-use military equipment for this financial year had been reduced by more than £1.3 billion, or 25%. What is the reason for that?

As the Committee would expect, we have tight and robust financial controls as we go through the year. As part of our regular financial management, we are making decisions on where we have priority areas of spend to support our military colleagues in delivering maximum capability. As part of the supplementaries, we update our expectations to ensure that we have sufficient budget cover in the right areas in order to be able to stay within our financial parameters. That was what drove our request to Treasury in the supplementaries this year.

What does that actually mean?

Can you clarify the question?

What have we lost?

We have not lost anything. There is not a reduction in spending through the supplementaries; we have not lost anything.

We also saw that £9 billion of the new resource DEL funding has been allocated for non-routine impairment or depreciation. The Minister for DPI was asked about that during a recent debate, but we are still none the wiser. Can you tell us which assets that concerns?

Yes. As you noted, it is a non-cash adjusting update, so it does not impact the amount of money available to Defence, and it is not NATO-qualifying. The MoD has an assets base of around £200 billion. We expect to have movements on the asset register, whether it is depreciation or revaluations. In the supplementory estimates, we were ensuring that we would have budget cover for any changes that we might make at the end of the year and ensuring that we were going to be able to live within those non-cash budgets.

Thank you. Let’s delve into personnel issues.

Air Marshal, as you would expect we have a number of commitments all over the world. Some of those will be physical commitments, such as in Estonia where we have troops, and some of them will be promises for further troops. To use Estonia as an example, we promised a follow-up of the rest of 4 Brigade to reinforce that battle group in Estonia. Can you clarify whether, in any instances, we have double-counted—where we have made promises and the same force element is against two or three separate promises?

I probably need to look at some more specific examples if you wanted them. I could look at them separately and get back to you. It is not unusual when we are planning our force laydown that we look at the concurrency and demands on that, and that we take a view on where we can use our force elements most economically. In other words, it is not a one-to-one mapping against all of our commitments; that would be quite an inefficient way of planning.

Provided that those promises are not all called in at the same time.

Of course, there is a judgment to be made there. That is part of the skill and the signs of military planning—the conversations that we have with our allies and partners, with NATO and others, such as Estonia for example.

To give you an example, I may be slightly out of date, but at one point last year, my understanding was that the brigade pencilled against Estonia was 4 Brigade. You will remember that pre the accession of Finland and Sweden, we offered security guarantees to those two countries. In the interim between them saying they wanted to join NATO and actually joining and coming under article 5, 4 Brigade was against that task as well. That is quite concerning, because if we think that that promise is going to be called up in Estonia, the odds are it is going to be called up in Finland as well. Those two countries are facing the same Russian military district. Perhaps when you write to the Committee, could you deal with that as a specific issue, because it seems to me that those concurrent promises should not have been made?

I can certainly take that away. In respect to our commitments to Estonia, we take those very seriously. We know that they are very important. We have made a commitment there, and it is important that we follow that through. The Army prioritises that very highly indeed.

One final question: can you state categorically that no tanks will be withdrawn from Estonia?

I am not close to those operational plans. I owe you a better answer than one I can give off the top of my head. I would be happy to get back to you on the detail of that.

Permanent secretary, will you answer the same question?

I have nothing to add to what the Air Marshal said. Let’s get back to you on that. I am not aware of anything.

Just a final question, which is that the SDR talked about a commitment to reduce MoD civil service costs by a minimum of 10% by 2030, and to do so by using artificial intelligence and automation. Obviously, the drive for simplicity and accountability is enormously welcome, but can you give us a sense of how that is going and how it could be used to improve processes? There are so many potential blockers in extremely complex systems.

Our numbers are falling, but we have got further to go. I think the actual target in the SDR is a 10% reduction in civil service workforce cost—that is the thing we are tracking.

Not military costs, and not non-civil service, non-military workforce costs—is there a non-civil service workforce? I am just trying to work out what you are cutting out.

There is no cleverness in what I said. We are trying to release resources for the warfighter, as you would expect. There are a couple of observations I can make about how we go about that. First, as the design of the NAD group that Rupert is leading matures and develops, there is definitely scope for efficiency and aligning back-office functions.

Because its capabilities and processes start to displace legacy ones that are more—

Yes, but also because we are taking 18 different organisations, all with a back office, and putting them in the national armaments group, so there is a scale we can deliver.

That in and of itself ought to deliver a lot of what the permanent secretary is talking about.

It will help.

If we digitalise at the same time—

You could get a double.

We could have a session in itself on AI. I would not understate the advantages that come from basic digitisation of our processes. What will help enormously is the corporate services modernisation project. Most Departments in Government have now got a project under way. That will be a big focus of what we need to do in the MoD, which will essentially simplify a lot of our back-office systems, enabling us to release resources. To add one final point, sometimes there is a risk in this conversation that we think civilians bad, military good. Actually, one of the things that I am struck by is that the integrated nature of the workforce is key to the success of the MoD. I feel that one of my roles is to uphold the tradition of the Defence civil servant, and the incredibly important responsibility that we have to provide policy and strategy advice to Ministers alongside military advice, as well as the role we have buying equipment and the operational support that we give. We need to be more efficient, but I do not want to lose the important role that civil servants play.

That is nicely put. I am sure you will not want to respond to this, but could you give us some sense of numbers and workforce reduction? Presumably, there will be more people at higher pay, and fewer at lower because of the displacement effect—how is that going?

We are working through plans to meet the ambition that we set out in the SDR.

How many civil service employees do you have at the moment?

I think it is about 55,000.

Pari passu, it would be 5,000, but—

It has already come down a little bit. Is the thing I would note. It has already come down by about a few thousand. I do not have the precise numbers in front of me, I am afraid, but it has come down a little bit already. But there is definitely further to go.

How many civil servants are there in your organisation, Rupert?

We have 27,000 people in all, the bulk of whom are civil servants.

So an awful lot of back-office change could deliver a quite meaningful reduction in numbers as well as a reduction in costs?

Yes, but we are doing more and more and more and more. So those two—

So you might take the benefit in capability rather than in production?

Yes. We are absolutely committed to a material, double-digit percentage reduction in headcount overall, but we will end up doing more than we did going into the process. I have to find a way to do that.

Will there be metrics by which we can start to see that happening next year?

We are already tracking it. As I say, the overall numbers have come down a little bit, and we will continue to track and monitor that. I suspect that this is not my last appearance in front of the Committee. I know that we will come back to it.

You never know, based on this performance.

We will be publishing a reform and efficiency plan that will set out the key strands of our work and the metrics against that.

Okay, great. I suspect that what the Committee will want to see is progress, trajectory and rationale.

One of the reasons that you reduce headcount is to cut costs. The other reason is the chefs in the kitchen idea: that things are much more efficient, and decisions are made quicker, when you have fewer people sticking their oar in. We have all heard the stories of the Zoom calls with 30 people where each of them has a veto on the decision. We have spoken about civil servants. The UK military has 470 one-star officers and above, and that figure has stayed the same, or even increased, while the size of the military has dramatically reduced. Please tell us that there is a plan to reduce the number of senior officers, permanent secretary—or is that for the Air Marshal? I do not know.

That is HQ and Force Development, really.

Maybe he did.

I am sure you are doing a great job. I mean in the abstract, of course.

Totally. One of my remits is workforce planning. That is part of that integrated force, so starting with that demand signal and making sure that it is right and honed down to the minimum required from a military point of view. Pulling that through into the numbers and the figures is exactly what part of the integrated force plan aims to do to give that demand signal. Of course, there are other dimensions to that in terms of what you might call the home plate requirement—how many people you need to run a base and so on. I synthesise that in my team, but I can absolutely promise that it is about getting the right size force that is most efficient and is warfighting focused. That is the focus we take into it.

You are saying that there will be a reduction in headcount of one-star officers and above?

We will minimise whatever workforce we have in order to have the most efficient and effective workforce that we can afford to have. The last thing that we want is for it to be too top heavy, because that is in no one’s interest.

Any idea on timescales?

We are constantly looking at the workforce plan, and we will see that over the next few months on the back of the defence investment plan. Once we start pulling that through, all of that will start to become clearer. I cannot anticipate what it is going to say and tell us. That will be for the data to tell us, but we will certainly be focusing on making that the best fit.

Thank you very much for your evidence today. You are obviously in very high-powered, important roles. It is our job to ensure that there is scrutiny of those, but we very much value your service, not only to the Ministry of Defence, but to our country. With that, I call an end to the meeting.