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PAC criticises ministry of defence’s 7.5 per cent cuts strategy

However, MPs encourage that the MoD is taking active steps to tackle low morale caused by the cuts.

The Ministry of Defence (MoD) has gone ahead with the 7.5 per cent cuts at an estimated saving of £4.1bn between 2011 and 2015 to its military and civilian workforce without a proper understanding of what skills it will need in the future, according to a report titled Ministry of Defence: Managing Change in the Defence Workforce released by the Public Accounts Committee (PAC) today.

In the summer of 2010, the MoD said it had a funding gap of £38bn over the next 10 years. As part of the Government’s efforts to reduce the deficit, the department was told that it also needed to reduce its annual spending by 7.5 per cent in real terms by 2015. It aimed to achieve a significant proportion of its required savings by reducing its civilian personnel by 29,000 and its military personnel by 25,000, which it estimates will save £4.1bn between 2011 and 2015.

In October 2010 the Government published the strategic defence and security review, which set out its future priorities and plans in the context of the need to balance its budget.

The PAC said that the department has acted decisively to put plans in place to implement reductions in its workforce. However, they criticised it for doing this before it has finalised its new operating model. A new operating model will set out the detail of how the department will meet its objectives in the future, but its reductions in workforce will be well advanced before the model is agreed.

The committee is concerned that the department’s plans to reduce the workforce have been determined more by the need to cut costs than by considering how to deliver its strategic objectives in the future.

The department’s consultancy expenditure through the framework agreement for technical support has grown from £6m in 2006-07 to £270m in 2010-11 indicating a greater reliance on external expertise. The committee said it is not convinced that the department has considered how its consultancy budget will be affected by reductions in staff with key skills.

Further the committee added that it is encouraged that the department is taking active steps to improve internal communications on its transformation programme.

Margaret Hodge, chair of the committee of public accounts, said:

We recognise that the MoD must make tough financial decisions if it is to reduce its spending by 7.5 per cent a year by 2015, and that it has acted decisively. But we are concerned that these cuts have been determined by the need to cut costs in the short term rather than by considering the MoD’s strategic objectives in the long term and the skills it will need to deliver them successfully.

If the department loses key skills, it may have to spend even more money on replacing them, perhaps by buying them in from external consultants. Spending on consultants is already soaring, from £6m in 2006-07 to £270m in 2010-11. This would not represent value for money.

We welcome the department’s candour about how these cuts are affecting staff morale. That morale is low when jobs are threatened is unsurprising, but it is encouraging to see the department take active steps to improve the way it communicates with its staff on the need for change.