Interview: MoD permanent secretary Stephen Lovegrove on NATO, Brexit and the future of his department

Written by Colin Marrs on 25 January 2017 in Interview
Interview

The map of Whitehall has changed considerably in the months since Stephen Lovegrove left the Department of Energy and Climate Change to become Ministry of Defence perm sec. He tells Colin Marrs about the Brexit help his department can offer, the MoD’s role in boosting Britain’s industry and the staffing cuts he’s tasked with making. Photos by Paul Heartfield

Back in April 2016, shortly after Stephen Lovegrove had swapped the top job at the Department of Energy and Climate Change for the role of permanent secretary at the Ministry of Defence, he resolved to brighten up his new office. Six photographic etchings by Young British Artist Tacita Dean – part of The Government Art Collection – now provide a backdrop to the perm sec’s desk. With European security top of the departmental inbox, the symbolism of the artwork is striking. Haunting silhouettes of Berlin landmarks are reflected from the orange-tinted windows of the now-demolished East German Palace of the Republic.

Russia’s growing influence in 2016 – both in Eastern Europe and on the wider world stage – is, of course, just one of a number of profound global threats on the MoD’s radar at the beginning of 2017. However, while media commentators might be in full hand-wringing mode about the uncertainty hanging over the existing global order, Lovegrove is unfazed.

“I wouldn’t say the current situation is unique,” he says. “Certainly in my lifetime there have been environments which have felt more perilous than this one. But I think that the four themes that were identified in the 2015 Strategic Defence and Security Review are absolutely right, and are only becoming more apparent.”


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Those themes – including state-based threats (“and by that, obviously one is thinking of countries such as Russia”, Lovegrove says), terrorism, cyber threats, and, to quote the SDSR, the “erosion of the rules-based international order” – leave no room for complacency in the MoD. But, when asked about the global uptick in populist sentiment – which contributed to Britain’s vote to leave the European Union and to the election of Donald Trump in the United States – the defence ministry’s perm sec says that political populism is not – yet – a significant threat to stability in itself.

“I would be very concerned if there was a sense of rising nationalism which undermined the rules-based order and allowed for conflicts to emerge more quickly – and for the dominant paradigm to become one of power and force rather than rules,” he says. “But I think it’s a bit early to say that this is going to happen.”

EU membership is operationally irrelevant to the multinational and binational arrangements through which the UK currently insures itself, Lovegrove stresses. And, to demonstrate the primacy of NATO over the EU in the UK’s military relationships, he points to a map showing the flag configurations of recent NATO deployments in Poland and the Baltic states. “These are obviously all European countries, but you will see that of the four lead nations, two of them – Canada and the USA – are not European nations. And, before too long, three of them won’t be.”

While we’re on the subject of NATO, what does Lovegrove make of the Defence Committee’s claim – put forward in a report in April – that the UK was only achieving its NATO target of spending 2% of GDP on defence by including dubious items, including £1bn of pension payments. “There are no accounting tricks whatsoever,” Lovegrove says firmly. “There are rules as to what you can count and rules as to what you can’t count.  And we are totally within the rules.”

While the MoD has some thinking to do on how it deals with activities currently governed by European agreements – including airworthiness regulations and defence research funding – Lovegrove says that the administrative burden of an EU exit is much less onerous for his department than for others. “We are not in the kind of position of our colleagues in DEFRA, for instance, who have an enormous suite of their policies being absolutely, directly affected,” he says.

“I wouldn’t describe the process of leaving the EU as like a war, but I certainly do believe this is a national endeavour which absolutely everyone in government is going to have to play a very full part in”

Lovegrove admits that, due to the large amount of equipment the MoD buys from overseas, it is more exposed to foreign currency fluctuations than any other department. But recent reports that the department is facing extra costs of up to £700m due to the post-Brexit drop in value of the pound are very wide of the mark, he says.

“We are perfectly aware of the fact that we buy a lot in foreign currencies, and as a result have hedging strategies in place,” he says. “Yes, there have been some small effects, which you can see because the fall in the pound has been quite sharp, but they have been a small fraction – a very small fraction – of what they would have been if we’d been unhedged. Obviously, there’s a cost to that, but it’s an insurance.”


"National endeavour"

While it is not bearing the brunt of leaving the EU, the department is standing by to lend its expertise in strategic planning to fellow civil servants directly responsible for Brexit negotiations. “I have discussed with colleagues in the Department for Exiting the European Union that we will try and make sure some of our expertise and knowledge of scenario testing and red-teaming [a process of planning and policy challenge] is actually used by colleagues who are dealing with Brexit, because that’s a very complex, dynamic set of considerations,” Lovegrove says.

“We haven’t quite got to that point yet because, obviously, we’re at the base camp of Brexit – as we read about on a daily basis – but when there’s more to go on we will happily make available those techniques and those facilities to test some of the scenarios.”

The MoD perm sec says that adopting military planning techniques would not compare to changes to the machinery of government made during World War II. “Well I wouldn’t describe it like a war,” he says, “But I certainly do believe that this is a national endeavour which absolutely everybody involved in government is going to have to play a very full part in. There are certain ways of thinking and organising yourself that people in this department might be able to contribute to.”

The department, according to Lovegrove, also has a big role to play helping central government policymakers develop the industrial strategy to which Theresa May’s government is committed in the post-Brexit world. But greater freedoms to directly invest in military manufacturing have to be carefully weighed against an ongoing spending squeeze on the MoD’s budget, he says.

“There is a balance between having a vibrant, indigenous defence industry and wanting to make sure we’ve got the best kit at the best price ”

Lovegrove welcomes the thrust of Sir John Parker’s recent report, written to inform the National Shipbuilding Strategy, which recommended the UK builds its warships at domestic shipyards to achieve both national security and socio-economic aims. “Where the rules allow the department to buy from British suppliers, it will,” Lovegrove insists.

There is, however, a caveat – which demonstrates the challenges involved in pursuing a more interventionist industrial strategy. “As a department, we spend about £37bn a year, so small percentage differences on that number are still very big. There is a balance between… having a vibrant, indigenous defence industry which is part of our national resilience, but at the same time wanting to make sure that we’ve got the best kit and we’ve got it at the best price.”

One new organisation helping the department get best value from its spending is the Single Source Regulations Office, the arbitration body set up in 2014 to examine and curb inflated costs on contracts for which there is only one realistic private sector supplier. Lovegrove brushes off press reports that the October departure of Clive Tucker as interim chairman of SSRO was down to disagreements with the department. “There aren’t tensions,” he says. “SSRO is a big change in the way in which the procurement picture for defence is now conducted, but in just two years it has already saved us about £160m. What’s not to like about that?”

Lovegrove arrived in Whitehall in 2004 as chief executive of the Shareholder Executive, joining from a senior media role at Deutsche Bank. His experience in both the private and public sector has helped give him an objective perspective on the SSRO’s role, he says. “I have been lucky enough to work in a number of different industries. And the one thing I would say is that if you are a regulator and you’re not cheesing people off then you are not doing your job right. And more power to their elbow.”


"Evolution"

He is similarly relaxed about the role of the Government Commercial Organisation, which now acts as the direct employer of senior commercial specialists working within departments. “I have got no problem with our commercial people – and neither, by the way, have our commercial people themselves – working for the Cabinet Office and then being seconded back to us. Obviously, I wouldn’t be hugely keen on them being suddenly yanked off projects which were important to us to go to another job, but the arrangements are in place for that not to happen.”

Again, his confidence is born of past experience. “At the Shareholder Executive we were an avowedly cross-governmental resource used by lots of different departments. I never found it very difficult to put departmental interests in the forefront of my mind when I was working [there]. There is an advantage in terms of training and consistency, in morale, and indeed in pay, in having that functional expertise brigaded into a central area, so I’ve got no problems with that at all.”

Lovegrove expresses satisfaction at the corporate performance measurement regime now in place at the MoD. Some in the defence establishment have privately questioned how it is possible to monitor the department’s rapidly moving strategic targets. Sceptics point to the example of 2015’s Joint Force 2025 strategy document, which proposed an increase in the size of UK land forces to 50,000 – up from 30,000 committed to in the previous Future Force 2020 plans.

“We clearly don’t want to have a rhythm whereby everything is being re-evaluated and redesigned on such a frequent basis that nobody can be held to account for it, and, indeed, we don’t want to have complete breaks,” Lovegrove says.

“2025 is an evolution of 2020 and, you know, builds on it. But I think a five-year planning cycle in defence is pretty standard and perfectly reasonable.”

If the reorganisation of the military isn’t tricky enough, the department is also faced with the task of making significant cuts to its civilian workforce. The November 2015 Strategic Defence and Security Review confirmed a commitment to reduce this headcount by almost 30%, to 41,000 by the end of the parliament. More than a year on, it is clear that the options for meeting this objective are still wide open. “In the process of working out the best way of doing that over the next four years, I want to be able to take the broadest possible range of inputs – and that means generating a sort of department-wide conversation as to what that is.”

“Salami-slicing” is ruled out completely (“the idea of getting rid of 30%, for instance, of our cyber capability, would not be a sensible thing to do”). But there is a hint that outsourcing and structural changes will be important in achieving the desired reductions.

“Very significant numbers of people who will no longer be working in the Ministry of Defence will still probably be working for defence under a different kind of employment model,” Lovegrove says. “What we will need to do is to try and work out what are the jobs that can only be done by people working for the Ministry of Defence as opposed to what are the jobs that could be done by somebody else. That’s the real question.”

Lovegrove says his approach to the reorganisation will be guided more by input from colleagues than by any management theory tract. 

“There is a book on my desk called Reorg which I am going to start reading as I think about the department now,” Lovegrove says, failing to mention that the book is co-authored by the high-flying consultant Suzanne Heywood, who happens to be married to his boss, the cabinet secretary Sir Jeremy Heywood. 

“But I am a strong believer that most of the answers to any problems that you might come across actually exist within the minds of the people who work in the department. And that is not something I would restrict to people at the top of the department – it’s all the way through,” he adds.


"Closely woven fabric"

Lovegrove says he does not feel too uprooted by the move from his previous role as DECC permanent secretary, despite the differences with his old department. “DECC was a very heavily policy-focused department, developing very complicated policies being put in place in order to allow the country to keep the lights on, decarbonise, and hopefully not do it at a great or unnecessary expense,” he says. 

“These are complicated intellectual exercises, but were done by about 1,600 people in one building plus about 150 people up in Scotland. In organisational terms, the MoD is hugely more complex. There are 58,000 civilians and 140,000 military personnel, many of whom report to each other, scattered all across the country doing myriad things.” 

And, while he describes the atmosphere of his department as being “a closely woven fabric which is very, very strong” (see box) Lovegrove is also eager to remove any perception that the MoD is too inward-looking. “I am keen to remove the insularity, if that exists, wherever I can,” he pledges. 

Brexit may provide the perfect opportunity. With the MoD’s finely-honed wargaming skills and scenario-testing expertise – and its permanent secretary’s willingness to share these – Lovegrove and his staff are on standby, ready to equip and support colleagues from across government as they do battle to break our ties with the EU. 


LOVEGROVE on… his ‘Agatha Christie’ pastimes
“I like doing, I’m afraid, rather traditional sorts of Agatha Christie type things. I like reading detective stories, I like watching cricket, I like playing bridge and golf badly, and being with my family.”

Why the MoD is no ordinary department
“This building is a strategic headquarters and a department of state at the same time. Civilian people report to military people, military people report to civilian people, and it’s a very embedded, closely woven fabric which is very, very strong. Occasionally it gives rise to odd tensions, as you can imagine, but there are tensions pretty much everywhere.”

 

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@JagPatel3

Submitted on 25 January, 2017 - 11:45
No mention is made of defence procurement anywhere in this interview, given that nearly 50% of MoD’s budget is spent on this vital task. The Government has revised its defence procurement policy to consider buying, as its first and foremost priority, new military equipment for the Armed Forces which automatically falls in the off-the-shelf category – specifically because an off-the-shelf equipment is a fully engineered and supported technical solution which satisfies the key user requirements at no additional cost or risk to the Exchequer, that is to say, it does not require any user-specified modifications or related development work laden with risk, to be performed upon it. The reason, which it will not admit to in public, why the Government has moved away from its long-standing procurement policy of buying equipment designed to a tailored technical specification requirement set by the military customer is because, it is no longer confident in the ability of its own people to identify, manage and control technical risks inherent in a starting-point for the technical solution that requires development work to be performed upon it – which has been the cause of persistent delays and cost overruns on equipment acquisition programmes for as long anyone can remember. This disastrous situation has come about because it does not possess the capability in the form of intelligent and experienced procurement officials who have an adequate understanding of what it takes (in terms of skill types, funding, tools, processes, materials, scheduled work plan, inter-business contractual agreements etc.) to advance an immature technical solution from its existing condition, to a point where it will satisfy the technical specification requirement, within a Private Sector setting driven by the profit motive. Consequently, they are unable to discriminate between the truth and blatant lies propagated by Contractors. The harsh reality is that these people have no business acumen – on account of not having spent a single day of their lives in the Private Sector. Nor is the existing defence procurement process (which has evolved over the years) conducive towards delivering equipment for the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life, because it has been tampered with by Defence Contractors (most notably the Select Few) who have skewed it decisively in their favour, at every turn. The Government’s considered assessment is that it is unlikely to accumulate an in-house capability of the desired quality and numbers anytime soon, certainly not in the foreseeable future. It has also been realistic and concluded that it is nigh on impossible to reconstitute the existing, flawed procurement process alongside the tough 2015 Spending Review commitments to be fulfilled in this Parliament, further complicated by the Brexit vote – hence its preference for the off-the-shelf option. Ironically, one of the most spectacular benefits to be derived from buying off-the-shelf equipment is that the leadership at MoD will be freed from its burdensome responsibility of having to upskill its existing procurement staff to a level comparable with that exhibited by counterparts in industry, because this type of acquisition is relatively straightforward and can even be undertaken by mediocre post holders – not least, because it is devoid of any hidden financial, technical or schedule risks. If anyone has any doubt about the determination of this Government to press ahead with considering the off-the-shelf solution as its first option, then they should look no further than its decision to buy the standard Boeing P-8A Poseidon maritime patrol aircraft to plug the capability gap left behind by the cancellation of Nimrod MRA4. Settling on the choice of the P-8A Poseidon means that these aircraft cannot be refuelled in-flight by the RAF’s Voyager tanker planes to extend their range and endurance on-station, because the former are fitted with the flying-boom receptacle whereas the latter are equipped with the probe-and-drogue system – making them entirely incompatible. The Government has taken a lot of flak from informed commentators and endured negative publicity in the press and media for this serious operational deficiency – nevertheless, it has decided to go ahead with the purchase. Whereas the Government would want to look at indigenous suppliers as the first port of call for entirely good reasons, the undeniable fact of the matter is that, after decades of unwavering support lavished upon them by political parties of all hues, none of the them is able to offer suitable off-the-shelf equipment because they simply haven’t got any – not least, because they have become seriously uncompetitive, both in the domestic market as well as in export markets. So what impact does this policy shift have on Defence Contractors’ business prospects in the years ahead? UK-based military equipment manufacturers who do not possess desirable off-the-shelf equipment and are in the business of developing & building weapons platforms, are most likely to be adversely affected by this adjustment in defence procurement policy. To counter haemorrhaging their domestic market share to similarly positioned players from the US and elsewhere, UK-based Defence Contractors have little choice but to increase their competitiveness significantly, by first selling their products in the international marketplace – on price, superior technical performance, timely delivery & without bribing public officials via intermediaries – and then re-entering the domestic market with fully developed products rebranded as off-the-shelf offerings, to satisfy UK Government needs, just as the Americans have done. It is believed that some 20 percent of the equipment procurement budget is currently being spent on buying off-the-shelf equipment. This slice is only set to increase, as more and more projects which involve significant development work are side-lined in favour of off-the-shelf purchases. So what price Trident successor off-the-shelf? @JagPatel3 on twitter

William (MOD) (not verified)

Submitted on 27 January, 2017 - 11:33
Dear Mr Lovegrove, Firstly I'd say that I agree with much, if not all, of what JagPatel stated in their comment, the move towards the MOD being an "intelligent customer" was poorly thought out Government of the days dogma that has hurt the MoD's ability to serve the armed forces properly. Of course that was the only bit of Government policy that has ever done that - wasn't it! But - my question is shorter - How does giving VERS (even the reduced one we have now) to several hundred (perhaps thousands) of people then re-employing many of them as consultants or contractors save the Government any money? As an engineer in DE&S I consider myself as mathematically very capable, but I cannot get my head round that question.

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