With the defence budget becoming ever more contentious, the MoD’s permanent secretary Jon Thompson must continue to balance spending decisions with national security. It’s a tough job – but one he’s privileged to do, he tells Jess Bowie. Photos by Paul Heartfield
Jon Thompson is a canary. Not the kind you find down a mine, there to serve as a harbinger of doom (if he were that bird, he might have cause to breathe easily – and maybe even puff his feathers – given his impressive track record at the Ministry of Defence) but the kind that supports Norwich City FC. Born and bred in the East Anglian city, the MoD’s permanent secretary has for many years lived in neighbouring Cambridgeshire – where he sets his alarm for 5.30 each morning before his commute into Whitehall. Attentive listeners may still detect a hint of Norfolk brogue in Thompson’s voice, however.
“It’s faded away significantly, but people who don’t come from there can tell I’m from Norfolk,” he says. “I could switch the accent if you really wanted me to, but I’m not sure that would work for a magazine... You see, people from Norrrfolk talk loike thaaat,” he adds, laughing. “It’s not quite out of my system – the occasional words…”
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Long hours and unfailing enthusiasm have helped Thompson build a career that has included 18 jobs since he became an apprentice accountant straight out of school. Work followed at Norfolk County Council and Ernst and Young, among others, before his entry into the civil service in 2004 as Ofsted’s first ever finance director. His fluency in numbers and budgets – “he’s a bean-counter, but so much more than a bean-counter” an impressed member of the Public Accounts Committee tells CSW – made him hot property in Whitehall and, after a spell as director general of corporate services at the then Department of Children, Schools and Families, Thompson joined the MoD as DG of finance – a role he combined with being head of the Government Finance Profession.
But his 18th job, as the MoD’s permanent secretary, which he took up in September 2012, has been the toughest, challenging him to turn around the department’s parlous finances while also implementing huge – and often controversial – reforms. That the Tory-Lib Dem coalition arrived in Whitehall to find a £38bn “black hole” in the MoD’s finances is well known – and it was Thompson, in his previous role, who had the unenviable task of presenting this eye-watering figure to new defence secretary Liam Fox in 2010.
How difficult has it been since then to make the MoD’s budgeting realistic?
“Unbelievably difficult!” Thompson says. “We were so overstretched – we were committing ourselves about 10% in excess of the amount of money that we had. And because we were in that situation, we were doing things that destroyed taxpayers’ value. So you delay the building of the aircraft carrier to save some money in the short term, and it costs you a lot more in the long term. So I think we sort of mapped out what we thought the problem was, but it was extremely difficult then to navigate through to ‘how do you reduce spending and get it within the public spending envelope?’
“So we’ve reduced public spending on defence by nearly 20%, because we were about 10% over with the black hole, and then the reduction in this parliament’s been just over 9%. You put those two numbers together… We managed to do it, but it’s taken some very tough decisions.”
Two kinds of decisions, Thompson says. Firstly, the MoD has been “financially more efficient”, which has included renegotiating contracts and reducing the size of the estate. Secondly, it has restructured the Armed Forces as part of the Strategic Defence and Security Review (SDSR). “And the government I think made the right decisions to set an ambitious future strategy,” Thompson says of the latter. “But a part of that was, you know, scaling the Armed Forces to the financial end.”
The department’s progress has not gone unnoticed. In an independent review in December, Lord Levene praised the “fundamental transformation” the MoD had undergone and, in almost unprecedented scenes, Public Accounts Committee chair Margaret Hodge began a recent hearing by praising Thompson and his colleagues for a “step change in improvement in performance”.
His key lesson from this long, tortuous process? Never let the department’s finances get out of control again, he says.
None of which means there aren’t still huge challenges to running an organisation as complex as the MoD – as recent attempts to reform Defence Equipment and Support (DE&S) have shown. To clamp down on overspending and costly extensions to projects, and to allow DE&S to recruit talent that could compete with the private sector, the aim was to separate the kit-buying part of the ministry from the rest of the department, and run it as a more autonomous Government-Owned, Contractor-Operated body (GoCo). However, after two of the three consortia bidding to run the agency pulled out, leaving a highly uncompetitive total of one consortium in the running, the plans were shelved. In the end, the department settled for the “in-house” option of DE&S+ – an arms-length civil service body exempt from Whitehall pay constraints.
Why does Thompson think two of the consortia pulled out of the bid?
“Why did they…? Well, only they could really tell you. I mean one pulled out the day before the bid was due to be submitted because they didn’t quite think that they could meet our requirement. One did submit, which is a piece of public information, but the actual bid’s never been published. And one pulled out very, very early on because of issues with their consortium outside the UK. They had won something somewhere else and decided they were committed, and they didn’t want to commit to us.”
So it wasn’t because these private sector bidders were finding it hard to ascertain levels of risk in the programme, and were worried they might be liable?
“It depends how you’d like to see it. I mean what we wanted was to be able to drive better value – to improve management of the programme and release savings for the taxpayer. So we needed to improve our capacity and capability to deliver, and we wanted a better financial position. Those two things on a programme as complicated as the equipment programme was a tough ask. I definitely think it was worth experimenting with, and it didn’t quite work.
“But let me be clear: on Defence Business Services it worked, and on our Defence Infrastructure Organisation it worked. On DE&S it didn’t quite work, so we’ve slightly adjusted the strategy and taken a big step forward this year, and maybe the next government will have the choice to come back to that decision if it wants to.”
In the meantime, Thompson says, the DE&S+ option has given the MoD’s equipment-buying body more commercial value as an organisation, and the ability to recruit “very specialist people to do a very complicated job, like nuclear engineering or military aviation airworthiness”.
After CSW met Thompson, the National Audit Office (NAO) released a report saying that recent attempts to reform DE&S had cost the department “£33m and two and a half years”. It wasn’t all bad news, however: the NAO’s head, Amyas Morse – himself a former commercial director at the MoD – said that although shelving the GoCo option had come at a huge cost to acquisition reform, it had also “yielded some useful learning”. Now, Morse added, DE&S would need to demonstrate how, as a bespoke trading entity, it would address systemic weaknesses in defence acquisition – and sustain this over the longer term.
After contacting the MoD for Thompson’s response to the report, CSW was directed to the recent PAC hearing, during which chief of defence materiel Bernard Gray said that the GoCo competition itself had cost roughly £7.5 million, and that that money had been spent “in pursuit of answers which would have contractually locked in savings worth billions”. He added: “Going to the market and seeing whether we could deliver that was a good use of public money.”
When Army 2020 was announced in July 2012, it represented one of the biggest structural reforms to the British Army in decades. A key plank of the programme has been to cut the number of regulars from 102,000 in 2010 to 82,000 by 2018, and to make up the shortfall with reservists – of whom there would be 30,000 by 2018.
So far the plan has hardly been a stunning success, with politicians on both sides of the House pointing to low recruitment numbers as proof that the programme is “a shambles” (Tory MP John Baron) which risks leaving Britain with “a dangerous capability gap” (Labour’s shadow defence secretary, Vernon Coaker).
How does Thompson think it’s going?
“Well... we’re roughly halfway through, between 2010 and 2020, aren’t we?” he says, laughing. Sensing the need to elaborate, he gives some background to the programme – itself part of the larger Future Force 2020 plan.
“General Carter, who’s currently the chief of the general staff, was the architect of Army 2020 – which is the restructuring of the Regular Army to meet the Future Force 2020, as per the SDSR. And then there was, separately, the Future Reserves programme, led by Julian Brazier MP, one of my ministers.”
Both programmes, Thompson says, are “progressing well”.
“The Reserves programme I think has improved in the current year. It had a bit of a slow start, which is probably an appropriate way of putting it, but it’s gathered some momentum. The quarter two intake of recruits for the Army – quarter two 2014-15 – was the best in recruitment we had in that quarter for many years, and you can see from the national statistics in February that there was a further improvement in quarter three. We have to continue that momentum that the programme’s now got. There’s a great new advertising campaign, running right now.”
But could part of the programme’s recruitment problems be down to changing perceptions of what it means to be in the Army Reserve (the Territorial Army, as was)? These days, signing up might appear to be less about fun, character-building weekends away, and more about tours of Afghanistan.
“Well the Reserves definitely need to be a fundamental part of an integrated Armed Forces, but I don’t think people should slip into thinking that if you’re going to sign up to the Reserves then you’re automatically going to end up in Afghanistan; I think that’s quite a narrow perspective on both the Armed Forces and what the Reserves do.
“Reserves do fantastic work, as do regulars, in all kinds of areas: logistics; intelligence; things like building up capacity in countries that we want to go into – like going into Sierra Leone to help with Ebola, for example. Nearly 30 reserves have been out helping on that. So it’s not a narrow thing, joining the Reserves – there’s a huge range of things you can do, which develop your skills and help you in a broader way in life.”
As the real and potential threats of Islamic State and an increasingly aggressive Russia collide with demands to balance the nation’s books, the defence budget becomes ever more contentious – not least because of current projections that suggest Britain’s defence spending could fall below the NATO target of 2% of GDP. David Cameron – should he remain prime minister – is said to be facing a rebellion if he allows this to happen in the next parliament. Whatever the outcome of the election, the accountant at the top of the MoD will face very tough decisions.
Responding to the speculation about defence spending at the PAC hearing earlier this month, Thompson said “clearly, we would like 2% of GDP”, but added that it was for the next government to decide.
“Two per cent of GDP is actually slightly more than what we currently plan for, so it would not open up a [capability] gap,” he added. “We would have slightly more spending power in the latter years of the next parliament.”
Asked by Stephen Phillips MP whether “significant cuts in the percentage of GDP” spent on defence by the next government would affect the British Army’s ability to fight effectively alongside its allies, Thompson replied “not necessarily”.
“It rather depends on how deep the cut is and how much further financial efficiency we can drive. If it was more than the level of financial efficiency that we can drive then, yes, that would affect capability,” he told the MP.
Whatever is ultimately decided about defence spending, it will have big implications for the next Strategic Defence and Security Review. What are Thompson and his officials doing to prepare for it?
“Well, we need to be clear that the SDSR does not start until after the general election. But the work that we’ve been doing is making sure we’ve got all the necessary evidence and information available so that when ministers return from the general election and they want to get engaged in the SDSR, we’ve got the evidence base, and all the information for them to be able to engage in the questions and the options, and what that then means for the Armed Forces, for security in the UK and for our costs. So that’s the work that we’ve been doing, that’s all appropriate. What you don’t want to do is say: ‘Let’s do an SDSR... where’s the information?’”
Thompson himself admits that, last time around, some decisions that his department made internally lacked a strong base of evidence. He says ministers made the right decisions with the information they had at the time in 2010, but as the information improved, some decisions (such as over aircraft carrier jets) had to be reversed. Such U-turns were the right thing to do, he maintains, but, he adds: “I would want to limit our exposure to that in 2015.”
Yet surely there is only so much he and his civil service colleagues can do to prepare without guidance from the next crop of ministers?
“There is obviously a point where you have to stop [preparing], let’s be upfront about it. But the MoD is so huge that one of the things that you can do is to baseline absolutely everything. So what do we do; where do we do it; how do we do it; how much input is required from people and equipment; how much training is required, and so on and so forth. You can baseline all of that, and you can get as much evidence as possible on all of those areas.
“Now if in the course of an SDSR ministers want to say ‘develop us options on the future of the Navy’, you’ve got the necessary baseline evidence to say ‘well, okay, we can simulate the changes in accordance with whatever the policy conversations are.’ So I think you can go a very long way but, eventually, you do need some input, and we’ll get that after the general election. But at this point, I think we’re absolutely right to basically gather as much information as we can.”
All of which explains the early starts. “It wasn’t 5.30 this morning, it was 4.50, but… look, this is one of the most fantastic jobs you could ever do in the UK economy, full stop,” Thompson says, pointing out that he tries to keep weekends free for his family and his miniature schnauzers.
“It’s a fantastic privilege to be the permanent secretary of this department... You have one of the most complicated, most fantastically interesting organisations to try to lead with the chief of the defence staff. That’s what gets me out of bed at five o’clock in the morning.”
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"According to Private Eye it’s the kind of soup-strainer best known in Clint Eastwood westerns. I don’t know how long I’ve had it…25 years?! I shaved it off once – my youngest son was about seven at the time and he said ‘I don’t like it’, so I had to grow it back. Although next Movember I think the idea is that I shave it off, and then everyone else in the office grows one."