The risk manager

Posted On: 
28th June 2013

Philip Hammond wants the UK to have a strong defence and strong finances. He denies he’s a Goth. But is the Defence Secretary the MoD’s Mod or its Rocker?

Philip Hammond wants to set the record straight. As Tory leadership speculation swirled last month, former schoolmate and TV star Richard Madeley declared that the Defence Secretary had a guilty secret past: as a long-haired, leather trenchcoat-wearing, Guardian-reading ‘Goth’.

Hammond is indignant, but only about key parts of the description. “The scruffy hair, the tie undone, I’ll accept all of that,” he says. “The leather trenchcoat, I wish I’d been able to afford a leather trenchcoat! What I remember is that I had a rather scruffy ARP trenchcoat, Second World War surplus.

“But what I absolutely will not accept is the Guardian under my arm. Never in a million years. Actually, I went through a phase of being an FT reader at school.”

And as for the ‘Goth’ description, Hammond finds it baffling given that he and his fellow pupils were either Mods or Rockers at their Essex state school in the 1960s. “I think it’s just meant to mean long-haired, scruffy, the opposite of a pin-striped accountant,” he smiles.

Hammond may sport a trim hairstyle and crisp suit these days, but he’s certainly done much to dispel his image as ‘The Accountant’ in the MoD. After Liam Fox’s departure, the fear of some in the military was that the former Shadow Chief Secretary had been parachuted in by Number 10 and the Treasury to slash budgets regardless of tradition or operational needs.

Now 18 months into his role, he’s still abreast of the numbers, but clear that finances have to be part of a wider picture. In his fifth floor office in the Ministry of Defence, there’s a map of Afghanistan on a trestle board, a huge atlas of the Gulf and a handsome globe. This is a job that needs someone who can look at the wood, not just count the trees.

Hammond stresses that “I’ve never been an accountant” (before winning his safe seat in Runnymede he was a successful businessman) and this week’s spending review proves that he can protect budgets as well as slash them. And while he lacks the Armed Forces background of some of his predecessors – his father’s brief National Service stint is the only military mark in his family’s history – he has developed good relations with the service chiefs, employing a management style a little more Jose Mourinho than Ernst & Young.

Hammond refuses to criticise his team in public – but does not shrink from making his views known in the dressing room. A bit like a good football manager? “Yeah, perhaps,” he replies.

“The reality is there are situations where you need to be an accountant, where there is egregious waste, inefficiency. Sometimes it’s the fault – as with procurement – sometimes it’s the way the system works, it drives inefficiency, and you’ve got to fight the battle at a higher level to change the system,” he says. But at other times, he will fight hard to protect the MoD’s unique causes, “where there are actually good reasons for doing things in a way which may at first glance appear counter-intuitive to an outsider”.

As a former outsider, what’s changed his mind most since arriving at the department? Was it seeing our servicemen and women on his many trips overseas to the front lines?

“I could go all misty eyed and sentimental on you, but I won’t,” he says. “This is a complex area of activity and some of the questions that some of my colleagues sometimes ask me are questions that I was asking myself when I arrived. But I now understand why the answers I got are the right answers and why the military is not susceptible to all the lean and efficient arguments that sometimes get presented.”

He insists that the G4S Olympics fiasco last year forced him to rethink the virtues of private sector involvement – and made him appreciate there are some services that only the military can be relied upon to perform. It’s a lesson he is not going to let his Treasury colleagues forget.

“We were looking at a short period, zero-tolerance-of-failure, task. That’s what the military does,” he says. “You can give the military a task, doesn’t matter what it is –  delivering fuel in a strike, guarding the Olympics, fighting a war – you tell them what you want them to do, you tell them there’s zero tolerance of failure, and off they go and do it. But the price you pay for that kind of resilience in a command and control structure is that it isn’t what the private sector would recognise as ‘efficient’. The amount of management, the number of layers of management in the military, to deliver the Olympics, was orders of magnitude bigger than G4S were planning to deploy.

“So there are things that are best done in the commercial sector. There are other things where we have zero tolerance of failure, where we need a military-style command and control system. Having understood that, I then have to point out to my colleagues the risk that we would be taking if we try and take short cuts in that military structure.”

Asked if he has built up a rapport with the heads of the Army, Navy and RAF, he replies: “I hope so, but I don’t think that’s been by sucking up to them. I genuinely admire what the military do. But equally, some of it is capable of challenge. I will defend them robustly in public, but, as you would expect, I would challenge them repeatedly in private. Usually they persuade me that there is a reason why something has to be the way it is. But sometimes we find that actually there is a bit of scope for doing something a bit differently.”

One area where Hammond wants things doing differently is in procurement. Earlier this month he outlined plans for a “step change” in the way the MoD runs its bloated Defence Equipment & Support (DE&S) programme, aimed at curbing the wasteful cost and time overruns of recent years.

The proposed Government-Owned, Contractor-Operated scheme (GOCO) would see the acquisition of all kit outsourced to the private sector, in a move which could save hundreds of millions of pounds. Hammond emphasises that no final decision has been taken on GOCO – he has invited the civil service to bring forward its own, alternative, ‘DE&S Plus’ plan. But the Secretary of State is clear that a commercial-led model remains his preferred option. 

“The work we’ve done so far suggests that a GOCO model is the most likely to deliver value for money for the taxpayer,” he says. “The way we’re running the assessment phase is, we are running a proper procurement for a GOCO partner. So we will get contract-quality offers, capable of being implemented. But we’re not guaranteeing that we’re going ahead with it. When we’ve got the offers in, we will look at them, we will benchmark them against the DE&S Plus alternative and then we’ll make a decision on whether to go ahead. If we decide to go ahead, we’ll be able to go ahead straight away and contract.” 

Hammond says the introduction of a GOCO model is not simply about cutting costs in the short term, but about reforming the way the public sector thinks and behaves, and removing the “perverse incentives” which inevitably crop up.

“The biggest problem that we’ve got across the public sector in general is that interests are not aligned. At its very simplest, if you scuttle around diligently finding savings in your department, when it comes to the next spending review the Treasury will start by saying ‘well we’ll have those, before we even start talking’. So you can see why you might find that there were people around who thought it was better to leave buried treasure buried for a rainy day.

“People in the commercial sector have recognised this for a long time. Trying to shake the tree from the outside is a very, very inefficient way of getting the fruit down. What you need is to incentivise people throughout the system to deliver the right outcomes. Changing behaviours is the key. Getting people thinking differently about the way they work and the way they do things. That’s the big challenge.”

So does he envisage similar schemes being rolled out across the public sector?

“I don’t think it’s exactly analogous, to be honest. We’re talking about some of the biggest and most complex engineering projects in the country, in some cases in the Western world. The skillsets that you need to buy photocopying paper efficiently, for example, are different from the skillsets you need to manage the design of a future fighter jet, or a nuclear submarine.

“I think defence is unique, in that respect. There’s no other area of Government that deals in projects of this complexity. So I think we’ve got a specific set of challenges in defence and a bespoke solution to resolving them.”

If the MoD goes ahead with the bespoke solution, it will be the first time any major military in the world has outsourced its procurement to the private sector. And if the scheme proves successful, Hammond says, the opportunity for business would be huge.

“If we get this right, rather as with privatisation in the 1980s, the world will be queuing up at the door. That’s why I think we’re going to get the world’s leading businesses very keen, not only to get into this process, but to then demonstrate that it works. They’re going to be looking at this as a stepping stone to a much bigger prize, which is persuading the Pentagon that this is a good way to manage complex procurement.”

Another area where Hammond has lost none of his radicalism is on army manpower. He has overseen an overall cut in numbers, but wants to massively boost the reserves from 19,000 to 30,000. “I’m trying to increase the size by 50%. I’m very confident because what we will announce soon is a vision for the future and a proposition for reservists, for their families, for employers,” he says.

But is there a Plan B if the target is missed? “As you know we don’t do Plan B,” he smiles. “We are going to make this work. Seriously, Plan B is that we have an identified body of resource to go into this project, but we’ve given ownership of it to the front line commands so the Army has to deliver a 30,000-trained reserve and the army will flex resources if it has to to make that happen.”

Although there have been thousands of redundancies already announced, one of Hammond’s big victories in the Spending Review was to put a lid on military job losses.

“I’ve tried to approach this on the basis that I have a department here to manage, we’ve had a very constructive process involving the Treasury and the Cabinet Office, led by the Cabinet Secretary. There are no secrets here anymore. That’s one of the big changes since 2010, that the Treasury spending team walks in here, and it’s open book. They can see all our numbers, they understand exactly what’s going on in our business, and that’s hugely improved our working relationship.

But should the department’s civilian staff brace themselves for cuts? “We will have to take out some further civilian numbers. But it will be hundreds, not thousands.”

As for cuts to military manpower, the head of the Army, General Sir Peter Wall, made his view clear recently that cutting capability could be “dangerous”. Hammond says the remarks were not “real-time comments” on the Spending Review.

“But I think Peter Wall made a fair point, that cutting the military further would present us with some real challenges in continuing to deliver the options to the Prime Minister and the NSC that we are tasked to deliver.”

Does he follow Nick Carter’s advice that a politician must ‘look yourself in the mirror’ before deciding on cuts? “I don’t know that I do it looking in the mirror. But one of the things that I like to think I do is risk management. That is what we’re all about, really. We’re running large projects, we’re running an organisation which is configured for contingency. So the one thing we can be certain about is the next thing we’re asked to do will be something that we haven’t thought of. But there are lots of things we have thought of. The challenge, really, is identifying, quantifying and managing the risk in all of these things, whether it’s a big equipment project or whether it’s a contingent capability.”

In the run up to the Spending Review, Lib Dem Chief Secretary to the Treasury Danny Alexander appeared to hit back at the MoD by suggesting that the Army had “more horses than tanks”. Hammond was clearly unimpressed.

“I think if I’d have pitched up at Downing Street and said ‘you know what? I can do some cuts but it will mean getting rid of all the horses, and we won’t be able to do the Trooping of the Colour’, I would quite probably be accused of shroud-waving. I think I’m not quite sure about those comments, made as they were two days before the Trooping of the Colour.

“Of course the Army has more horses than it has tanks. I would say that the ceremonial role that the Army plays – which is a tiny, tiny part of their overall activity – is very important both to internal morale, military morale, but also of course, it generates billions of pounds of return for the UK in terms of international reputation, tourist revenue, greetings card sales. If you were looking at it as an investment in UK plc it’s a very worthwhile investment.”

Hammond’s little-seen sense of humour surfaces once more: “I presume Danny Alexander would put bagpipes in the same category as horses, as things which don’t deliver direct military effect. I would tell him the same story about bagpipes.”

The ceremonial tradition is not simply a boon to tourism and souvenir-sales, Hammond says, but a vital component of what makes the UK military one of the best fighting forces in the world.

The Defence Secretary points to a poignant example of that ceremonial and military combination – Drummer Lee Rigby, the soldier murdered by extremists in Woolwich. “Lee Rigby was recognised in his unit as an extraordinarily talented machine gunner, yet he also had this talent in a ceremonial role as a drummer. I think that sums up, really, the uniqueness of our military,” Hammond explains.

“In the end, what makes an effective military? It’s good equipment, motivated people, excellent training and discipline, and camaraderie. Lots of people have the ability to go out and buy first class equipment. That doesn’t make a first class military force. You need battle experience, you need camaraderie, you need discipline and you need training. And the ceremonial part of the military – its history, its traditions, its values – all give you that resilience.”

Danny Alexander’s remarks about horses and tanks were also an indication of a wider disconnect between the Lib Dems and the MoD, Hammond suggests. Was he surprised his Coalition partners pulled their ministers from the MoD and Foreign Office in the last reshuffle? “I was surprised yes, I hadn’t seen that coming at all. But very disappointed. I think we are the poorer for not having that direct link into the Deputy Prime Minister’s office and having someone in here who really understands defence.”

Hammond also scents something worse than misunderstanding when it comes to protecting the Trident nuclear deterrent, hitting out at critics who want to cut the programme’s budget.

“I think if the proposition is that there are people out there who think we could spend a lot less and still have the same security in our nuclear deterrent, then I would describe that as naivety. Unfortunately I don’t think that’s what it is. I think it’s people who want to cut spending on the deterrent and really don’t care about maintaining our deterrent capability. That’s not naivety, that’s recklessness with Britain’s national security.”

Would that warning apply to Liberal Democrats as well as to Labour? “I’m not going to label individuals,” he says.

Such political broadsides are a reminder that Hammond can go for his opponents’ jugular when needed. Some in his party suggest that his killer instinct, together with his quiet competence, mean he’s a strong contender for the future party leadership. When colleagues suggest him as a leader, does he feel embarrassed or flattered? The Defence Secretary laughs. “Well I think they probably haven’t checked my birth certificate. I’m getting a bit long in the tooth for that kind of thing. Look, I’ll be nearly 60 by the time of the next election.” Wasn’t Churchill a lot older when he become PM?

Hammond laughs again, but then says: “My ambition is to get this sorted out – defence. I’ve been here 18 months now. Through to the election will have given me three-and-a-half years in this role and I would expect by then to have some irreversible change baked into the way the MoD works. That’s what I’m focused on.”

Still, Hammond has come a long way since his school days in Essex. Just how important is it to him that he attended a state school?

“It was a very good school. I don’t think the type of school is necessarily the defining feature, it’s the quality of the education. I could give you, if you wanted, a list of very expensive public schools that don’t provide a very good education, I could equally give you a list of some excellent state schools that provide excellent education. It’s about the individual school. It’s usually about the leadership of the headteacher and how they are able to deliver that leadership in the school.”

Yet as questions about his own party’s leadership continue to bubble under the surface at Westminster, it’s clear that Hammond’s background may be an asset.

“I always think it’s a mistake to have a fixed view about these things. There have been times in my life when I’ve thought it’s been a huge disadvantage not to have been to a well-known school – and there are other times when it turns out to be a huge advantage,” he says, pointedly. “So like most things, there’s two sides to every coin.”

Having lost his accountant’s image, both the military and his fellow MPs have come look at Philip Hammond in a new light of late. It remains to be seen whether the MoD’s supreme ‘risk manager’ will one day end up managing the entire team.

Hammond on... Balls’ ‘more admirals than ships’:

“That’s a classic example of knee jerk reaction from someone who hasn’t thought about what’s going on. That would be relevant if admirals commanded ships but they don’t.”

Hammond on... annualised capital budgets:

“Hugely, hugely inefficient. This was a problem I confronted in Transport and it exists in spades here.”

Hammond on... GOCOs:

“[It’s] the model most likely to entrench the behaviour changes that we need and most likely to deliver best value for money.”

Hammond on... No MoD Lib Dems:

“Now that we don’t have a Lib Dem minister in here it must sometimes look to [Nick Clegg’s] office like special pleading. I regret that.”

Hammond on... Labour’s Trident review:

“My sense is that the great majority of Labour politicians still stand by the decision that Labour pushed through in 2007. I think that’s where the mainstream of the Labour Party is.”