Category: Speeches

Below is the text of the speech made by the Secretary of State for Defence, Liam Fox, at Civitas in London on Tuesday 22nd February 2011.

Introduction

Being the Secretary of State for defence was always going to be one of the toughest jobs in the new Government.

Defence was the worst in a grim set of inheritances.

As the Chancellor said, Defence was the “most chaotic, most disorganised, most over-committed” budget he had seen.

Labour had avoided a strategic defence review for 12 years.

As a consequence we were always going to need a step change not incremental reform.

The black hole in the MoD budget by the end of the decade was more than one year’s entire defence spending.

This had resulted from the serial failure of Labour ministers to take difficult decisions and what Bernard Gray described as ‘the conspiracy of optimism’ in the department’s planning.

On top of this was the need to contribute to the deficit reduction.

Next year’s interest payment on the national debt will be bigger than the defence, foreign office and the international aid budgets combined.

Unless we deal with the deficit it will become an increasingly dangerous national security liability as more and more money is swallowed up in interest and less is available to spend on the safety of our country.

In less than a year huge progress has been made in turning these problems round.

The SDSR set a clear direction for policy, implementing the National Security strategy.

It decided on an adaptive posture for the UK – neither Fortress Britain nor overcommitted expeditionary forces on the other.

We had inevitably to divest ourselves of some legacy to enable us to invest in dealing with the threats of the future, not least in cyberspace where government will now spend an extra £650m.

But the SDSR was not a single event, it was part of a cycle of five yearly defence reviews designed to constantly adapt to changing global security circumstances.

The 12 year gap in defence reviews, the budgetary black hole and the need for deficit reduction inevitably meant that we would have to take tough and sometimes unpopular decisions.

But we were able, nonetheless, to show a path to the Future Force 2020 where Britain’s defences will be coherent, efficient and cutting-edge.

But the change cannot stop there.

Across Government, we must transform the way public services are delivered.

For years successive Defence Secretaries have failed to get a grip on the equipment programme and failed to hold the department and industry to account for delays and poor cost-estimation

Only today we are reminded by the Public Accounts Committee of Labour’s desperate legacy.

In their final year in office just two programmes reported an increase of cost by a staggering £3.3 billion.

The MoD must fundamentally change how it does business and today I want to set out how this change will come about.

The drivers of structural financial instability and the institutional lack of accountability, from ministers down, must be tackled if we are to avoid history repeating itself.

The constant postponement of difficult decisions created a bow wave in the department’s finances which became increasingly difficult to handle.

It would be folly to tackle this, as are doing, only to allow the systemic failures which created it to continue.

We need greater accountability and transparency to ensure that our resources genuinely match our ambitions and cost control is rigorously enforced.

Too often when ministers have wanted to pull levers they find themselves pushing string instead.

So there are a number of changes that are crucial.

First, the so-called conspiracy of optimism, through which the risks and costs in new projects are under-estimated, only to find mushrooming costs later, needs to end.

Second, future programmes should not be included unless there is a clear budgetary line for development, procurement and deployment.

Third, we must end the lack of real time cost control with tight budgetary discipline.

And fourth, we must rebalance our relationship with industry so that we achieve maximum value for money, remembering that the primary purpose of the procurement process is to give our Armed Forces to the need when they need it at a reasonable cost to the taxpayer.

Dealing with the Conspiracy of Optimism

For too many years projects have been included in the future defence programme without a proper appreciation of the risks or costs.

The conspiracy of optimism based on poor cost estimation and unrealistic timescales, across the Department has – to be frank – involved politicians, the civil service, the military and industry.

Too often in the past, in order to get pet projects included in the programme, unrealistic costs have been accepted at the outset knowing that they can be recovered later due to what are euphemistically called ‘cost overruns’.

These practices in the MoD would not be tolerated in the private sector and they cannot be tolerated in the MoD.

By looking at and approving programmes in isolation from the totality of departmental spend any programme can be made to look affordable.

But when they are considered together, the cumulative risk and cost become unmanageable.

So a risk-aware and cost-conscious mentality must permeate every level at the Ministry of Defence, civilian and military alike.

Now more than ever, every penny counts.

Value for money is not about compromising your defence aim. It is about realising that aim in a sustainable way.

From now on, guarantees of realistic budgets for development, procurement and deployment must be presented to ministers before spending can begin on new programmes.

At the same time we must examine the future programmes we currently have to ensure risks and costs are well understood and that they remain affordable.

I have asked the Permanent Secretary, Ursula Brennan and Bernard Gray to carry out this process immediately.

Real Time Cost Control

If we are to achieve real budgetary discipline we must also have better real-time control of project budgets.

How often have we had to listen to the National Audit Office detailing projects which run over time and over budget?

Too often the MoD has simply presided over a post-mortem on programs — in my previous profession a post-mortem was not considered a good professional outcome and it will not be so in the MOD.

There are a number of changes we need to make.

We need to give project managers the right resources and authority to deliver what we ask of them and hold them to account.

We also need to keep them in post long enough to deliver, ensuring that they have the skills available to make the tough calls necessary.

The private sector would view the rapid turnover of project managers in the MoD – with what I call the repetitive loss of expertise – as crazy.

It is for all these reasons that I am establishing the Major Projects Review Board.

This will be chaired by me as the Secretary of State and will receive a quarterly update on the Ministry’s major programs to ensure that they are on time and within budget.

This will begin with the 20 biggest projects by value and will rapidly expand to the 50 biggest projects.

There must be a real sense of urgency about achieving this goal.

Where projects are falling behind schedule or budget we must take immediate remedial measures.

Those responsible will be brought to account in front of the project board.

And in addition we will publish a list every quarter of the Major Project Review Board’s ‘Projects of Concern’.

That way the public and the market can judge how well we and industry are doing in supporting our Armed Forces while offering value for money to the taxpayers.

I want shareholders to see where projects are under-performing so that they can bring market discipline to substandard management where required.

Rebalancing Our Relationship with Industry

But change cannot just be internal.

This government showed from the outset its commitment to the defence industry and an understanding that the best way to sustain defence jobs in the long term is to widen the customer base through enhanced defence exports.

A great deal of energy has already been devoted to this across government departments with substantial results.

It will ensure that skills and employment are retained in some of our most technologically advanced areas, that SMEs can compete as equals and we keep British industry at the cutting edge on the world market.

In the Ministry of Defence we established the new Defence Exports Support Group to ensure that MoD, alongside our UKTI colleagues, is focusing its efforts in support of defence exports.

This way, the MoD can be at the forefront of the Government export led growth strategy.

In December we published a Green paper on equipment support and technology for UK defence and security and we are currently consulting on this.

The defence industry is a major source of revenue, jobs and exports and can play an important role in the government’s growth agenda.

But industry must also play a role in reducing costs at a time when budgets are constrained by the need to control the deficit we inherited.

Following the SDSR, we have entered into a period of intense negotiation with a number of our major industrial suppliers.

This is already looking at 130 contracts relating to SDSR decisions to ensure they are both necessary and give greater value for money for the taxpayer.

For the first time these negotiations are taking place at a company level as well as a project level.

The number of these contracts will soon be expanded by around 500 contracts and we will complete this work over the next 18 months releasing significant cost savings across the Department.

We must also have a relationship with industry that is open, transparent and reflects the realities of the current business environment.

We have recently launched an independent review, led by Lord Currie of Marylebone, into the pricing mechanism – called the Yellow Book – which the MoD uses for single source contracts.

Some of you may never have heard of this.

But these are arrangements have been in place since 1968 without a fundamental update from either Conservative or Labour governments.

They reflect an entirely different industrial era and they need to be updated.

Under the Yellow Book we currently place around 40% of our contracts on a non-competitive basis, worth around £9 billion annually.

We will set out the first stage of this review, recommending changes in consultation with industry, in the summer.

This will affect all future non-competitive contracts and is intended to save the taxpayer hundreds of millions of pounds.

The MoD is also working through the Centralising Category Procurement Initiative, run by the Cabinet Office, which will transform how government buys common goods and services through centralised management, standardisation of specification and aggregation of spend.

This again will deliver significant and sustainable cost reductions across government.

Finally, we need to update the way in which the MOD engages with industry itself.

The relationship must take into account both the overlapping interests and the differences which government and industry have.

We have a synergy to bring in areas such as defence exports where profits to industry also result in relationships and influence which can benefit the national interest.

Yet we must also remember that industry is ultimately answerable to shareholders for their profits while government is answerable to the taxpayers for the management of their money.

At present, the National Defence Industries Council acts as the body that represents the interests of the defence industry to Ministers.

This body, however, is self appointed and excludes some of the department’s major suppliers.

And though our defence industry relies on many thousands of Small and Medium-Size Enterprises (SMEs), I believe they are currently under-represented.

I can announce today that I am establishing a new Defence Suppliers Forum that I will chair which will include representatives of the full range of the Department’s defence suppliers from the UK and overseas and which will better reflect the defence industry as a whole.

Conclusion

We need to have the mechanisms to ensure value for money in the Ministry of Defence.

The SDSR took the necessarily tough decisions to correct years of mismanagement under Labour.

The Ministry of Defence needs to have the structures and mechanisms to deliver the conclusions of that Review and ensure value for money for the tax payer.

We need a new, frank and honest relationship between government and industry based on the national interest, mindful of commercial realities and sensitive market mechanisms.

The measures I have set out today will help towards achieving these goals.

Change, let’s face it, is seldom popular but the case for change in these areas is overwhelming.

Let us just remember that there is no such thing as government money.

There is only taxpayers’ money — money raised from individuals and from businesses large and small.

They expect us to spend money wisely and properly and to enter into contracts that will deliver the equipment that our Armed Forces need when they need it while protecting taxpayers’ interests and sustaining industrial growth.

Successive Labour Defence Secretaries have played pass the parcel with the black hole in the defence program.

Each one has made the situation worse for their successor by failing to take the difficult decisions necessary.

Well this is where the music stops.

It has fallen to this government and to me as defence secretary to deal with Labour’s appalling defence legacy.

It cannot be done overnight and it cannot be done painlessly.

But it can and will be done.

In the first nine months of government we have already started implementing a programme of fundamental change and will not rest until the job is done.

And the changes I have announced today will continue that process.

In the months ahead we will set out further reforms-for the Armed Forces, including the Reserves and Senior Rank structures and for structural change within the Ministry of Defence itself, including as a result of Lord Levene’s work on Defence Reform.

Our National interest requires that we continue to take difficult decisions.

And, as promised, we intend to govern in the National interest.

Below is the text of the speech made by the Secretary of State for Defence, Liam Fox, on Thursday 19th March 2011 at Chatham House.

INTRODUCTION

The true test of Government is to act not for party political advantage, but to act in the national interest.

The Coalition Government inherited a level of debt and economic mismanagement that represents a national economic emergency.

To deal with it we have had to take difficult and potentially unpopular measures.

But they are essential if we are to put Britain back on track in the long-term.

This is as important for national security as it is for national prosperity.

This requires not only dealing with the here and now, but charting a course 10, 15, 20 years ahead – acting to position the country for the safety and prosperity of future generations.

ACTING IN THE NATIONAL INTEREST

So in no area is this more important than in Defence and Security.

Our Armed Forces remain at a high and sustained operational tempo.

The requirement to fight, and win, the wars of today is not optional but necessary to protect national security and meet the national interest.

And when our Armed Forces are committed, they deserve and the country expects that they get the support they need to do the job we ask of them.

That is why current operations in Afghanistan and in Libya remain the priority for the Ministry of Defence and the men and women of our Armed Forces fighting on the front-line get first call on MOD resources.

But the requirement for strategic thinking, for strategic planning and preparation – the requirement to play the long-game – is equally necessary.

Why?

First – because conflict and threats to national security do not fit neatly into electoral cycles.

The hunt for Osama bin Laden and the campaign against al-Qaeda’s brand of violent extremism has been taken forward under three American Presidents and three British Prime Ministers of different political persuasions.

For the long watch of the Cold War – it took 10 different US Presidents and 9 different British Prime Ministers.

Second – the character of conflict evolves and new threats arise, but the complex military equipment required to meet these challenges can take a decade or more to design and build.

So we must constantly scan the horizon and prepare for the world as it will be, not as we hope it will be.

In Defence, contingency planning is central to ensuring that we are prepared for what may come – even if we can’t predict exactly when and where threats may emerge.

This drives a continuing requirement for Armed Forces that are agile, adaptable and of the highest quality.

Third – building and sustaining the power, influence and prosperity of a country in the long flow of history – particularly in our age of rapid change and unpredictability – requires action now to ensure the country can succeed in the future.

Energy security is one example.

Climate change would be another.

So today I want to set out what we have achieved in Defence over the last year to set in place a long-term strategy for the safety, security and prosperity of our citizens.

The Strategic Defence and Security Review has ensured that we will remain in the premier league of military powers.

It is not an agenda for retrenchment; it’s an ambitious agenda for transformation over time.

It is not an agenda for the next general election; it’s an agenda for the next generation.

This long-term vision for Britain’s Defence depends upon a sound economic base that enables sustainable military power to be built – together economic power and military power are the foundation of global influence.

A proper strategy for the long-term health of our country must balance ends and ways with the means available.

That is why tackling the crisis in the public finances is not just an issue of economics but an issue of national security too.

It is central to sustaining in the long-term Britain’s reach, military power and influence.

THE LESSONS OF HISTORY

Let us not forget our own history.

The contraction of European influence in the 20th century was driven as much by the economic exhaustion of European nations over two World Wars as it was by political enlightenment in support of decolonisation.

As a result of the First World War in the 1920s and 30s, Britain’s national debt was regularly over 150% of GDP.

After World War Two, it peaked at around 250% of GDP.

As examples of the effect, economic considerations underpinned both the British withdrawal from Palestine in 1948, and the abandonment of the Suez campaign in 1956.

It wasn’t until the 1970s that the debt position recovered to under 50% of GDP – a quarter of a century after the end of the War.

Britain’s so-called ‘East of Suez’ moment in 1967 when the Wilson Government announced a major withdrawal of UK forces from South East Asia, was a response to the decline in the country’s relative economic strength.

Equally, the Cold War was won because the Soviet Union collapsed under the weight of an economic system that could not sustain the myth of communism’s superiority – nor sustain the military forces required to hold it together.

During the early 1980s for instance, the Soviet Union was spending around 20% of GDP on Defence – roughly four times the level of the US and wholly unsustainable in the long-term.

The lessons of history are clear.

Relative economic power is the wellspring of strategic strength.

And conversely, economic weakness debilitates every arm of government.

Structural economic weakness, if not dealt with, will bring an unavoidable reduction in our ability to shape the world.

ECONOMIC WEAKNESS IS A NATIONAL SECURITY LIABILITY

Let’s relate these lessons to our situation today.

Speaking at Chatham House last week, Niall Ferguson said:

“fiscal and monetary stimulus, no matter how much it may take and how many times you read aloud the collected works of John Maynard Keynes, sooner or later brings a hangover.”

It has fallen to this Coalition Government to nurse Britain through the hangover of the decade of financial mismanagement that put us where we are today.

When, as Chancellor, Gordon Brown abandoned sticking to the previous Conservative Government’s strict spending policies, Britain’s national debt began an inexorable rise.

Despite the benign economic environment of most of the last decade, from 2002-2007 under Labour, UK national debt as a percentage of GDP increased not decreased – from around 31% to around 37%.

On the back of the financial crisis it has ballooned to around 60% of GDP.

The Coalition Government inherited from Labour a record peacetime annual deficit equal of over 11% of GDP – in 2009/10 alone that meant a spend of over £150bn more than the Government brought in in income.

Until the structural deficit is eliminated, Britain’s national debt will only continue to grow.

Even with the Coalition’s aggressive action, the Office for Budget Responsibility forecasts public sector net debt to peak at over 70% of GDP in 2014/15.

It currently stands at over £900bn – equivalent to almost a quarter of a century of spending on Defence at the level of this year’s budget.

By 2015 it is likely to reach well over 1.3 trillion pounds.

The interest, just the interest, paid out last year alone was £43bn – greater than the annual budgets of the MoD, FCO and DfID combined.

£43bn pounds a year of taxpayers’ money that could pay for a tax cut to each taxpayer of almost £1,500 a year.

Or it could pay for a million teachers or over a million nurses.

In Defence – a dozen Queen Elizabeth Aircraft Carriers or 33 Astute Class submarines.

And the bad news is, next year the interest payments will be £50bn.

This is all while we are tackling the deficit and before we even begin reducing the national debt.

So let me boil down this barrage of statistics to my central point.

The Chancellor doesn’t just sit on the National Security Council to tell us how much everything costs, he does so because this Government recognises what the last did not – that our national security is linked to the health of our economy.

Creating military power on the back of borrowing at times of extreme or existential threat, such as during the World War Two, is understandable and reasonable.

But if you continue to do so as a matter of routine, as Labour did over the last decade, you set off a ticking fiscal time bomb that if not defused will inevitably result in strategic shrinkage.

I didn’t come into politics to cut the defence budget, but neither did I come into politics to be fiscally irresponsible – because the consequences of that are written deep in the historical record.

To be a hawk on defence, you need to be a hawk on the deficit and the national debt too.

THE DEFENCE DEFICIT

Defence spending represents the fourth largest chunk of public expenditure, so the MoD must play its part in addressing the current economic challenges.

In the MOD we face a particularly tough job.

The Defence budget was perhaps the worst inheritance of all – before the SDSR the forward defence programme was overextended to the tune of £38bn over the next decade.

That was spending on all the equipment, programmes and all other variables previously planned over and above a budget rising at the rate of inflation.

Everyone knew the Defence Budget was running hot and that addressing this would have been required regardless of fiscal tightening.

This is one of the reasons why, in relation to the vast majority of government departments, the MOD is contributing less to deficit reduction.

And this is also why the transformation of Defence will have to take place over a longer-term period too.

This cannot be done overnight – with sunk costs, kit in build, contractual liabilities and other inherited committed spend, room for manoeuvre in the short-term is limited.

So it’s a process charting a course for the recovery of Defence capability and the sustainability of its funding.

The Strategic Defence and Security Review has set the right direction – and I will return to this and Future Force 2020 in a moment – but staying the course will require sustaining the strict cost-control regime I have put in place at the MOD.

This will inevitably require that tough decisions are taken on a regular basis to keep the budget on track.

Following the SDSR we made it clear that there would be a series of complicated second order consequences including the basing and reserves reviews, as well as the emerging work from the Defence Reform Unit.

Having completed the current planning round, we have started the next Planning Round to take forward the work needed to balance defence priorities and the budget over the long-term.

The Department has recently initiated a three month exercise as part of that work to ensure we match our assumptions with our spending settlement.

This allows us to draw all this work together to inform the next planning round and to avoid the mistakes of the previous government in building up to an unsustainable Defence programme

We have made it clear that while the SDSR had made substantial inroads into the £38bn funding deficit, there is still more to be done.

Given the mess we inherited putting Defence on a sure footing, with a predictable budget, was always going to take time, but we believe it is better to be thorough than quick

The Prime Minister has set out his personal view, with which I strongly agree, that achieving our vision for the future structure of our Armed Forces will require year-on-year real growth in the Defence Budget after 2015.

As we approach the next General Election, and as we prepare for the next Defence Review in 2015, a commitment to meet Future Force 2020 will be a key signifier for those political parties dedicated to the vision of a Britain active on the world stage and protected at home.

BUILDING FOR THE FUTURE

As the National Security Strategy clearly sets out – our national interest requires our continued full and active engagement in world affairs

Our trade and economic relationships are global.

A threat that appears in one part of the world can swiftly be felt at home.

In order to protect our interests at home, we must project our influence abroad.

Coming together as they did, the National Security Strategy, the Strategic Defence and Security Review and the Comprehensive Spending Review, set us on a course to maintain our strategic reach, renew military capability on a sustainable basis, and address the structural weakness of the economy.

In the MOD it was not only a budgetary deficit that we inherited.

It was also a capability deficit.

We had failed properly to adapt to meet future challenges.

We had scores of tanks on the German plains, but insufficient cyber capability.

We were committed to an expeditionary policy, but increasingly dependent on ageing strategic airlift.

So we have embarked on a long-term programme of renewal and revitalisation in Defence that maintains our strategic reach.

In doing so we have rejected alternative postures quite strongly advocated by some.

One was that we should invest in what you might call ‘Fortress Britain’, withdrawing back closer to home and investing in the appropriate assets in that direction.

Under such a posture there would be no requirement for expeditionary capabilities on our current scale, for example.

There were others who said to go exactly the other way, and that we should have a highly committed posture and just assume that the conflicts of the future would be like the one we currently face in Afghanistan.

Under such a posture there would be no requirement for widespread maritime capabilities, for example.

Something that is difficult is to quantify but undoubtedly real is Britain’s invisible export of security and stability carried out by our Armed Forces, including the Royal Navy.

Clearing mines in the Arabian Gulf, anti-piracy actions in the Gulf of Aden, protecting our own sea lanes – all contribute to international stability and the free movement of goods upon which our prosperity relies.

So neither a fortress nor a committed posture would have met the requirement in the National Security Strategy for continued engagement in a world where threats are evolving and unpredictable.

The adaptable posture we have embraced gives us the best capability to respond with agility to changing threats in an uncertain world.

This means keeping our forces ready to react swiftly to those things we cannot easily predict.

It means upgrading strategic lift capability.

It means investment in Special Forces.

It means being efficient, cutting down on duplication and numbers of equipment types to shorten the tail.

And it means investing in areas of capability that suit the future character of warfare – such as cyber, intelligence and unmanned technology.

It also means investing in activities, such as conflict prevention and aid, that prevent the development of threats ‘upstream’, before they require a more demanding military response.

But in doing so we are not ignoring conventional military power required for flexible, multi-rolled, deployable forces.

By 2020, The RAF will be built around hi-tech multi-role combat aircraft Typhoon and the Joint Strike Fighter, surveillance and intelligence platforms such as Airseeker, and a new fleet of strategic and tactical transport aircraft including A400M and Voyager.

The Royal Navy will have new aircraft carriers with the JSF carrier-variant, a high readiness amphibious capability, a new fleet of Type 45 destroyers and Astute class submarines – and ready at that point to accept the new Global Combat Ship.

The Army, based on Multi-Role Brigades, will be powerful, flexible, fully equipped for the land environment and able to operate across the spectrum of conflict.

We will remain one of the few countries who can deploy and sustain a brigade sized force plus its air and maritime enablers, capable of both intervention and stabilisation operations almost anywhere in the world.

And we will remain a nuclear power, maintaining a minimum credible nuclear deterrent.

I am absolutely clear, as I said in the House of Commons yesterday, that a minimum nuclear deterrent based on the Trident missile delivery system and continuous at sea deterrence is right for the UK.

We still have the fourth largest defence budget in the world and will continue to meet the NATO target of spending 2% of GDP on Defence over the spending review period.

CONCLUSION

Of course, pursuing the necessary long-term strategy set out in the SDSR is not the only mark of renewal in Defence over the last year.

For years successive Defence Secretaries have failed, often through no fault of their own, to get a grip on the equipment programme and failed to hold the department and industry to account for delays and poor cost-estimation

The drivers of structural financial instability and the institutional lack of accountability, from ministers down, must be tackled if we are to avoid history repeating itself.

That is why the work of Lord Levene and his Defence Reform Unit to reform the operating model of Defence is so important along side the work of the Chief of Defence Materiel, Bernard Gray, to set the forward equipment programme on a sustainable basis.

We are also acting to redraw and rejuvenate the relationship with industry to ensure the tax payer gets the best deal from the investment in Defence.

These are all measures in support of the long-term transformation of Defence and the vision set out in the SDSR.

Labour’s Defence Green Paper published just months before the election admitted with what I have to say is spectacular understatement that:

“the forward defence programme faces challenging financial pressures”

It said in particular that the MOD:

“cannot proceed with all the activities and programmes we currently aspire to, while simultaneously supporting our current operations and investing in the new capabilities we need. We will need to make tough decisions”.

Well, we have made those tough decisions, and I stand by them.

I believe in setting your strategic direction and sticking to your plan unless the facts change.

Since we completed the SDSR, the financial position of the country has not changed nor substantially have the nature of the threats we face.

Let us be honest about this.

Those who are arguing for a fundamental reassessment of the SDSR are really arguing for increased defence spending.

But they fail to spell out the inevitable result – more borrowing, more tax rises, or more cuts elsewhere.

The bottom line is that a strong economy is a national security requirement and an affordable Defence programme is the only responsible way to support our Armed Forces in the long term.

There are no easy answers.

There are no silver bullets.

There are only tough decisions, hard work and perseverance.

To pretend otherwise is to fail in our duty to our country and its people.

Below is the text of the speech made by Liam Fox to the 2003 Conservative Spring Conference on 16th March 2003.

Our proposals need to be seen against the backdrop of one simple, stark and shocking fact. The British people do not enjoy the standard of healthcare we deserve.

During our extensive and detailed analysis of healthcare provision in more than a dozen countries over the last two years, we have seen systems which share our ideals, but which offer a considerably higher standard of care and much better clinical outcomes than the NHS.

Unless there is fundamental and radical reform, the NHS will never produce the quality of care we have a right to expect in the World’s fourth largest economy.

That reform must occur on three broad fronts:

– taking politicians out of running the NHS;

– giving real freedom to health professionals; and

– ensuring patients have real choice in health.

Only the Conservatives will be able to undertake that reform. The result will be an NHS which offers high quality care, free at the point of use and irrespective of the ability to pay.

There is a clear ideological difference between the Labour Party and the Conservative Party over where power should lie in the NHS. Labour believes that the best way to achieve a quality agenda is for Ministers to determine clinical priorities and to try to enforce them through a rigid target culture.

Conservatives believe that politicians should be taken out of the running of the NHS, that clinical staff should be given more power and that only by giving patients greater freedom about where and when they are treated can the NHS produce quality care better tailored to the needs of individuals.

We believe that the NHS is there to service the patients not vice versa.

We will give new freedoms to patients, empowering them to take more control over the health care they receive. We also intend to develop new capacity by encouraging more spending on health on top of that already spent in the NHS.

The principle will be that we will want to see total spending on health increase, but we will want to see the proportion of that spending that comes from other sources increase at a greater rate than that coming from the state.

In today’s NHS choice is highly restricted. Freedom of choice cannot be limited just to those who opt to pay for extra care on top of what they contribute to the NHS. Choice must be available for all patients whether they receive their health care from the NHS or from another provider. Unlike Labour, we do not believe that this choice should only become available after the system has already failed you.

There needs to be a profound improvement in the overall quality of healthcare available.

This can be brought about only by increasing the volume of treatment carried out, and raising the standard of such treatment.

Increasing the volume of treatment carried out can be achieved only by either increasing the output of existing suppliers or introducing new suppliers. Under Labour, despite vast increases in expenditure on the NHS, the total output of the system has barely increased. All the indications are that further huge increases would not be matched by increases in output, since Labour refuse to introduce the radical reforms needed to encourage diversity and innovation. In order to create new capacity and to encourage diversity, it will be necessary to persuade new, non-NHS suppliers of healthcare to invest.

At present, the state holds a near-monopoly on the supply of healthcare. The most recent available data on health expenditure in the UK shows that it comprises 85% from the NHS, 4% from Private Medical Insurance (PMI) and 11% from a variety of self-pay sources.

Over recent years, whereas there has been minimal growth in PMI, the number of people opting for self-pay has increased by an average of over 20% per annum.

In order to increase the quality and quantity of healthcare undertaken, we will need to take a number of steps:

– Create an environment in which the private and voluntary sectors believe it is worth their while to invest, in order to generate extra capacity.

– Reform the NHS, removing political interference and giving clinical freedom back to professionals

– Funding the NHS on the basis of real activity not block contracts

– Allow patients the option of moving between any NHS provider based on a national tariff system which would define set costs for specific procedures

– Allow NHS patients to take some or all of the NHS tariff with them if they decide to have treatment outside the NHS.

The most effective way of stimulating the creation of new, non-NHS capacity is to make it more attractive for individuals to supplement what is already being spent by the state through the NHS. This will allow total expenditure to rise in a pattern more like that in neighbouring European countries where the amount of money spent on health by private citizens is higher than in the UK.

There are three main candidates which might be incentivised:

– Personal private medical insurance (PMI)

– PMI available through company schemes

– The pay-as-you- go market where patients pay for a single procedure or item of care.

Other countries use a combination of cash rebates, tax incentives and reductions of the cost at source with the state reimbursing providers.

PMI offers a chance to insure against unforeseen circumstances in a way that self-pay cannot do. Experience in Australia with the use of financial incentives has resulted in a large increase in those carrying PMI.

Company PMI schemes have the attraction of greater risk sharing, and thus better value for money and a wider income distribution than personal products provide.

The self-pay market accounted for 250,000 procedures last year; if these patients did not opt to offload themselves in this way the NHS would be unable to cope with the extra demand. It is vital that this number is maintained or increased. It will therefore be necessary to produce a carefully balanced system of incentives to prevent the NHS (with its tiny increases in recent capacity) from becoming swamped.

We want that choice to be extended to as many as possible.

We will introduce a Patients Passport which will enable patients to move around a number of providers, NHS, not-for-profit, voluntary or independent. This freedom is essential if we are to see greater plurality and diversity in both the funding and provision of healthcare that we seek. We intend to move away from the state monopoly with its increasing centralising targets and standardization of supply.

The changes to the organization of care set out in “Setting the NHS free” will enable us to move towards an NHS where the patient as a consumer is sovereign for the first time.

Knowing the cost of all NHS procedures and treatments and funding providers on the basis of activity will enable us to radically change the balance of power in the direction of the patient.

Our Patients Passport would enable patients to move around the NHS and to take the standard tariff funding with them. This would set them free from dependence on block contracts agreed between PCTs and agreed providers. The NHS is there to service the patients not to control the patients.

It would seem sensible that the point of entry to this passport system should be the GP who is best able to determine the type of referral and the level of clinical urgency. GPs could act as independent professional advocates for patients advising them on factors such as waiting times, outcomes and different options on locality. This counters the argument that patients would be unable to make decisions about their own treatment- a view that is both patronizing and outdated.

We will extend the “Patient’s Passport” system to those services beyond current NHS hospitals – in the voluntary, the not–for-profit and private sectors.

This will yield two important benefits. It will become a realistic option for a much larger proportion of the population to have access to a very much wider range of healthcare providers than is now the case. Further, those who choose to have their health care provided within the NHS will reap the benefit of shorter queues if more patients choose to access care elsewhere. Patients will, of course, be able to stay entirely in the NHS if they choose.

The proportion of the standard tariff funding that patients can take beyond current NHS hospitals will need to take account of several factors: the total cost to the public purse, the level of available capacity from other providers, the predicted effect on NHS demand, the effect on the current private insurance market and the need to promote greater diversity in provision.

We will produce a level relevant and suited to the UK and the varied, pluralist and consumer responsive health service that the Conservative Party would like to see.

Only by raising our sights can we achieve the level of care that the people of this country deserve.