A £13m Bargain - Thoughts on MOD Hire Car Spending

 

Yesterday (27 Dec) marked 10 years to the day since the inaugural PSL blog – a short article setting out the site goals. The first detailed article followed on 28 Dec 2011, a riposte to sensational and largely inaccurate claims about MOD spending. It is therefore a curious irony, that 10 years to the day, another article follows debunking sensational and largely inaccurate claims about MOD spending.

In this particular case the headline news is that the MOD spent almost £13m on hire cars in 2021. The response from the Unions has been that this represents money that could be spent on payrises, while political opponents have claimed that it is an example of MOD ‘waste’ that could be spent more effectively.

Is this really the case though, or is this a classic example of an end of year ‘silly season’ FOI request that makes easy reporting possible?

The figure of almost £13m is a dream figure to cover – it is both big and small. It is big in the sense that to the average taxpayer this is a sum of money that is vast but small enough that it is comprehensibly vast – it feels more accessibly large than say £13bn. 

It is easy to drum up outrage about this perceived spending, particularly when using the hugely emotive phrase ‘hire cars’ – something that most people associate with holidays or luxury travel and not work. After all, our brave boys are out there with boots that don’t fit and yet those MOD fat cats are swanning about in luxury cars as they deign to occasionally turn up for work in person.

The reality is that £13m seems, on the face of it, to represent an entirely reasonable sum of money for the daily use of vehicles that help support the business activities of the MOD and armed forces.

It is easy to forget just how large and complex Defence actually is. Brought together its control spans over 250,000 people (full and part time) based across the planet at some 2000 different locations. MOD staff are regularly required to travel across the country, and wider globe for official business which requires their presence.

Official business travel is strictly regulated and requires an often interminably arduous process of official approval to undertake. Anyone who thinks that the MOD has a ‘oh sod it, let’s go the whole hog and book a Rolls Royce for the day’ approach to travel has never tried to book an MOD hire car. The whole experience can feel as if it is designed, in the main to make you actively never want to try and travel again – and that’s even before we’ve uttered the dread phrase ‘FMT600 test’…

There are very strict controls in place to undertake travel of any nature (which by itself could lead to a fascinating discussion on trust, autonomy, and responsibility and whether upwards delegation of decision making helps or hinders output), and access to a hire car is not something granted lightly. There needs to be a good reason for it, and a clear chain of paperwork and approvals to show that it is appropriate and necessary for the journey.

The reasons ‘why a hire car and not your own car’ are straightforward. Firstly, not everyone owns a car – particularly the case for staff in locations like London who may be required to travel but do not own a car themselves.

Secondly, using your own car on business assumes that firstly, you have a car you can use for business – if you commute for work by train, and the car is used by your partner for work, or the school run then you cannot easily use it. There is also a significant cost difference in insurance terms to have your own car insured (at your expense) for business use, which can quickly add up – and woe betide anyone who either tries to make a mileage claim without proof of business use on their insurance paperwork, or who gets into an accident.

Finally, if you are travelling a longer distance, you may well find that there are no easy public transport locations close to your destination. It may be easy to take a train to visit a core MOD site like Abbey Wood or HMNB Portsmouth, but what about anywhere that isn’t within easy reach of the station?

You could take a pair of taxis, likely adding significantly to the cost (according to these statistics, taxi fares cost the MOD nearly £3.3m between 2016-2019), so if you cut back on hire car use, this figure will only dramatically increase. In turn this will no doubt generate negative media coverage for spending on taxis…

The last option is to use a pool car, which is great in theory, but often impractical for staff if there are no cars available to use (the eternal game of ‘paper, scissors, ranktabs’ comes into play here), and it can often take longer for a member of staff who lives some distance from the site to come in, pick the car up, drive on, and do the journey in reverse, than it does to just get a hire car for them in the first place.

The test that needs to be applied here is whether there is a credible and sensible business rationale for using hire cars. Given the size of Defence, the fact that its staff are often required to travel to very remote locations and the amount of international travel they also do that will need a car, then yes, there is a very compelling case for the appropriate use of hire cars.

This argument only strengthens when you consider what the MOD contract covers – it isn’t just cars, but a wide range of vehicles that cover a much wider range of activity including large scale movements of troops, specialist vehicles and other assets that are needed, but cost money to use.

While there are no specific figures available for 2021 use, statistics from 2015 indicate that the MOD used the hire car service some 29000 times per month – nearly 350,000 times per year.

It is worth considering why the MOD moved to this centralised contract in the first place – people will perhaps want to know why the MOD is hiring vehicles when needed and not owning a central fleet that could be used locally.

According to this fact sheet the original Project Phoenix was intended to improve value for money, given that when vehicles were owned ‘in house’ there was only 40% utilisation of them at any time. Instead the decision was taken to spend only on vehicle leasing / use when required, rather than maintain a theoretical capability that was essentially an ongoing cost that would be more than buying in services when needed.

The Phoenix II contract, awarded to Babcock in 2017 is worth some £47m over 5 years to deliver a global ‘white fleet leasing’ on vehicles and also a global hire car service too. Given that the MOD expects to save over £100m during the life of this contract, it suggests that £13m is hardly ‘government waste’.

It makes a lot of sense to reduce the strain on the defence budget by focusing on only getting the capability you need, not lots of spare capacity that is underused and sits idle most of the time.

The fact is that this project seems to have significantly reduced MOD spending on ‘white fleet’ vehicles and got far more effective return on investment than just buying fleets of vehicles for the sake of it.

Of course what is not covered in this media coverage is the question of what could be done instead. Are those proponents of somehow magically removing the need for hire cars suggesting that the MOD no longer needs hire cars to do its core business? Would they rather that for the sake of appearance over value for money, the Dept instead uses taxis (at vastly increased cost?) rather than save money?

The blunt reality is that like all Government departments, and wider businesses, people do need to travel for work purposes. A lot of the time that requires access to a vehicle, and the most cost effective way of doing this is by using a hire car rather than any other means of transport.

The MOD is not magically immune to the laws of business economics that require it to spend money on doing business activity. Frankly, spending £13m in a year on hire cars, given that the MOD reportedly has up to 350,000 hire car bookings per year works out at £37 per booking.

That is a very impressive figure – the author recently tried to hire a car for 5 days for some holiday travel in the UK and ended up paying about £450 for the hire – and that was the best and cheapest rate he could find at the location.  Given there is a global hire car shortage that is pushing up prices considerably across the globe, £37 per booking is an utter bargain.

There is some utter nonsense by the Unions that the money should be instead given as a payrise to civilian staff. In practical terms, if given only to the MOD, this works out at a before tax pay increase per year of about £216 per person.

If this pay rise was done on the condition of scrapping hire cars, then the pay increase would be wiped out by tax and the change of personal car insurance to suddenly cover business use, or the emergency purchase of a car for work purposes.

It is perhaps curiously ironic that the Unions seem determined to support a policy that would leave their membership significantly poorer as a result of it being implemented.

Ultimately this is a non-story – the MOD is spending about £1m per month on hire cars to support a global workforce of 250,000 people, based at 2,000 global locations and where they are often in remote and hard to reach destinations. In the process of spending £13m per year, the MOD has also saved itself £100m over 6 years – more each year than is spent on hire cars, compared to previous plans.

This expenditure accounts for roughly 0.1% of the annual UK defence budget – but if it were pared back yet further, or if it were scrapped as a result of poorly judged pressure, the direct impact on the ability of Defence staff to help keep this nation safe would be incalculable.

Sometimes we know the cost of everything and the value of nothing.