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Intelligence and Security Committee

It is a pleasure, albeit a daunting one, to follow the right hon. Member for East Hampshire (Mr. Mates). It is a pleasure to work with him and with colleagues from both sides of the House on the Committee. It is also a particular privilege to work under my right hon. Friend the Member for Pontypridd (Dr. Howells). The precedent set today of the Chairman opening the debate is shown to have been as well judged as his remarks in doing so. I add my congratulations to our staff and of course to the agencies on their work. It is not the most exciting subject under the sun, but I wanted to spend a little time on the finances and expenditure of the agencies. The hon. Member for Epsom and Ewell (Chris Grayling) stressed the importance of that, as did my right hon. Friend the Member for Knowsley, North and Sefton, East (Mr. Howarth). It has to be the Committee that does the job of overseeing the expenditure and finances of the agencies, not least because it has a statutory responsibility so to do, but also because it involves, as has been said before in the debate, having access to highly classified secret material to do the job. We are assisted in our task by DV'd—DV is developed vetting—officers of the National Audit Office. Our resource, albeit a rounded one in terms of the experience of Committee members, taken with the excellent officers of the NAO, is none the less very limited, and we could in this respect and in others do with more resources. The expenditure of the agencies, which has become a large sum and increased relatively over the years, could, especially in an organisation that operates largely in a covert way, become a very high-risk business. It could become the trigger for waste and inefficiency, and the Committee must try to ensure that that is not the case. That behoves us to spend quite a lot of our year's work looking at the agencies in this regard. It is right, of course, that the amount of resources devoted to the agencies should be increased in line with the increased threat, but these are very large sums. Under the 2007 comprehensive spending review round, the funding available to the agencies will increase from £1.1 billion in 2005 to just over £2 billion by 2010-11. Because the baseline increases year by year, in the current year, for example, much of this funding is supporting what is now baseline activity. None the less, although 78 per cent. of the additional amount that GCHQ receives will be used to consolidate the current position, 22 per cent. will be available for further expansion, and that is a large sum. For the Security Service, the situation is rather different: only 20 per cent. of the additional amount it receives will be in support of the baseline position, and 80 per cent. will be available for expansion and investment in new capabilities. The figures for the Secret Intelligence Service are that 31 per cent. of the funds are to be spent on the current position and 69 per cent. are available for expansion and investment. High levels of risk are involved, and high levels of monitoring are required. GCHQ will spend its increased resources on strengthening its counter-terrorism effort, primarily through operational support in the UK to an expanding Security Service. The theme of the agencies working together has become well established both in UK operations and in theatre overseas. GCHQ will also carry out work against international terrorism-related targets. Importantly, it will develop its capability to combat extremist use of the internet in the UK and abroad, and it will improve its internet-related capabilities, and the remainder of its international counter-terrorism effort will focus on issues such as the cyber-terrorist threat. The risks implicit in large-scale expenditure on major projects, and in particular on major IT projects, have been recognised in our debate. One of the heaviest demands on the GCHQ budget is its technology improvement programme, designed to maintain and enhance its signals intelligence—SIGINT—capabilities. That collectively comes together as the SIGINT modernisation or SIGMOD programme, covering IT infrastructure, internet programmes, better analysis and support to military operations. The amount of funding that is required for this is considerable and represents a significant proportion of the single intelligence account budget, but the Committee recognises that this investment in SIGMOD is essential if GCHQ is to keep up with, or even get ahead of, the complexity of the technological challenge. The Security Service is more of a people-based organisation than GCHQ. It spent its capital funds in the 2007 CSR on major technical accommodation projects, including a northern operation centre and new services building in Northern Ireland. On the revenue side, as it were, it will increase the impact and improve the effectiveness of the service's agent-running capability and increase the service's regional presence to reinforce its partnership with the police. Just as it partners with other agencies, it also partners with the police and other organisations. However, as it is a people-related organisation, its major funding increase will be staffing expenditure. It continued its rapid recruitment programme, so that by April 2008 it had a total of 3,400 staff, including secondments and attachments. Staff numbers are projected to grow to some 4,100 by 2011. Those are big figures. It may be a statement of the obvious, but recruitment has largely been at junior levels, with year-on-year growth of around 30 per cent. in those grades since April 2006. That has boosted the number of front-line staff involved directly in counter-terrorism work, co-ordinating investigations, running agents and conducting surveillance of targets. But there are risks in recruiting and growing so rapidly, especially at junior level, and those risks are related to vetting, with the potential for infiltration or problems with inexperience—sometimes wide inexperience across an agency. There are also the dangers of grade inflation. As far as we can tell, the agency appears to have handled those risks well. The SIS's budget, from 2008-09 to 2010-11, will enable it to continue supporting the growing number of security service investigations of terrorist activity. It will involve both spotting and attacking operations originating outside the UK and terrorist networks overseas. We noted in our previous annual report the increased proportion of SIS staff working in joint operational teams with the Security Service—some 10 per cent. of staff in counter-terrorism teams are SIS officers, including officers co-located with the Security Service in regional stations and overseas. That closer working enables the SIS to improve its support for the Security Service on the overseas aspects of counter-terrorism investigations. It spent 9 per cent. more than in 2006-07 in the subsequent year, but that compares with the Security Service's 41 per cent. more over the same period. In our last annual report, we noted the National Audit Office's comment that it had identified two cases in the SIS's 2006 accounts of errors in the reporting of payments to agents. We were assured that that would not happen again, but in one case it did to some extent. We now have assurances that the SIS has changed its procedures so that such expenditure is reflected accurately in its accounts in future, and we will of course check that. The agencies all performed well in SR04 in terms of efficiency savings targets, which were more than met, so—as is the way of the world—the targets have now been increased. The NAO viewed the financial management and control of the agencies as good, and so did we. While the economic circumstances surrounding the next comprehensive spending review round will be very different, the Committee has already expressed its concerns that attention to long-term challenges—those not related to ICT—such as counter-proliferation, regional stability, energy issues and espionage, may continue to receive less attention than they need. We have also expressed concern about the need to invest further in the capacity to intercept modern communication and deal with cyber challenges. There will be a need for major expenditure in that area of the agencies' work. The Committee welcomes the work being done on establishing a new framework for monitoring the performance efficiency and financial management of the agencies and, in particular, it is considering, in consultation with them, ways in which oversight of the budgets can be conducted in a more timely way. That needs to be an in-year oversight, rather than an end-of-year oversight. Finally, the threat level remains serious. Terrorism, in my view, works best where it is least expected. Terrorist organisations change, fracture, morph, franchise and copy, and they change and grow constantly. It is important that our agencies and intelligence machinery anticipate these changes and prepare for them. The demand for resources will remain considerable and the need for oversight of them will remain proportionate to that.