Although the MOD was a leading department in the move towards contracting out government business to private industry, there are a number of difficult privatisation issues bubbling away at the moment in the Defence area. The much delayed proposals for privatisation of the Defence Evaluation and Research Agency (DERA) received a drubbing from the Defence Select Committee at the end of June. An exciting venture into providing air-to-air refuelling for the RAF from a commercial company is taking longer than expected to come to fruition. The cost of the PFI venture into modernising the MOD headquarters in Whitehall has attracted some surprise. Finally, the privatisation of the National Air Traffic Service (NATS) has implications for defence aviation as well as the civil operators. Is this just some politically difficult PFI/PPP projects attracting attention, or is there a common thread?
The announced proposal for DERA is that it should be split into two unequal parts. The greater, more commercial, part will become known as NewDERA and will become a separate private sector concern, perhaps by market flotation, with the Government retaining a golden share. The core MOD business, such as Porton Down, will be kept within a small organisation to be known as Retained DERA. The Defence Select Committee report was unimpressed by the value for money implications and concluded that:
the potential benefits of a partial privatisation remain to be convincingly demonstrated by the MoD. In our judgement the current risks of proceeding with the public-private partnership&emdash;even in its new and improved format&emdash;continue to outweigh the still hypothetical benefits.
They believe that the pressure to realise the assumed money from the sale has outweighed a proper judgement. Perhaps one of the biggest problems will be attracting any staff to stay in the Retained DERA organisation given the likely pay differentials. Certainly it is going to offer a somewhat limited career for the scientists who currently work there and have highly marketable skills. Some appear to be on the move already.
The proposal to look at a PFI private sector approach to the Future Strategic Tanker Aircraft (FSTA) for the RAF is a bold step. Many in the military are anxious about the implications of privatising such a front-line activity. The aircrew and immediate supporting staff will need to be in uniform for operations, and a new form of Reservist (the Sponsored Reserve) may be necessary. From the private sector's view, the difficulties of using spare capacity under civil rules have yet to be sorted out. However, the major unspoken worry may be a similar one to the DERA problem. If aircrew and groundcrew receive big rewards to operate as civilians in a military environment, what will this mean for retention in the RAF?
The refurbishment of the Ministry of Defence Main Building is probably some 20 years overdue. PFI seemed to offer an opportunity to reduce the political sensitivity of "them up there" feathering their own nests while the troops had inadequate guns in Kosovo. However the rising costs, and the global figure that attaches to these long term arrangements can cause more harm than good. Again, the political fall out may be in adverse morale to those who do not benefit.
Finally, the MOD has an interest, which is not much publicised, in how the privatisation of NATS is implemented. Much of the airspace over the United Kingdom is military rather than civil. The MOD makes a sizeable contribution to the costs and management of the system. They have an interest in a well managed and safe arrangement which allows military air training and exercises to continue. The ownership of the system is probably not a key issue, and better value for money would certainly be helpful. There will however be a concern that the balance that has been struck between the civil and military needs may be at risk in the longer term. If commercial interests dominate, then the military voice may carry less weight. Nevertheless, the poor management of the development of the new air traffic system has been a long term cause for concern as Defence money has been wasted on a system which has little hope of coming into service.
These four (and there are others) examples of current Defence privatisation issues show that there are many concerns. Yet the evidence has been that the move to privatisation has been good for defence capability. At the top in MOD, this is well understood. Elsewhere doubts remain. In the end, the move of tasks away from MOD owned establishments are likely to reduce career opportunities and continue the drift away from the Services and the Civil Service. This trend is likely to require costly measures to rectify in the longer term. However, the money saved from such moves is now an essential and important part of the Defence budget.