Draft Defence Science and Technology Laboratory Trading Fund Order 2001

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Mr. Howarth: How much funding do the Government expect to provide for DSTL? The current arrangement provides no vote for DERA. DERA derives its funds from contracts with the MOD and any other customers that it can pick up. Will the Minister explain where he expects the funding for DSTL to come from?

Dr. Moonie: I shall give a detailed reply later.

DSTL has agreed a set of targets with the MOD, the Treasury and the Cabinet Office which will provide a challenging but achievable framework for the business. Its business plan projects an average rolling three-year return on capital employed which we are confident will meet the 6 per cent. Treasury requirement. Other targets will also be agreed covering quality of deliverables as part of an agreed technical assessment exercise and supported by an analysis of customer satisfaction.

In forming DSTL, we are building on the long traditions of public service and excellence established by its predecessors. DERA has rightly earned its reputation as a centre of scientific and technological excellence, not only for the services that it provides to its customers, but for the quality of its employees. DERA is an exciting and stimulating place to work and it attracts scientists and technical staff of the highest calibre. DSTL will look to maintain that tradition of excellence and I fully expect it to do so.

Throughout the DERA PPP process, we have sought to build on that reputation and to establish DSTL as a vibrant and sustainable organisation that provides high quality scientific and technological products and fulfilling careers for its expert staff. With the structure defined in the proposed trading fund order, we believe that we have done just that.

Although smaller than the current DERA, DSTL will still be world class in terms of its size and capability . It will comprise close to 3,000 permanent staff, a high proportion of whom will be scientific and technological experts. In terms of number of employees, that will place DSTL firmly among the top six science and technology organisations in the world, private or public. The opportunity to work within such a major centre of scientific excellence will help to ensure that the organisation continues to attract high quality people. Furthermore, by re-emphasising DSTL's purpose within the MOD and other Govt, DSTL's personnel will have the potential to take their careers into the wider civil service, bringing their knowledge of science and technology, and the benefits that those offer, into the centre of Government decision making.

We also see great merit in improving the interchange of scientists between the public and private sectors, which is in line with our thinking on modernising government. As part of the process of developing partnerships with industry, academia and allies, DSTL will look for secondment opportunities for its own staff within other organisations, and for other organisations' staff within DSTL. That practice has been prominent in DERA because of the benefits that it generates both for parent organisations and for the individuals concerned.

I apologise to the Committee for that highly technical introduction, but it was important to explain the situation in as much detail as possible. It would now be opportune to give members of the Committee the chance to express their views, to which I shall respond when I wind up the debate.

10.15 am

Mr. Robert Key (Salisbury): I considered carefully whether it was appropriate that I should speak for the Opposition on the order—not because I have any financial interests whatever, but because some 2,000 of my constituents are employees of DERA and are therefore directly affected by the order. The chemical and biological defence sector of DERA and the Boscombe Down aircraft testing and evaluation part of DERA are in my constituency. Moreover, last year I gave evidence to the House of Commons Select Committee on Defence for its report on the future of DERA. For 18 years, as Member of Parliament for the two establishments, I have witnessed their evolution and the world-class contribution that is made by their work forces. I decided that any reasonable person would conclude that my experience was a qualification rather than an impediment to my speaking today, because, as the Minister said, this is a highly technical subject.

Several people were surprised that the primary legislation route was not chosen. I accept that the technical advice from the lawyers was that it is not necessary, so it is not really an issue. However, many people do not understand why we are using a statutory instrument to set up a new trading fund. Moreover, people who are not in the Committee Room today, but whose livelihoods depend on that and who may be looking at the marketplace in future, do not fully understand the role of the Committee. We as a Committee do not express an opinion as to whether we agree with the establishment of the trading fund; we simply agree that we have considered the order and have had an opportunity to scrutinise it for an hour and a half. Although that is an important function of the House of Commons in examining the Government's proposals, we will not be voting on the substantive issue.

As the Minister said, this is the first step on a long road. Vesting date, 1 July, will be one date in a long passage towards the establishment of the Government company and subsequently flotation. One of the biggest problems that NewDERA will face is the worldwide stock market position of high tech shares, which is very low at present. It is impossible for the Government to say what will be the immediate or medium-term impact on the trading fund or for what sums the taxpayer will consequently be liable. In his excellent introduction, the Minister said that flotation would take place as soon as the potential is suitably developed. That is one side of the equation; the other side is that it must take place when the market is suitable, and the sale of the assets will not result in a thumping great loss to the taxpayer.

It is a matter of concern that we do not know what will be the final nature of the financial holding of the stocks in NewDERA once they have been floated, which will have implications for the taxpayer and the trading fund. I shall refer later to the golden share, although that may be a little wide of the mark in the context of the order.

As the Minister said—and I wholeheartedly agree with him—the purpose of the operation is to seek to improve the kit that is available to service men and women and to ensure that they have access to and use of cutting-edge technology in the defence of our country. During the past few months, the Minister has listened to a great deal of advice from the Select Committee on Defence and others in Parliament, including my colleagues and me, the market, DERA employees and trade unions. Almost everyone seems to have been talking about the future of DERA. The Minister is correct to say that he has been listening, but he left many key questions unanswered during his introduction today. I shall press him to answer those questions in due course.

The Opposition will not oppose the motion as too much is at stake, and opposition would create even more risk and uncertainty for the 12,500 employees of DERA. The Defence Committee in its very good report also expressed its reservations and repeated its opposition to the concept of privatising DERA, or even part of it. We must ensure that DERA's employees and the beneficiaries of their expertise--Her Majesty's forces--are guaranteed the best possible settlement. That is my starting point.

I begin with the explanatory note on assets and asset values, which states:

    ``The assets described in Schedule 2 to the Order (estimated at £394.5 million) and the liabilities described under that schedule (estimated at £10 million) will be removed from the Fund.''

How much will the Government receive on behalf of taxpayers, and how much will the Ministry of Defence receive? We were told originally that under the deal between the then Secretary of State for Defence, Lord Robertson, and the Chancellor of the Exchequer, the Ministry of Defence would receive £250 million for the sale. However, it emerged subsequently that the flotation costs of about £80 million will be borne by the Ministry of Defence, so taxpayers will not benefit by £250 million. The figure has already fallen to £170 million, which is strange. The Minister went into that in some detail, but any reasonable person would want an assurance that DERA will not be sold for less than £400 million, which is what we are told the assets are worth. The Minister said that there would be no loss of value to the Ministry of Defence. That may be so on vesting day, but he cannot predict--no one can--what the asset value will be at the point of sale in the market. A substantial risk overhangs the entire enterprise for taxpayers.

On fixed assets, I was intrigued that the Minister said that DSTL and NewDERA had reached an agreement based on the available capabilities. That is interesting, because it does not accord with what the Defence Committee was told as recently as 28 February, when my hon. Friend the Member for Gosport (Mr. Viggers) asked in question 139:

    ``What has been the cost of separating the two components of DERA?''

The Minister for Defence Procurement replied that £70 million to £80 million was the

    ``best estimate as of today, but obviously we will keep you informed of any changes''.

In reply to question 145, the Minister said:

    ``We hope that we will receive as much as we can persuade the Treasury to part with. The figure of £250 million as being in the public domain, I am sure you will recall that the last time we discussed this I was rather reticent to go nap on any of these figures because I am sure that is a discussion that we will wish to continue with the Treasury.''

It was not certain then how the strategic assets would be divided. In question 183, the hon. Member for Ilford, South (Mr. Gapes) asked about NewDERA assets, and the Minister turned to Mr. Jagger, director of the DERA partnering team, who said:

    ``There is an exercise going forward at the moment run by an individual in the Defence Procurement Agency. The short answer''—

to the question whether it had been decided what NewDERA assets are--

    ``is no, but work is well advanced at identifying both the strategic assets and the relationships, which will support them.''

The Minister for Defence Procurement replied:

    ``We hope it will be ready within a matter of weeks.''

Have the three weeks that have elapsed provided sufficient time? Is the Minister saying definitively that those assets have now been divided completely and to everyone's satisfaction? I hope that the answer is yes, as there are some real problems with which he must get to grips.

For example, the assets are described in the broadest terms in the order, and the hon. Member for Stafford (Mr. Kidney), who spoke from a legal point of view, was right in saying that there is circularity in the order, which needs probing. That is all very well, but the matter affects many Members of Parliament ,and I want to know in practical terms how the DERA ranges are being divided between NewDERA and DSTL. That is critical, because if DSTL retains ranges such as Shoeburyness, there are implications for employment. The ranges may be sold in future and if they are handed to NewDERA as assets now, it may decide that they are surplus to requirements. That would interest people living around Eskmeals who have long been in competition with Shoeburyness as business has contracted.

I refer to all the DERA ranges in the Hebrides, Rona, Loch Goil, Faslane, Rosneath and Barons Point, Skipness, West Freugh, Kirkcudbright, Lanbedr, Aberporth, Pendine, Portland, Larkhill, Portsmouth, Farnborough and Burntisland. All those ranges are DERA locations, with employment implications, and we do not know on which side of the balance sheet they will appear. The test and evaluation ranges--we know not where they will lie and on whose balance sheet they will appear--derive 49 per cent. of their current income from the defence industries, 37 per cent. from the Ministry of Defence, 12 per cent. from DERA and 1 per cent. from non-defence sources. That is the scale of the implications of this little order, for which we have one and a half hours for discussion. The matter is serious.

Next, I shall discuss the Defence Diversification Agency, which page 2 of the order places in the category of operations that will cease to be funded. We are told clearly, in balance sheet terms, that the DDA is going outside and will be part of NewDERA. It will be up for flotation in the private sector.

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