Select Committee on Defence Minutes of Evidence



Examination of witnesses (Questions 60 - 79)

WEDNESDAY 28 FEBRUARY 2001

BARONESS SYMONS OF VERNHAM DEAN, SIR JOHN CHISHOLM, MR BILL CLIFFORD and MR TERENCE JAGGER

  60. Another matter that Laura Moffatt would have asked about has been asked before, but I shall ask the question. I am sure that the directors will be paid the market rate for the job because we must have people who will make the new company very successful. The only thing that I am concerned about, as are others, is that in previous privatisations the people who have steered a publicly-owned company into the private sector are rarely out of pocket as a result of the experience. We want to have assurances—from which Sir John's bank manager will dissent strongly—that there will be a legitimate salary and legitimate remuneration and that we will not see the kind of a abominations that we have seen in many other privatisations over the past 10 years, where the senior directors are able to sell off their shares and disappear into a life of luxury. If the Government are divesting themselves of something of which they should not be divesting themselves, at least we shall be partly satisfied if we feel that those standards are adhered to and not the standards that we have already seen, much to our dissatisfaction. I am sorry to ask this embarrassing question, but it needs to be asked.
  (Baroness Symons of Vernham Dean) Of course, it is a reasonable question. Given some of the matters that we have seen in the past, it is a question that would occur to every reasonable person dealing with this. I have no problem with you asking the question at all. The legitimate salary must reflect the market. That is very different from public sector salaries. As all of us who work in the public sector know, there is a different market in the private sector. I absolutely agree with you that it should take that as its benchmark right across the private sector. Of course, we shall take advice on this from outside the Department as well as having views of our own. You say that you do not expect anyone to be out of pocket—of course not—but we expect those appointed to earn reasonable salaries for what they do, which will be different from what they are doing now. We shall also expect there to be MoD approval of all the New DERA board appointments. That relates to another part of the compliance regime.

  61. What are the current constraints on people inside the Ministry of Defence or its agencies on accepting directorships? How long is it before it is open-house?
  (Baroness Symons of Vernham Dean) It is the same as it is for all civil servants. As a Minister in a previous incarnation in the FCO I have seen the applications made by senior civil servants to go into the private sector. Most of them are unexceptional; on occasions some are referred and there is a period known as "purdah" with which I am sure you are familiar, which may be only a matter of weeks in some cases and maybe months in other cases, but that is to ensure the proper separation of the public and the private sectors over highly sensitive matters.

  62. Purdah followed by Shangri-La. So there will be constraints but they might be a matter of months?
  (Baroness Symons of Vernham Dean) Mr Chairman, they would be the same constraints as they are for the rest of the Civil Service.

Mr Cann

  63. I thought that was two years.
  (Baroness Symons of Vernham Dean) It is up to two years.

  64. That is the way they sell you things.
  (Baroness Symons of Vernham Dean) Who sells you what?

Chairman

  65. Hang on! One fight at a time. You are satisfied with these constraints?
  (Baroness Symons of Vernham Dean) Mr Chairman, they are constraints which have been adopted across the Civil Service for a number of a years. In a former incarnation I was General Secretary of the First Division Association of Civil Servants and was part of looking at the way in which purdah operated from, if you like, the point of view of the Civil Service. I was satisfied with it then and I am satisfied with it now as a Minister. The question must arise with people looking at individual cases and about the sensitivity of the individual going from one job to another and whether or not that is appropriate. As you know, Mr Chairman, there are those who think those constraints ought to extend to politicians as well as to civil servants.

  Chairman: So we will have no revolving door between one part of the building and the next with people moving out swiftly?

Mr Cann

  66. Within a week or so.
  (Baroness Symons of Vernham Dean) You have to look at each case and each case is scrutinised. There is a committee to which these cases go outside the Department—I have momentarily forgotten who chairs the committee but I am sure we can get the name to you, but a person of unimpeachable integrity outside the Department—which looks at these cases. Very often they pass without comment and without constraint or restraint, as they probably should. Individuals have a right to earn their living outside the Civil Service. Why not? But there are occasions when, of course, there are difficulties raised in relation to individuals and companies to whom they are going and the information they take with them, and they are then instructed to go through this period which is known as "purdah"—rather inappropriately but nonetheless that is what it is known as—and those periods usually start at about three months and can run up to two years.

Chairman

  67. You know what I am getting at. I do not want to see people leaving the Ministry of Defence who have been part of the negotiation for New DERA and within 6 months, 12 months or two years ending up on a tripled salary at the expense of the public purse, be it politicians or civil servants or whoever. I really feel this is a very sensitive subject, we have gone through this before in other privatisations, and I would be reluctant to acquiesce to any system which would allow people who were part of the negotiations to profit significantly from their work. Politicians have done it, civil servants have done it.
  (Baroness Symons of Vernham Dean) Chairman, I will send you papers about the system we have in place for civil servants. I do genuinely believe it is robust. I am absolutely certain we do not need an extra layer of bureaucracy to deal with this specific privatisation that we are talking about. There will, of course, be vacancies which arise—I am not talking about director level—in New DERA, vacancies which arise in DSTL, and those will be for open competition in the usual way, or however New DERA decides it is going to do its appointments as time goes on. The important point to remember is that there is already a very robust monitoring of how civil servants move from the public to the private sector and I am very happy to send you the details of that. Mr Chairman, Sir John wants to say something.

  68. Sir John, you have every right to defend yourself.
  (Sir John Chisholm) Do you mind, Chairman, if I just say a word about our remuneration policy, just to address that?

  69. Please.
  (Sir John Chisholm) It is clearly an issue that we face, that when we recruit people from the private sector who join us having been successful managers, successful scientists, et cetera, in the private sector, we recruit them on a higher salary than our public sector colleagues have. Clearly that creates a demand within the organisation; what about us? To which I say, we are being challenged as an organisation to prove ourselves successful in the private sector, when we have proven ourselves successful in the private sector, we can expect to enjoy the kind of rewards that people who have proven themselves successful in the private sector get, but we cannot get that until we get to that stage. In regard to bringing in executives from the outside, if they have a proven private sector record, then we are prepared to pay those sort of salaries. In regard to people who are already in the organisation, certainly when they have proven themselves successful they can expect to earn the reward, but they cannot expect to earn it just because we have been privatised.

  70. Will there be any similarity of salaries between those in Retained DERA and New DERA at least in the next 12 months?
  (Sir John Chisholm) In the next 12 months for certain there will be.

Mr Cohen

  71. I have a question on this point, directed to you, Minister, on the advice you get as a minister, because in your previous incarnation you very much signed up to the idea of impartiality of advice to ministers.
  (Baroness Symons of Vernham Dean) I still do.

  72. Absolutely. Are you satisfied with this process at work here, that you and other Ministers in the Defence Ministry have had absolutely impartial advice when, to put it bluntly, the person giving the principal advice, Sir John in this case, does stand to gain personally if his advice is taken?
  (Baroness Symons of Vernham Dean) To be honest, I do not think he has been the person giving me the principal advice. He has certainly been one of the sources of advice but he has not been the principal source of advice. If I may say so, that has come rather more from Mr Jagger's side of the house, and Mr Colin Balmer, who is not here today, who is the Principal Finance Officer in the Ministry of Defence. The impartial advice, of course, has a particular party political context in the sense we have discussed it in the past, but, you are quite right, it is important for individuals to be impartial right the way across the spectrum of activity. I am sure Sir John will not mind my saying, Sir John was very much a proponent of the original model we discussed and which we then decided was not something we wanted to go ahead with. I am sure Sir John gave me entirely impartial advice, and in the end we sought to do something rather different with this Core Competence. The advice I have received from civil servants varies enormously, it is between civil servants who have a whole variety of different views. Sir John had a different view and others have had different views, and in the end one has to take responsibility as a Minister for taking a decision about how to go ahead, and one hopes it has been done on the basis of sensible advice which has been properly looked into by the Minister before taking what are, as you rightly acknowledge, very important decisions.

  73. You are happy that vested interest has not come into the advice process?
  (Baroness Symons of Vernham Dean) I am absolutely happy that vested interest has not come into the advice process. Absolutely.

Mr Cann

  74. Can you reassure us please that anybody involved in DERA now will not be getting share options when it is privatised?
  (Baroness Symons of Vernham Dean) No, I cannot give you that assurance. What I have said is that we want to spread the share ownership. I think it would be very unfortunate if you were to say, for example, that individuals who are working at what might be fairly junior levels in DERA could not have shares in the company in which they operate.

  75. I did not say "shares", I said "share options".
  (Baroness Symons of Vernham Dean) I cannot give you that assurance. I think that is something we would want to look at in terms of the remuneration packages and I hope we will be able to talk rather more about that towards the end of this year. I do not think it would be fair all round to give you that assurance at the moment.

  76. What you are saying to me basically is that you will not reassure me that what happened at the privatisation of British Rail, for example, where train leasing companies were set up and people were made millionaires overnight, will not happen under the proposals you are making?
  (Baroness Symons of Vernham Dean) I can give you an assurance that I do not want to see anybody become millionaires, as you put it, overnight simply by virtue of DERA being privatised. I thought that the point Sir John made in relation to remuneration goes as well for the point over share ownership. I would not wish people to become, as you put it, millionaires overnight. Should people prosper because the organisation prospers, that is a different matter, but I think we are all aware of the very considerable, frankly, affront that was caused to very many people through some privatisations in the past, and we will be alive to trying to ensure that similar affront is not caused this time.

  77. May I ask Sir John then? Sir John, would you, if offered, not take share options?
  (Baroness Symons of Vernham Dean) I think that is a very unfair question.

  Mr Cann: It is a perfectly fair question.

Chairman

  78. Absolutely, totally fair.
  (Sir John Chisholm) If I may say, Chairman, this whole conversation raises the issue of my motivation in this, am I allowed to make a personal statement?

  79. Of course, and protected by privilege as well. No one is questioning your motivation at all, Sir John, not at all.
  (Sir John Chisholm) Can I say something about myself?


 
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