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Lord Burnham: My Lords, I thank the noble Baroness for giving way. I do not see how she could have thought I was suggesting that we were taking too much notice.

Baroness Symons of Vernham Dean: My Lords, I thought that the noble Lord indicated towards the end of his address that possibly we had bowed too much to what the United States was saying. I assure the noble Lord, if he is worried--as his honourable friend in another place expressed himself to be worried in a Radio 4 interview this morning--I have talked face to face with United States politicians and officials on this issue. The noble Lord, Lord Burnham, asked me when I should be going to the United States to do so. I have already been to the United States specifically for that purpose. I have also discussed the issue with our friends and colleagues in Australia, who also had some concerns about the original reliance option.

The United States faces much the same challenges as we do. It is certainly not standing in the way of a PPP for DERA. We have listened to the comments of the United States on this issue, just as we have listened to the comments of our other allies. We have listened to the comments of UK industry, and of DERA, and of MoD staff. Not only have we listened; we have taken them into account in putting forward these revised proposals--a genuine revision of proposals in the light of consultation. I am confident that the "core competence" approach will be welcomed by the majority as the best way forward.

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Let me now say something about the core competence model in detail. It is our preferred model. We detailed it today in a consultation document under the title, Core Competence. It would lead to a clear separation of the two parts of DERA. The element to be retained in the MoD would include the chemical and biological defence sector at Porton Down and a majority of the Centre for Defence Analysis, as well as a number of teams and individuals involved in either sensitive projects or top-level systems research. Final decisions have not been made yet, but we would expect the number of staff within the retained elements to be fewer than 3,000.

The elements retained in the MoD would, therefore, provide a high-level overview across the whole spectrum of science and technology currently addressed by DERA. That would ensure that the MoD has an impartial source of advice and system research capability to provide high-level assessment, integration and management of its research programme and international research collaboration. This capability would be focused on those activities that must be carried out within government.

The remainder of DERA, which noble Lords will see referred to as "New DERA" in the consultation document, would consist of about 9,000 staff. It would continue to be a major supplier of science and technology to the MoD but essentially with the freedom to develop its business for a wider range of customers in the defence and civil areas.

This approach would create two vibrant, sustainable organisations. The new company would have the freedom to flourish, to grow its business and to diversify the wealth of knowledge it has built up over the years, to the benefit of the wider UK economy, while still providing the MoD with the essential services that we shall continue to need long into the future. Indeed, we should expect this organisation to become a globally branded technology company. I do not share the pessimism of the noble Baroness, Lady Sharp, on that issue. We already have an indicator of just how successful it might become in the success of the recent joint venture between DERA and NXT to exploit speech recognition technology. The retained organisation will be a small but also, importantly--I stress this--a world-class organisation offering rewarding careers within the MoD and the wider Civil Service.

The delivery of this vision is dependent to some extent on how DERA is placed in the private sector. The most sensitive activities are to be retained in the MoD. That will allow us to minimise the constraints under which DERA can operate. That will, in turn, create an environment that permits full exploitation of its potential.

We envisage the process beginning with DERA's incorporation as a plc. This could be followed fairly swiftly by a flotation, as soon as DERA has reached a suitable stage of development. This could be as soon as 2001. All of this would take place under the leadership of its current chief executive, Sir John Chisholm. I should like to take this opportunity to pay tribute to

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Sir John--the man who formed the DERA that we know today against all the advice of those who thought it was impossible. Sir John has constructed an agency that has produced real efficiencies and benefits. I am very pleased that he is to lead the new DERA.

It is likely that the MoD would retain initially a significant financial stake in DERA. This would ensure that the taxpayer received a share of what we believe will be the increasing value of the new company as it builds upon and exploits its impressive legacy of government-funded research. In answer to the question raised by my noble friend Lord Brett, the decision as to when the MoD will dispose of its stake in the business will depend on market conditions and the speed with which the company establishes itself as a commercial organisation. It is a little early for us to anticipate that yet.

Obviously, detailed work would be needed to refine the implementation of the core competence model and to decide how the MoD-retained elements in DERA will operate. We are now embarking on a six-week period of consultation to determine the views of our stakeholders. We shall not take any final decisions until we have heard those views. My noble friend Lord Brett raised a number of points which I shall endeavour to deal with. I assure my noble friend that this is a genuine consultation exercise. It will come as no surprise to many noble Lords who know our histories that my noble friend and I share something of a common past in our trade union affiliations. I am clear that such a period of genuine consultation is enormously important.

A number of noble Lords, including my noble friend Lord Brett and the noble Lord, Lord Hogg of Cumbernauld, were concerned about job losses. Over the next few years there must be adjustments in both the retained element and the new company as they adapt to changing demands, and that will probably have employment implications. However, that is not new. My noble friend Lord Brett is aware that this has occurred, and is occurring now, in DERA as the balance shifts from the more traditional defence technologies to the new information technologies. Therefore, the issue is before us in any event.

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My noble friend also asked about pensions. In this process it is important to safeguard the terms and conditions of employment of those who transfer from the public to the private sector. That will be achieved by structuring the PPP to ensure the transfer of undertakings. In that context my noble friend and I are familiar with TUPE, which will apply in this case.

My noble friend also asked about the position of military officers. I remind him that we already have arrangements under which military staff work within private sector companies such as BAe Systems. We are confident that similar secondment arrangements can be put in place as far as concerns DERA.

My noble friend Lord Faulkner went into a good deal of detail. I was pleased to hear of his highly successful visit to Malvern. A number of DERA's sectors have staff based on the site at Malvern. As we have not yet completed the detailed breakdown of staff between the retained DERA and the new company, it is not possible to be definitive about the splitting of the Malvern staff between the two organisations. We expect that division to be refined during consultations. As I have indicated to my noble friend Lord Brett, that will be genuine consultation. My noble friend Lord Brett and the noble Lord, Lord Burnham, were concerned about intellectual property rights. Those rights are owned by the MoD and we foresee that they will pass to the new company, with reserved rights for defence use.

I hope your Lordships agree that what I have set out tonight are the results of genuine consultation on an imaginative and potentially highly successful way forward for DERA. We have listened carefully to all commentators and stakeholders, and the proof of that is in the revised documents that are before your Lordships. We believe that what we now propose meets the concerns of those who felt that some of DERA's activities were simply too sensitive for the private sector and, at the same time, offer the opportunity for us to create a world-class company that is able to exploit technology in partnership with civil industry and, consequently, to invest not only in people but in facilities and science to the wider benefit of wealth creation in the United Kingdom.

        House adjourned at eight minutes before nine o'clock.

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