MoD makes poor case for the defence in raising top pay to bring down costs

Westminster Outlook While there might be a certain, seemingly counter-intuitive, logic to paying higher salaries as a way of cutting costs, I’m not sure the Ministry of Defence (MoD) is providing the best template for the theory.

As part of a revamp, Defence Equipment & Support (DE&S), the Bristol-based MoD agency that buys military kit ranging from radio systems to missiles for Wildcat helicopters, is being allowed to break the strict salary bands of the civil service in order to attract top-class staff.

In a recent interview with the journal DefenseNews, the DE&S chief executive Bernard Gray said that salaries can now “match companies locally, like Airbus, Rolls-Royce, MBDA, Thales.”

We’ve been trailing Mr Gray’s efforts to overhaul DE&S, which spends nearly £15bn annually, for the past couple of years now. This has included criticisms from union leaders who fear mass redundancies and that old chestnut of “privatisation by stealth”.

But Mr Gray, whose defence experience was garnered as a specialist correspondent at the Financial Times rather than on the battlefield, has stuck to his currently all-too-expensive guns as he seeks to bring in the private sector to help manage DE&S more efficiently.

Mr Gray believes he could get more of those guns at a much cheaper price if only DE&S could attract better staff and retain its current top people with market-rate salaries, while also drafting in the likes of California’s Bechtel and the Colorado- based CH2M Hill to help him oversee key programmes.

Actually, those two US consultants should already be in place at DE&S by now, but the financial details of their contracts, such as the enormous cost of flying over expats, and questions over their precise role have stalled negotiations.

Stoically, Mr Gray insisted he would like to have “people on board as soon as possible, but not at any price”. Questionably, he argued that “we are still in the rough timeframe we said” for when the deals would be signed. Hilariously, he said: “I am not going to be held to my own rough timeline simply to sign something”.

Defence procurement might seem a rather obscure area for this column to delve into quite so often.

Mr Gray himself has often been the focus, which might also seem a little odd since, while he is well-known in parts of the City and Parliament, he is a household name in neither.

Yet this former journalist and banker is overseeing a change that will see pressure heaped on margins at defence contractors like BAE Systems and Cobham.

Also, if the private sector can be used successfully to help transform one of the most sensitive agencies in the land, there is no end to how much of the State will end up in commercial hands.

In what feels like a shoddy plot twist in a farce, the MoD is trying to reduce costs by creating, potentially, the country’s best- paid public official.

Mr Gray’s contract is coming to an end and, as this newspaper’s sister Sunday title revealed at the weekend, the next chief executive will receive £250,000 plus up to the same again in bonuses.

This could, then, end up being more than double Mr Gray’s current deal, which was most recently reported as £220,000. Now, half a million quid will certainly attract some class-act candidates, but the issue is Mr Gray himself.

The 54-year-old has already as good as stated that he will be reapplying for the role. Indeed, in that interview he stated that “there is an unfinished job here” and “all things being equal I would be reluctant to walk away from that task now”.

Although Mr Gray points out the MoD could “pick someone else to finish this work”, this is thought unlikely.

There have been unsubstantiated rumours of fierce disagreements between Mr Gray and various defence ministers, but, even if true, few industry observers believe that the Defence Secretary Michael Fallon will tolerate the embarrassment of snubbing the man that the Coalition Government has so entrusted with these reforms.

Given that the job spec came out after the interview, the MoD already knew its preferred candidate was going to apply.

There was no reason to offer such an eye-watering financial package, particularly as many current DE&S staff have suffered from public sector pay squeezes with no guarantees that they will benefit from the change to the agency’s pay structure.

As Mr Gray knows, the art of getting a good deal is to reveal little. If the MoD were serious about bringing down costs, the department could have started by not wildly inflating the pay packet of DE&S’s chief, but instead forcing him or her to lead by example.

I doubt many of us would decline such a deal if offered, so I wouldn’t expect Mr Gray to do any different. The MoD insists that the 100 per cent bonus will have been earned if the chief executive “secures a good deal” for the taxpayer by cutting wider costs.

But Mr Gray’s interest is in completing an “unfinished job”, so £500,000 was not needed to entice him.

Such a large bonus is an unnecessary waste, particularly for a role that is, basically, about cutting costs.