Malcolm Rifkind, the Secretary of State for Defence, is preparing a wide-ranging list of services for agency status, leading to full privatisation, to avoid cuts in front-line troops.
A White Paper published by the Cabinet Office identified 88,000 staff jobs in the Ministry of Defence out of a total of 111,000 Whitehall posts being considered for agency status, including fleet maintenance, defence communications, army logistics, and army training.
Downing Street and the Treasury are insisting on full privatisation in most cases, in a victory for ministers demanding a more radical shake-up of the Civil Service.
It is part of the Government's plans to privatise large parts of Whitehall, which were given the go- ahead by William Waldegrave, minister for public services. It will be supplemented by more plans to slim down the back-up services of the armed forces by putting tasks out to 'market testing' in competition from private firms.
Defence ministers are keen to shift more support services into the private sector. The list is being drawn up by Jonathan Aitken, the minister for defence procurement, and Jeremy Hanley, minister for the armed forces, for announcements in the new year.
Ministers have been amazed to discover dozens of dental hygienists on the payroll of the armed forces. They believe such work should be given to the private sector.
The back-up services earmarked for market testing include transport aircraft, catering, air maintenance, defence research, and support services at Porton Down chemical defence establishment.
Large tracts of the Army's tank training ground on Salisbury Plain are also to be put up for sale as arable farm land, along with training grounds in East Anglia.
Mr Rifkind has warned Cabinet colleagues that there can be no more deep cuts in the defence budget in the mid-1990s after the cuts of pounds 780m over the next two years announced in the Budget.