2. What discussions he has had with the Chancellor of the Exchequer on staff pay and conditions in the new DE&S model. (903044)

We have agreed with Treasury Ministers that Defence Equipment and Support will be established as a bespoke central Government trading entity from 1 April this year, with the necessary freedom to operate, including freedom, within very broad limits, to set the pay and conditions of its civil service staff.

I thank the Secretary of State for that response, but bearing in mind that bringing private skills into Defence Equipment and Support is likely to create a two-tier work force and, if handled badly, could demoralise an already hollowed-out department, will the Secretary of State update the House on what discussions he has had with employee representatives and trade unions within Defence Equipment and Support regarding changes to employees’ pay and conditions?

There have been discussions with the trade unions and there will of course be further discussions with the trade unions as DE&S-plus develops its pay model, but we do have to face the reality that this part of the public service is very much commercial-facing. It deals with commercial bodies and it interacts and exchanges staff with commercial contractors, and we have to be able to pay competitive rates and we have to adopt competitive employment practices if we are to get the best deal for the taxpayer and the best deal for our armed forces.

Does my right hon. Friend agree that reforming defence procurement is a key step in driving better value for money for the defence budget, and will he join me in paying tribute to the staff of DE&S in my constituency, especially those involved in the draw-down of kit and equipment from Afghanistan?

The staff at DE&S at Abbey Wood perform an extraordinary range of functions and play a vital part in this new whole-force concept. It is about how the armed forces work together, regulars and reserves, with civilian employees of the Ministry of Defence—whom I am happy to put on the record in the House today are not pen-pushers, as some parts of our media would have us believe, but vital components of our defence infrastructure.

The Secretary of State is ever the optimist, but he will know that staff in DE&S and industry need certainty, and nothing in the changes to DE&S fits that description. His Department still has not confirmed the arrangements to bring the managed service providers into the business. He talked about the flexibilities and freedoms being broad—they are not in the public domain yet, and April is almost upon us. Is he not cutting it just a little fine?

No. The contract notices for the procurement of the managed service providers will be published shortly. We are finalising the terms of the memorandum of understanding between the Treasury and the MOD, but the broad parameters have been agreed. The freedoms will be very broad, but there will be some constraints, as I hope the hon. Lady would expect. There will be an overall envelope of resources for operating costs, which will be subject to a downward trajectory over time, representing efficiency. Within that envelope, there will be very broad freedom to tailor pay and conditions to the requirements of the marketplace.

Did the shadow Secretary of State for Defence not say in December of last year that we all wanted to see the best of the public sector alongside the best of the private sector? If everyone is in agreement on this—from the shadow Secretary of State for Defence to Lord Levene—it must be a good idea. Presumably, the only really important thing here is ensuring value for money for taxpayers.

My right hon. Friend is exactly right: it is about ensuring that the armed forces get the kit they need and have been promised when they need it, and that the taxpayer gets a fair deal. By creating DE&S as a trading entity with freedoms and flexibilities to enter the marketplace and hire the people it needs to do the job properly and effectively, we will ensure that outcome.