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Paid more than the PM: will freedom on pay packets close skills gaps in the Civil Service?

Will the freedom to hire staff on salaries greater than the Prime Minster’s allow Whitehall to close skills gaps in certain areas?

Will the freedom to hire staff on salaries greater than the Prime Minster’s allow Whitehall to close skills gaps in certain areas? The UK’s defence procurement agency is banking on it, and the rest of government will be watching with interest.

Late last month, the government announced that Tony Douglas, currently the chief executive of Abu Dhabi airports, has been appointed as Chief Executive of Defence Equipment and Support (DE&S), the procurement arm of the MOD. Douglas will become one of the country’s highest paid civil servants with responsibility for the government’s £163 billion 10-year (2014-2024) plan to buy and maintain military equipment. He will have two years to oversee DE&S’s transformation into a “match-fit” organisation, the final stage in a long period of structural reform which began in 2011, took a dramatic turn in 2013 and eventually saw DE&S take on unique status as a “bespoke trading entity” of the government. What is the significance of this status? Most importantly, it allows DE&S certain exemptions to civil service rules on recruitment, retention and remuneration of staff. A cornerstone of the procurement reforms proposed by Bernard Gray, the outgoing Chief of Defence Materiel and former Labour SpAd, was allowing DE&S the freedom to recruit and reward the highly skilled managers capable of going head to head with industry and getting the best value for the taxpayer. The organisation now has the freedom to manage all aspects of its workforce however it chooses and is also allowed to pay 25 staff members salaries greater than the senior cap set by the Treasury. The post of Chief Executive commands a £285,000 salary with a further £250,000 in potential bonus payments, well above the PM’s salary of £142,500.  As Chief Executive, Douglas will report to a board headed by a non-executive chair and will serve as the accounting officer directly accountable to parliament for the performance of DE&S. Compared to the organisation that Gray described in his 2009 report on defence acquisition, today’s DE&S has significantly more control over its own affairs. However, this is still significantly less freedom than Gray would have preferred. His solution to the UK’s “overheated” programme of defence procurement was to transform DE&S into a “GoCo”, essentially privatising the operations of the organisation and recasting its relationship with government as one of contractor and client. The process of converting DE&S into this type of organisation stopped in 2013 when a consortium of bidding firms pulled out, leaving only one viable bidder. Gray recently told the Public Accounts Committee that he believed that one company in the consortium was unwilling to assume the risk of a GoCo contract because of losses elsewhere in the business. It may also have been that the company was unable to accurately determine the level of risk that it was assuming; apart from being overheated, defence procurement had a long history of poor management information. Not many MBAs would advise you to assume a liability you couldn’t quantify. So, as a bespoke trading entity, what are the prospects for DE&S? The running costs of the organisation must decrease from £1.3 billion to just under £1.2 billion by 2017-18. Douglas must deliver on these savings while ensuring that the organisation does not return to the bad old days of overspend, overruns and unaffordability. With greater control over his workforce will Douglas be able to achieve this? And what will be the implications for the rest of government if he does? In addition to the freedoms it has allowed DE&S, the Treasury has also recently given the go-ahead to the recruitment of 25 commercial directors on salaries greater than the Prime Minister. The government has clearly begun to accept that in some cases, commercial skills gaps can only be filled by boosting pay packets. Organisations across government will be watching DE&S with interest; if it is indeed world class by 2017, the PM may soon find themselves moving even further down the list of government’s top earners.
Publisher
Institute for Government

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