Lord Goodlad (Conservative)

asked Her Majesty's Government:

What proportion of the profits from the privatisation of QinetiQ will be reinvested in defence.

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, the Treasury and the Ministry of Defence have agreed that the MoD will be able to retain £250 million of the receipts from the QinetiQ IPO, which represents 72 per cent of the total net receipt for reinvestment in the defence programme.

Lord Goodlad (Conservative)

My Lords, I thank the Minister for that reply. Is he aware that the defence industrial strategy acknowledges that we are living off past Ministry of Defence research investment, which has almost halved in the past few years, and says that in the coming decades the United Kingdom could fall behind our key allies and emerging economies in our ability to support sophisticated and competitive technology-based industries? Will the Minister assure the House that the current underinvestment in defence research will now be reversed?

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, the noble Lord is correct in that the defence industrial strategy highlighted some important new research, showing the direct correlation between defence capability and research going back over 30 years. In carrying out that strategy, we have further highlighted the importance of investment in research. This year, the department is looking at the whole gamut of research undertakings that we fund and intends to publish the technology strategy for research this year, addressing the very point that the noble Lord raises.

Lord Garden (Spokesperson in the Lords, Defence; Liberal Democrat)

My Lords, the Armed Forces Pay Review Body report was slipped out as usual just before the recess under a Written Statement. It gives a great description of the problems in military manning and so on. Will the Minister undertake to use the QinetiQ windfall to address the urgent problem that the Secretary of State, Dr Reid, has recognised? He is quoted in the report as saying that the living accommodation for the services is worse than anything else in the services' welfare package. Will the Minister use the funds to address that problem?

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, I shall resist the temptation to move off the subject of QinetiQ into wider matters of defence and simply answer that the funds from the proceeds of the QinetiQ IPO, which will be reinvested in defence, have not been earmarked. They will go into the defence budgeting process to be used in the normal way.

Lord Robertson of Port Ellen (Crossbench)

My Lords, I congratulate my noble friend the Minister on getting a pretty good deal from the Treasury over the IPO for QinetiQ. Not everybody gets a good deal from the Treasury. As the Defence Secretary who made the decision in principle to put part of the Defence Evaluation and Research Agency into the private sector, my decision has been well and truly vindicated by events since then. The expertise and knowledge base that was invested in DERA is now coming to the fore and can be exploited not only for the benefit of this year's defence budget but for the country as a whole.

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, I am grateful to my noble friend for his comments and for allowing me to raise the general point that the process that the Government have undertaken with this reform has been vindicated in the success of the recent IPO of QinetiQ. This is a long-term process going back a number of years, but it has shown that an underinvested government research institution has been turned into a world-class business. It has been done in a way that has leveraged expertise from the private sector, and in doing so, has created something that can really deliver the research and equipment that our Armed Forces need. In the process, it has created more than £1 billion in value for the British taxpayer.

Lord Astor of Hever (Deputy Chief Whip, Whips; Conservative)

My Lords, what veto or influence will the MoD have over QinetiQ providing research and evaluation for foreign governments or companies?

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, we retain a golden share in QinetiQ, which gives us the opportunity to veto any transactions that we do not regard as being consistent with the British interest.

Lord Barnett (Labour)

My Lords, it is true that the Treasury has been very kind to the MoD in this regard, but will my noble friend concede that in future it should have no bearing on any other privatisation proceeds, which must necessarily go to the department concerned?

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, I do not wish to comment on further privatisations. Suffice it to say that the process used here is the staged process of privatisations, which has learnt lessons from the past. The costs of the QinetiQ IPO are the lowest of any privatisation that has taken place in the past 10 years, which is a good model for the approach in future privatisations.

Lord Stoddart of Swindon (Independent Labour)

My Lords, will the Minister give an absolute assurance that the Government's golden share will not be disposed of at some future date, as has been done in so many other privatised industries?

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, it is not possible to give an absolute assurance, but we have absolutely no intention of relinquishing our golden share in QinetiQ.

Earl Attlee (Conservative)

My Lords, how do we avoid duplicating research that is already being done by our other defence partners?

Lord Drayson (Parliamentary Under-Secretary (Defence Procurement), Ministry of Defence; Labour)

My Lords, that is exactly why we have set out the defence industrial strategy, to ensure that we have real transparency in our defence priorities for both our industrial and international partners. We are going to build on that this year with our defence technology strategy, giving further clarity to avoid the problems to which the noble Lord alludes.