Ten senior managers pocketed millions from the privatisation of defence technology business QinetiQ – leaving the public purse short changed, it has emerged.
A National Audit Office (NAO) report published last week concluded that the main beneficiaries of the Ministry of Defence’s (MoD) privatisation had been a small group of senior managers, some of whom saw the return on their investment increase by nearly 20,000% on floatation.
The top 10 managers at QinetiQ received shares worth £107m at the time of flotation, from an investment of just over £500,000. Chief executive John Chisholm saw his personal investment of £130,000 increase on floatation to £26m.
Up to 20% of the equity was made available to management and employees subject to performance targets being met, which the MoD accepted without being involved in designing the scheme, or seeking specialist professional advice, according to the NAO.
Sir John Bourn, head of the NAO, said: “The move to privatise QinetiQ was effective in safeguarding the viability of a business of national importance and secured half a billion pounds for the taxpayer. However, I believe more money should have been secured for the public purse.
“And it is of concern that the Ministry of Defence did not seek specialist advice on the incentive scheme, which resulted in the top 10 managers owning shares worth £107m. This level of return exceeded what was necessary to incentivise management.”
The other major beneficiary of the privatisation had been the private equity firm Carlyle Group, which had seen the rate of return on its investment increase by 112%.
The Public and Commercial Services Union (PCS) were shocked by the report’s findings.
Mark Serwotka, PCS general secretary, said: “It is scandalous that a small number of senior managers and private companies should be making so much money out of an organisation that was built by public servants with public money. It is unacceptable that returns of 20,000% can be made at the expense of the taxpayer.”
The MoD said it will respond in full to the NAO report “in due course”, and welcomes the Public Accounts Committee decision to take evidence on this report.
Minister for defence equipment and support, Baroness Taylor, said in a statement: “The original intention behind the sale was to protect defence interests, and the NAO has acknowledged that this has been achieved. We have consistently stated our view that the privatisation has been an overall success.”
She added: “As the largest shareholder, it is the taxpayer who has gained the most from the increase in QinetiQ’s value. The value that MoD received for the sale of a minority stake in QinetiQ to the Carlyle Group was determined by the market in a competitive process.”