Friday's flotation of Qinetiq raised the value of the shareholding acquired by Carlyle, the US investment firm, by around 840%. Carlyle, whose board is graced, among other eminences, by former prime minister John Major, bought its stake at auction in 2002 when the stockmarket had floundered. It paid £42m for a 31% share, which at close of play on Friday was worth around £351m. Last week, it flogged over half its shares. Its chairman, who paid £129,000 for his stake in the company, is now worth £27m, and its chief executive £22m.
As it was with the four directors of Rover (who walked off with £40m), it is hard to see what they did to deserve it. As Lord Drayson's Labour predecessor, Lord Gilbert, pointed out: "All the value was built up by public servants using public money. I consider it a complete outrage ... a scandal." In a letter to the Daily Telegraph on Saturday, the former managing director of the Defence Research Agency - the government body that was split up and turned into Qinetiq - described the profits as "greed of the highest order": the two men, he said, had captured the benefits of decades of work by its scientists and engineers.
Lord Drayson's boss, the defence secretary John Reid, claimed that the company is worth so much "because of the value that has been added there" by Carlyle's management. "This is precisely why [we] brought them in." But if the government knew that Carlyle would make so much money, why did it allow the company to buy its stake so cheaply? If it didn't know, then why should we take its counterfactual accountancy seriously? In fact, in 2002 the government was warned by Lord Gilbert and Lord Moonie, who was defence procurement minister when Carlyle bought its stake, that the taxpayer was being shortchanged. Moonie says he was overruled by the Treasury. The government went in with its eyes wide open.
One could argue that much of Qinetiq's value was added not by the brilliance of its directors, or even of its engineers and scientists, but by a huge contract with the Ministry of Defence, signed on the very day (February 28 2003) that Carlyle paid for its stake. The "Long-Term Partnering Agreement", under which Qinetiq manages the government's firing ranges, is worth £5.6bn over 25 years. In fact, with a contract such as this, any one of us could have bought that 31% stake without having to open our wallets: you could borrow the money, at cheap rates, against your guaranteed future income. Carlyle admits that it underwrote part of the capital by refinancing its revenues on the basis of the contract. The Guardian has also reported that Qinetiq might have left behind some potential liabilities during the flotation: the government may have to carry the costs of cleaning up some land it has been using.
To anyone who has studied the private finance initiative, this story - of guaranteed assets and reduced liabilities - will be familiar. Qinetiq's sale carries fewer public dangers than the part-privatisation of our schools, hospitals and whatever else remains of the public sector, as the potential liabilities are much smaller, and the impact of the possible misdrafting of the long-term contract less consequential. But it seems clear that these generous provisions fattened up the company for privatisation. As Lord Gilbert says: "The MoD was taken like a lamb to the slaughter."
The ball is not the commonweal. The ball is the public treasury and these "bungling, hamhanded" officials never drop it.