Think there are a couple of issues here, but lets face it, Civil Service pay is pretty bad, and MOD is one of the better payers in government.
OTOH part of the backstory to this is an objection by both Prospect and the PCS to outsourcing of support services. Personally I don't have a problem with the concept, although we do need to be cautious of what we outsource, I think in a couple of areas we've not been sensible about the service we're contracting for.
My experience of outsourcing has been generally pretty good, with the external supplier providing a noticable improvement in service over CS or uniformed people. The one that wasn't good was the new Staff College, I was there just after it opened; catering was grim and build quality was pretty bad although the teaching facilities were excellent. I understand that a review of the contract has led to improved catering now though. Long experience of service messes says these improvements aren't that easy when you don't have a contract option, and I've lived in a couple of really bad, military managed, messes.