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Shelling Out

How taxpayers subsidise the arms trade

Soldiers and skulls

If you were the government, what would you do with £760m? Perhaps build 10 brand new hospitals? Or 100 new schools? Or even increase the amount we spend on conflict prevention by around 30 times? Or would you give it to UK arms companies to help them export military equipment around the world? Despite the governments professed commitment to health and education, unfortunately they do the latter.

The UK arms trade

Before we look at the economic costs to ourselves of the arms trade, it is worth reminding ourselves of its human cost.

The UK is the second largest arms exporter in the world (after the USA) and has, according to government figures, exported over £ 27 billion of military equipment in the past five years alone. For decades the UK Government has had a policy of promoting arms exports, seemingly at any cost. The result of this policy is that the UK continues to arm repressive regimes around the world. In 2000, the UK licensed military exports to 30 of the 40 most repressive regimes in the world and British weapons are being used in most of the world's current conflicts.

Undoubtedly, the arms trade fuels conflict and leads to an increase in casualties. What is more, in modern armed conflicts nearly 90% of casualties are civilians with about 40% of those being children. It is estimated that 2000 children are killed or maimed in wars each and every day. It is no accident that the massive rise in casualty figures coincides with the expansion of the arms trade.

The supply of vast numbers of weapons to Third World countries has fuelled conflict by raising political tensions, blocking attempts at peaceful solutions and generally increasing the level of violence. Only by importing large amounts of weaponry and technology from countries like the UK have warring parties been able to fight such large-scale wars which have these devastating consequences. Even where British weapons are not directly used in conflicts, the fact that the UK is willing to supply arms gives a regime tremendous support and legitimacy.

While it would not be accurate to blame war per se on the arms export industry, the growing number of weapons available together with the ever increasing 'kill ratio' inevitably mean more death and destruction for children as well as adults. Simply put, the world is a less secure place because of the arms trade.

How the subsidies work

The government subsidises the arms trade in a number of different ways. These include giving marketing and promotion support mainly through the Defence Export Services Organisation (DESO); by giving financing assistance for the deals through Export Credit Guarantee Department (ECGD); and by aiding with the cost of research and development.1

Marketing support

Marketing support includes everything from the cost of DESO, to the use of military personnel and defence attachés in support bids for particular weapons contracts. In addition, high level official visits are arranged to support companies trying to win contracts, from the Prime Minister on down. All these costs are footed by the taxpayer.

Financing support

Financing support comes through the cost of export credit guarantees organised through ECGD. Basically export guarantees amount to cheap loans for the buyers and cheap insurance cover for exporters. Whilst these are available to any sector, more and more of the money is going to the arms companies. Although military exports account for only two per cent of exports, the arms companies claim almost 50 per cent of ECGD cover.

The growing number of weapons available together with the ever increasing 'kill ratio' inevitably mean more death and destruction.

Launch customer support

Often, when a contract for equipment for British armed forces comes up, it is possible to buy cheaper (and arguably better) military equipment from abroad. However, government ministers often insist on 'buying British' to help companies market their equipment abroad. Choosing more expensive equipment - at a greater cost to the taxpayer - in order to support exports is a direct subsidy to the arms trade.

Research and Development Costs

The UK government's budget for military R&D for 2000/1 was £2,418m. To evaluate how much of this might subsidise arms exports, the recent Oxford Research Group/Saferworld report calculated the percentage that R&D comprises of overall government equipment expenditure, and then applied that percentage to arms exports. R&D makes up around 23 per cent of expenditure, leading (for exports of £4250m) to a subsidy of around £950m. However, ORG/Saferworld consider that it might be fairer to leave out the Research part of the equation, as it is not programme-specific, and use only the Development part, or 15 per cent. This gives rise to a subsidy of £620m. It is, of course open for debate as to whether the Research element of the equation should be excluded. If it is not, clearly the total net subsidy would rise to about £1bn. The government acknowledges that their R&D spending is a subsidy to the arms companies by trying to recover some of the money through a levy on sales. Whilst they have tried in the past to set the levy at about 30 per cent, currently it is only one per cent - around £50m per year.

Savings?

The government argues that subsidies are justified on the grounds that they produce overhead savings which reduces the costs of military equipment for the UK. Whilst it is difficult to deny this, the amount of the savings is wildly exaggerated by the government. A recent academic study suggested the savings should be put at £163m.2

Summary

Overall there is a net cost to the taxpayer of £763m per year (see table below). There are more details about subsidies in a factsheet enclosed in the pack.

Government subsidies for the arms trade

Marketing & Promotion £m
DESO 16
Use of MoD personnel 10
Defence attaches 16
Embassies 7
Official Visits 20
Distortion of MoD procurement 60
Financing Assistance
Export Credit Guarantee Department (ECGD) 227
Fixed Costs
Research & Development 620
Commercial Exploitation Levy -50
Overheads -163
TOTAL 763

Case Study: Subsidising the South Africa arms deal

A good example of how arms exports are subsidised by taxpayers money can be seen through a brief look at the massive £3bn South African deal.

Although this deal wasn't signed until December 1999, the deal can be traced right back to 1995, a year after the ANC took office. Then, the South African Navy wanted to buy four Corvettes, but the deal was halted after a public outcry that the money should be spent on hospitals and schools. However by 1997, following lobbying by the military in South Africa and arms companies from around the world, President Nelson Mandela and the ANC government had been won around and, according to a report in The Independent, the arms salesmen were "already buying drinks for South African navy officers".3

Marketing support

UK government support and promotion of British arms companies for the South Africa deal was manifold. As we have seen, the government gives marketing support to arms companies through DESO, the use of armed forces personnel, embassies and defence attaches and official visits by Ministers and other dignitaries. All these methods were used to gain the South African deal.

For example, the Royal Yacht Britannia visited South Africa in 1995 and is reported to have been used to promote British arms exports. Two years later, just before the deal was signed, the Queen and Prince Philip once again visited South Africa. Whilst there is no suggestion that the Monarchy personally lobbied for the deal, the timing of the visit is highly very convenient.

In the Summer of 1998, Defence Minister Lord Gilbert visited South Africa to announce that the UK would continue to fund the British military advisory and training team in South Africa and that it would contribute £100,000 towards a peacekeeping exercise to be held later that year. As the MoD press release made clear, "Lord Gilbert also took the opportunity to promote British industry's bids to meet the major defence equipment requirements of the South African defence Force".4

In January 1999, just 10 months before the deal was finally signed, Tony Blair himself travelled to South Africa to sign an agreement to continue bilateral trade promotion. As the Sunday Business put it, "Blair will smooth the passage for British Aerospace".5 The agreement provided that civil servants from the British DTI, DESO and ECGD would "meet on a regular basis" with South African officials to monitor the offset arrangements arising from any military contracts between UK companies and South Africa.6

In 1995 and again in 1998, the Department for Trade and Industry sponsored visits to South Africa by the Defence Manufacturers Association to promote UK arms companies. The visit in 1998 coincided with the South African defence exhibition, DEXSA, which was attended by 35 UK-based MoD personnel and 13 South African based UK MoD staff, who were promoting and demonstrating British military equipment and services. All, of course, paid for by British taxpayers.

Financing support

Government financing played a large part in BAE Systems obtaining the deal. DTI Minister Margaret Beckett announced in May 1998 that extra support from ECGD for trade with South Africa would be available. According to The Guardian, "ECGD reduced the cost" of the deal for South Africa and thereby enabled BAE Systems to win the deal.7 According to the ECGD 2000/01 annual report the sale of BAE Systems deal with South Africa was underwritten to the tune of £1.7bn - using up 49 per cent of the ECGD money available that year.

There have been a swarm of allegations of corruption and bribery around the South Africa deal, with a number of arrests being made in South Africa. Whilst BAE Systems has denied all wrong doing, it has not denied making a number of financial contributions to organisations in South Africa connected with the ruling ANC party. For example in early 1998, BAE Systems paid Nhlanhla Ndebele £30,000 to write the history of the ANC.8 According to The Independent, BAE Systems also paid £4m to the National Union of Metalworkers of South Africa, a trade union then opposed to the deal, to set up an industrial school. The trade union subsequently backed the deal.9 BAE Systems made a further donation of £500,000 to The Airbourne Trust to be used to help ANC army veterans set up in business. Recently, the South African Public Accounts Committee called for an investigation into this payment.10

Conclusion

Space prevents more detailed analysis, but the point is well made. Whilst South African health and development organisations like Black Sash and the South African Council of Churches opposed the deal, calling for more resources for development and health care, British taxpayers money was used by BAE Systems to help supply enormous amounts of armaments to South Africa.

What Can Be Done?

CAAT has two aims for the Shelling Out campaign. Firstly to raise awareness about the amount of money that the government is giving to subsidise the arms trade. Secondly, to encourage those who have become aware of the issue to press the government to end the subsidies. We aim to do this by encouraging people to write directly to the Chancellor of the Exchequer, Gordon Brown, urging him to end the subsidies and by pushing for an inquiry by the Public Accounts Committee (PAC).

Individuals

Enclosed with the Shelling Out pack you will find a postcard pre-addressed to Gordon Brown. Please sign the postcard and send it to him asking for an end to government subsidies for the arms trade. Alternatively you may like to write him a more personal letter based on the material within this pack.

Why not encourage friends and family to sign the postcards or the petition? Further copies are available from the CAAT office.

Also enclosed with the pack is a draft letter to your local MP calling for an inquiry by the Public Accounts Committee. CAAT believes that a PAC Inquiry into government subsidies for the arms trade would be a major step forward in ending the subsidies. Please write to your MP using the draft letter as a basic text. Please remember to be courteous and ask for a reply. If you get a negative reply it is always worth following it up. Please forward any replies to us here at CAAT.

Raise awareness. Most people (including MPs) are completely unaware that we are subsidising the arms trade by over £760m per year. Many people will be be outraged and want to join the campaign. Why not tell friends and colleagues and explain why you think these subsidies should end. You could display the poster or one of the postcards in a suitable place to catch peoples eye.

Write to your local paper. You'll be surprised how easy it is to link local issues to the arms trade subsidies. For example whenever cuts to local services are raised you could write and suggest that the money that is being currently used for subsidising the arms trade could be used instead. If your letter is printed, please send us a copy.

To counteract the £30 per taxpayer that goes to subsidise the arms trade, you could send £30 to CAAT to help with our campaign!

Groups

Hold a stall to get people to sign the postcards or the petition. This could be at a local event such as a fair or festival or in the local high street or after a church service. You could produce a very large-sized postcard for the stall and get dozens - or even hundreds! - of people to sign it. Don't forget to make copies of the basic leaflet in the pack to handout to people to explain the campaign. It's also worth contacting your local press. Contact CAAT for local press work hints and phone numbers.

Draw attention to the fact that £760m breaks down to about £30 per taxpayer. In other words everyone who pays tax is giving £30 per year to help arms companies export weapons. You could hold a 'street referendum', asking people how they would prefer to spend £760m. Why not have a giant cheque with the payee left blank. If most people 'vote' for health care, write this on the cheque at the end. The referendum would work well in combination with a stall and make a good photo for the local press.

Hold a meeting on the Shelling Out campaign or the arms trade in general. CAAT will be able to provide a speaker if we have enough notice. Make contact with other peace, justice, development and human rights groups in the area and invite them along. CAAT can also invite people on its database who live in your local area.

Ask your local MP if you can meet with him or her to talk about subsidies for the arms trade. If they agree, plan ahead what you will say. Don't forget to bring a Shelling Out pack with you to give to your MP. If your MP agrees to a meeting, you are very welcome to contact CAAT to discuss what to say. Remember we may have had contact with your MP before.

Questions and Answers

Be prepared! There are plenty of misconceptions around the economics of the arms trade. In this section we answer some of the basic questions that you might be asked about arms trade subsidies.

Q: Surely the government are subsidising the arms trade in order to support and create jobs?

A: This is one of the main arguments put forward by those who support the arms trade, but it doesn't add up. According to the governments own figures, there are about 90,000 people employed, directly and indirectly, by the arms trade. Given that the subsidy is around £760m to £1bn per year, this works out at about £9,000 - £11,000 per job! This is an enormous amount of money which would in fact create far more jobs in other, less capital intensive (and risky) sectors such as health, education, environmental technology or transport. A recent MoD/York University report stated that if subsidies were cut by 50 per cent, 49,000 job losses would be offset by 67,000 jobs created in the civil sector. Another issue is that the number of jobs in the sector is falling all the time anyway. This is partly because companies are moving production lines overseas. In January 2002 for instance, just a few months after BAE Systems announced 1,000 job cuts at its factory in Glasgow, it 'created' 1,000 jobs at a new facility in America. CAAT would like to see some of the money spent currently on subsidies redirected into a National Conversion Fund and used to help companies convert to civil production.

Q: Don't our arms exports help to defray the cost of supplying our own armed forces with military equipment?

A: This is the argument that is most often used by the arms companies to justify their subsidies. The reality is that export orders tend to come after the initial investment and often after any orders for the MoD have been filled. This means that any benefits go to the company and do not bring the cost of weapons for our own armed forces down. The government implicitly recognises this by trying to charge a levy to the arms manufacturers on exporters. They have tries to set this in the past at 30 per cent but currently only get around one per cent.

Q: Surely arms exports are a useful tool of foreign policy - we can have some control over other nations if they rely on us for weaponry and spare parts. Doesn't that make £760m well spent?

A: A relatively recent example again shows that the reality is a little different. The UK has been one of the most outspoken critics of Robert Mugabe's government in Zimbabwe. Criticism has focused on Zimbabwe's involvement in the awful war in the Democratic Republic of Congo (DRC) and also the almost casual abuses of human rights in Zimbabwe itself. When Zimbabwe wanted to buy spare parts for its Hawk aircraft - which have been used in the DRC conflict - it seemed a perfect opportunity to show our displeasure and to use this foreign policy 'tool' by refusing to export the spares. However, in the teeth of opposition from human rights campaigners and even some members of the Cabinet, the licences were granted in order to protect the reputation of the arms companies as reliable suppliers. In other words rather than being a foreign policy 'tool', arms exports are given such priority that other policy objectives, such as the infamous 'ethical' foreign policy, come a distant second.

Q: Aren't arms sales important for our own security? Don't we need to support an independent 'Defence Industrial Base' which can be relied upon in times of international crisis?

A: The concept of an independent defence industrial base belongs to the past. In today's globalised world 'British' arms companies source their components from all around the world. Indeed many of the companies do not even want to be 'British' preferring to be seen as global companies. Hence British Aerospace changing its name to BAE Systems.

HELP!

Given the negative effects that the arms trade has on development, security, human rights and the economy, it should be one of the last sectors to receive taxpayers money. Nevertheless, the government subsidises the arms trade by about £760m per year or about £30 per taxpayer.

Throughout 2002 CAAT will be urging the government to end this morally bankrupt and economically unproductive waste of money and specifically calling for an Inquiry by the Public Accounts Committee. If we are going to succeed in our campaign we need your help.

Further Resources

The Subsidy Trap

Written by Paul Ingram & Ian Davis

Published by the Oxford Research Group and Saferworld, this 80 page report investigates British Government support for the defence industry.

Special CAAT price: £7.50 (+£1p&p)

Subsidising a Deadly Trade

Sir Samuel Brittan's CAAT Lecture given at the London School of Economics in April 2001.

Price: £3.00 (inc.p&p)

A joint MoD/York University report, The Economic Costs and Benefits of UK Defence Exports, published in November 2001, is available at:

www.york.ac.uk/depts/econ/rc/defence_exports_nov01.pdf

The overall amount that the government gives to the arms trade is around £760m per year, which works out at about £30 per taxpayer. If you would like to see an end to arms exports, why not counteract this by making a donation of £30 to help CAAT with its work?

Notes
  1. For a comprehensive study of arms industry subsidies see Oxford Research Group/Saferworld The Subsidy Trap, July 2001. Most of CAAT's figures are taken from this study.
  2. For more details see CAAT's Subsidies Factsheet.
  3. 'S Africa agrees arms spending spree', The Independent, 27.8.97
  4. 'Lord Gilbert announces extended military co-operation with South Africa', MoD Press Release 206/98, 5.8.98
  5. 'UK's £4bn for South Africa', Sunday Business 3.1.99
  6. Declaration of Intent between governments of The Republic of South Africa and the UK, 7.1.99
  7. 'Minister denies corruption', The Guardian 20.6.01
  8. 'History on a wing and a prayer', Business Times 17.5.98
  9. 'BAe £4m eases arms deal', Independent on Sunday, 28.11.99
  10. 'British Aerospace pledges R4.5m to empower MK veterans', Business Report 26.3.98; 'Inquiry call over BAE South African donation', Daily Telegraph, 7.3.01