Arms Export Subsidies

Arms exports are widely perceived as a vast money earner for the UK. But this is not the case. The UK government provides subsidies through a whole range of dedicated services in support of arms deals. These range from government ministers travelling the world to push arms exports, through financial support for individual deals, to the Defence Export Services Organisation (DESO) and direct support for arms exhibitions such as DSEi. Some subsidies are a matter of official record and some, due to commercial confidentiality, are rendered almost unquantifiable. However, CAAT has estimated that the level of subsidy provided to the UK arms industry for exports is around three quarters of a billion pounds per year.¹

The main areas of subsidy are:

Marketing and Promotion: Marketing support includes everything from the costs of DSEi and DESO, to the use of military personnel and defence attachés to support bids for weapons contracts. In addition, high-level official visits from the Prime Minister downwards, support companies trying to win contracts

Financing: Financing comes through export credit guarantees organised by the Department of Trade and Industry's Export Credits Guarantee Department (ECGD). These guarantees underwrite arms payments with tax-payers' money – essentially providing cheap insurance cover for exporters. While guarantees are available to any sector, more and more cover is going to arms companies. While only about 2% of exports are military, these claimed 50% of ECGD cover last year.

MoD procurement: When a contract for equipment for the UK armed forces comes up, it is often possible to buy cheaper (and arguably better) military equipment from abroad. However, government ministers often 'buy British', helping companies sell their equipment abroad. In July 2003, BAE Systems sources were reported as saying that export orders were 'a vital factor' in the recent decision by the government to buy BAE Systems Hawk jets.² The Treasury had estimated that opening the bid to competition from other companies would save the UK tax-payer £1 billion. Choosing more expensive equipment in order to support exports is a direct subsidy to the arms trade.

Research and Development: The UK government's budget for military R&D is approximately £2.5 billion. This spending supports exports as well as domestic procurement and the MoD is supposed to charge a levy on exports to recoup some of the costs. However, the levy is drastically watered down to 'what the market will bear'. The difference between the actual levy income and a realistic levy amounts to a subsidy of several hundred million pounds.

Given the 70,000 employees estimated to be working on military exports,³ a subsidy of three quarters of a billion pounds amounts to nearly £11,000 for each job, each year!

1 CAAT, 'Subsidies factsheet', February 2002
2 Times, 'Cabinet battle over British jet contract', 31.7.03
3 MoD, 'UK Defence Statistics 2002', The Stationery Office, 2002