The UK government is wasting billions of pounds of taxpayers’ money on “corporate benefits” for arms manufacturers that are tied to huge returns for shareholders, a new report claims.
The study, by the thinktank Common Wealth, suggests that long-term purchase orders and direct subsidies, which sometimes account for more than 90% of the research and development budgets of private defense companies, allowing leading defense companies to hand out billions of pounds to their shareholders. .
However, despite being “supported by the state in a way that no other sector”, the arms manufacturers have failed to provide government work, the authors of the report emphasized.
Common Wealth highlights the case of the new Ajax armored vehicle being developed for the Ministry of Defense. At least £3.2bn of public money has been sunk into the project over the past decade, but the company hired by the MoD to develop the vehicles, US-based General Dynamics, has been plagued by setbacks.
The Ajax has had its full operational date pushed back to 2029, from the original target of 2017, after the prototypes were shaken so badly they were unable to fire while in motion, damaging the troops’ hearing. which tested them and hurt other personnel. .
Despite this, General Dynamics has paid out $25.6bn (£20bn) to shareholders since it was awarded the contract in 2014. This is an example of what researchers at Common Wealth say is a pattern of huge investor returns in the companies, thanks to, it claims , “levels of state support above any similar manufacturing sector”.
The report found that BAE Systems pays just 14.35% of its own R&D costs, despite boasting £21.25bn in revenue by 2022. QinetiQ, another major UK private arms manufacturer with £1.58 bn annual turnover, paying only 4.5% of its R&D costs. .
Meanwhile investors in both companies have seen huge returns over that period – QinetiQ’s 23.2% return on investor capital is almost double the FTSE average of 11.7%.
The company is paying out £43m to shareholders in 2022-2023, with the dividend per share worth double what it was a decade ago. BAE is currently paying almost £1bn in dividends by 2022.
Common Wealth researchers found that three major investment companies (BlackRock, Vanguard and State Street) own a combined average of 16% of shares issued in the arms sector.
The MoD’s approach to contracts is another focus of the report. The ministry has committed to spending £242.3bn on equipment procurement and support over the next 10 years, which the report says is in stark contrast to other manufacturing industries, where “comparable 10-year procurement plans in public is out of place”.
A recent National Audit Office review of the MoD’s equipment plan warned that the ministry “faces increasing risks to delivering equipment projects on budget and on schedule” and suggested that parts of the plan could cost £5.2bn more than said.
“Subsidies, procurement spending and institutional support feed a toxic marriage between the UK military industry, its investors and key export customers,” Khem Rogaly, the lead researcher behind the report, told the observers. “Sometimes, despite a steady flow of taxpayer cash, things never get delivered.”
The report found that 47% of the billion pounds of arms exports made by 2022 went to members of the Gulf Cooperation Council – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
“Arms companies are officially private companies, but the state supports them in a way that no other sector does,” said Anna Stavrianakis, a professor of international relations at the University of Sussex, and one of the two academics who endorsed the report.
“Asset managers such as BlackRock, Vanguard and Capital Group have a significant proportion of the arms industry, meaning that arms production is effectively a corporate welfare system. The costs are socialized but the profits privatized,” he added.
BAE Systems said the “focus on operational efficiencies” allowed for “increased investment in skills, technology and facilities”.
It added that research commissioned by the company suggests that BAE will directly and indirectly contribute £11.1bn to the UK economy by 2022 and support 132,000 UK jobs, while highlighting that £1.4bn of R&D which is self-funded and government helps to “sustain the UK’s valuable engineering. and technology sectors”.
The MoD said it was “misleading to draw a line between government spending and revenue”, adding that “the defense industry not only always holds the necessary specialist skills, but also the means in production for world-leading capabilities”.
“These are important R&D partners and the The UK’s defense industry provides billions of pounds of benefits to the country’s economy, including thousands of highly skilled jobs.
It added that the Ajax armored vehicle contract had a fixed price of £5.5bn, and that the government was not “embarrassed by the reasoned decision to bring back a project”.
It continued: “Most broadly, we are investing at least £6.6bn in research and development to ensure that defense can maintain an operational advantage.”
General Dynamics and QinetiQ did not respond to The observer request for comment.
