Annex 1: An analysis of direct financial costs and benefit
of defence exports for the UK
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benefits
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Contribution of exports in reducing MoD's R&D costs.
Figure based on Commercial Exploitation Levy receipts in the region of £30-50m p.a.
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£40m
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Contribution of exports in reducing overheads on the MoD's procurements.
To reflect the fact that overheads will vary to some extent if export orders are secured, this savings figure is based on a broad assumption that half of the reported MoD share of overheads would arise with export orders, and without those exports half the overheads would remain as fixed costs.
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£163m
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£203m
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costs
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Higher cost of procuring nationally to bolster exports.
Figure based on an estimate that 15% might be saved if all procurements were competitive (rather than in support of national-preference as some have been—eg the £300m premium on selecting EH101 helicopters), and 10% of this saving being attributable to the desire to bolster exports.
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£120m
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Net cost of DESO (average over 10 years)
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£17m
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Time given by Services' attachés overseas to promote UK exports.
Figure based on attachés giving a third of their time to export promotion—a figure derived from an NAO survey in 1989 (HC 303, 1988-89).
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£8m
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Military aid in support of exports.
Figure based on a broad assumption that half of the cost of training provided for foreign forces might be attributable to export promotion.
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£16m
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ECGD costs attributable to arms exports (see paragraph 11 of the report).
Figure based on £823m average annual net cost (including losses) of ECGD activities over the last 10 years (£587m pa on insurance cover and loan guarantee pay-outs, and £236m pa on subsidised interest payments), and assuming that the 29% of ECGD business that related to defence trade also represented the proportion of defence-related ECGD costs.
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£239m
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Use of overseas aid to promote UK arms exports.
Figure taken from the Pergau Dam case, whose £256m cost was primarily intended to support a 10-year programme of defence exports.
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£26m
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Other promotional activities (forces representation at overseas airshows and trade fairs etc.)
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£5m
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£431m
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Net annual cost
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£228m
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Source: Centre for Defence of Economics, University of York.
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