Destination of the Defence Pound

RUSI have released a very interesting paper on defence acquisition finances and a measure of what the return on investment is when ‘buying British’

Click the image to read more.

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This is a fascinating subject, they have calculated that 28% of equipment and services sourced from UK, or where the supply chain is largely UK based, is returned to the government in income tax and national insurance contributions alone. Add in corporation tax and other factors and the figure rises, one would assume.

It is a hugely complex subject but the simplistic view is that when buying British the government gets an effective third off the sticker price. Whether this is valid in a globalised defence market where supply chains or complex and where international corporations have subsidiaries is another complex issue.

Buying off the shelf may seem superficially attractive but it is fraught with risk, as we have experienced with items as simple as Mastiff spares or ammunition.

From a non joined up MoD only perspective, it never sees direct revenue from these inflows, in effect, the MoD is subsidising the Treasury, so why should it pay the premium when it never sees the benefit but again, one could argue that is rather simplistic because it all comes and goes from the same pot.

No doubt this will add fuel to the debate on the upcoming defence industry strategy policy that is supposedly ‘imminent’, signposted by the Green Paper Equipment, Support and Technology, on  and various reports have indicated that the policy will largely focus on buying off the shelf products from overseas where there is a financial saving to be made.

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Fluffy Thoughts
Fluffy Thoughts
January 20, 2012 5:14 pm

As swerve points-out everywhere but here; we are not in the situation of the ‘Fifties whereby we can spend 11% of GDP on the UK industrial-defence base. Better to spend it on { EU | DFID | NHS }.

Don’t start me on the mulitplier-effect…! :(

Brian Black
Brian Black
January 21, 2012 3:06 pm

The paper uses an odd example of buying 14 Chinooks from Boeing USA while AgustaWestland jobs go in the UK. But unless I’m very mistaken, if we had bought AW licensed Chinooks, they would just be built in Italy which is where AW’s Chinook production line is located.
However, we could have saved cash on those 14 Chinooks if we’d done what Australia and the UAE have subsequently done, which is buy US spec Chinooks from Boeing on the back of the US Army’s much larger order. Instead we make our own tiny order for the base aircraft, then fit UK specific avionics, coms, flir, defensive aides etc.

Phil Darley
January 21, 2012 7:42 pm

Hang on a minute, the government defaulted on the last Defence Industrial Strategy. Why would the Defence industry be remotely interested. BAE was shafted.

It took on the costs of harmonising / rationalising the Naval ship building industry only to have the T45 cut in half, the government tried to cancel CVF, MARS and T26 cut/ delayed.

On the aircraft front, the Typhoon numbers have been slashed, updates and enhancements shelved. The MRA4 scrapped and F35 in serious trouble.

Turning to AFVs… MRAV/BOXER which BAE was part of was a canned and FRES SV went to GD who don’t even have a UK AFV factory. GD also won the Warrior upgrade.

The last DII was a farce. If I was BAE I would:

A. Boycott any industry/MoD strategy

B. Exit the UK market ASAP