Is Britain's arms trade making a killing?

Few prime ministers have been as tireless in promoting Britain's arms industry as David Cameron. He calls it a key part of the UK's economy, but do the figures really add up?

In the town centre of Barrow-in-Furness in Cumbria, between McDonald's and Carphone Warehouse, there is an unusual statue. Four firm-jawed figures in factory clothes stand back-to-back. One wears a flat cap, one wields a sledgehammer, one has a welder's visor. All of them are in purposeful poses, idealised workers cast in bronze. Around the statue base run the words "labour", "courage" and "progress". Its structure feels like something from the Soviet Union in the 30s.
But the statue is British and only eight years old. Its subject and design, slightly startling in a country that stopped celebrating most factory workers decades ago, is explained by a small plaque. Part of the statue was "donated by BAE Systems Submarines".
Barrow is a defence industry town. It builds Britain's nuclear submarines. And in defence the way of doing things – culturally, economically, politically – is different from other British industries. In defence, manufacturing jobs still have prestige, long-term prospects and political leverage. Unions are strong, but work closely with management. Apprenticeships are sought-after and numerous. Political support for the business comes from across the ideological spectrum: when the European Fighter Aircraft collaboration between Britain, Germany, Spain and Italy, now known as the Typhoon, was threatened with cancellation in the 90s, even the Socialist Workers party protested ("No Closures. No job losses. Stuff the Tories.") This week, David Cameron's much-hyped trade visit to India is promoting the Typhoon as one of its key objectives.
Robin Cook, the late Labour minister, a rare defence industry critic in Westminster, wrote in his 2004 diaries that the then chairman of BAE, Dick Evans, seemed to have "the key to the garden door of No 10". Roger Johnston, a defence analyst at Edison Investment Research, says: "As an industry, it is reasonably unique in how it's viewed within government."
In this business, in defiance of the past three decades' free-market orthodoxies, the state is pivotal. Accompanying Cameron in India are representatives of a dozen British or partly British-based companies – the industry is clever at blurring such definitions – with defence interests: Rolls-Royce, Serco, BAE, EADS, Thales, Atkins, Cobham, JCB, Strongfield Technologies, MBDA, Ultra Electronics.
The British state is also the industry's biggest customer, with our armed forces accounting for four-fifths of its annual sales; the provider of an "export support team", including "serving British army personnel"; the provider of export insurance, for a fee, in case foreign customers fail to pay for products. Above all, the state is the provider of the wars that act as the industry's best showcase.
"The Typhoon fighter jet performed outstandingly in Libya," said Cameron in December, before an official visit to the Middle East. "So it's no surprise that Oman want to add this aircraft to their fleet." On landing in the wealthy Gulf state, he strode quickly from his prime ministerial plane, in front of the TV cameras, to where a pair of dart-like Typhoons had been specially parked in the perfect, sales-catalogue sunshine, barely a hundred yards away. He climbed a set of steps to the open cockpit of one of the fighters, and held a stagey conversation with its pilot. That day, it was confirmed that Oman had bought a dozen of the aircraft.
"Boosting exports is vital for economic growth, and that's why I'm doing all I can to promote British business … so [it] can thrive in the global race," said Cameron on the eve of his Oman trip. "Every country in the world has a right to self-defence, and I'm determined to put Britain's first-class defence industry at the forefront of this market, supporting 300,000 jobs across the country."
Despite leading an overcommitted, often embattled government, he has frequently found time for foreign visits with a defence exports element. He has been to India before, in July 2010; Egypt and Kuwait in February 2011; Saudi Arabia in January 2012; Indonesia, Japan, Burma, Malaysia and Singapore in April 2012; Brazil in September 2012; and Saudi Arabia, Dubai and Abu Dhabi in November 2012. Throughout, his salesmanship and justifying rhetoric have been strikingly unashamed.
"The PM has done a fantastic job," says Howard Wheeldon, director of policy for ADS, a defence trade body. "He has picked up the value of defence to the national economy. Other PMs haven't, necessarily. Mrs T was very supportive of defence exports … Brown wasn't, but Blair was …"
Kaye Stearman, of the British activist group Campaign Against Arms Trade (CAAT) says: "We're quite gobsmacked. For decades, governments have promoted arms sales, but there was always some degree of embarrassment … The coalition are much more blatant – quite shameless."
Last March Peter Luff, the minister for defence equipment – the position itself is telling – said in a speech in London: "The individual UK armed forces are in themselves a brand … If they are using a particular piece of kit, then that's the kind of endorsement a lot of companies are very keen indeed to have." In 2011, the then defence secretary Liam Fox said in a speech at Defence and Security Equipment International, a huge biennial trade fair held at the ExCel Centre in east London: "Defence and security exports play a key role in promoting our foreign policy objectives: building relationships … and spreading values."
This April, a Royal Navy frigate is scheduled to arrive in Tripoli in Libya, reportedly with British companies exhibiting on board for a Whitehall-backed "defence and security industry day". Even government policy on the London Olympics has produced a pay-off for the defence business. The brand of missiles controversially deployed around the Olympic site, Starstreak, made by Thales in Belfast, was sold to Thailand four months later. John Warehand of Thales says the London deployment was a factor in the sale, and is still contributing to "interest" in the missiles "from countries in the Middle East and Asia".

A Rapier short-range air defence system at Blackheath, London, in 2012. Their deployment during the Olympics boosted interest from foreign buyers. Photograph: Lewis Whyld/PA Archive/Press Association Ima With the government desperate for economic growth, and seemingly just as quick as its recent predecessors to involve Britain in overseas conflicts, the defence industry's position is in some ways stronger than ever. Last month, Cameron suggested that if he was re-elected in 2015 British military spending would be exempt from the seemingly endless austerity planned for every other branch of government.
But how important is the defence industry to Britain really? The assertion that it supports "300,000 jobs", repeated like a mantra in recent years by Cameron, trade unions with defence members and the industry itself, is less conclusive than it appears. It is 1% of the UK workforce. According to the government-run UK Trade & Investment (UKTI), almost twice as many Britons work in food and drink manufacturing. And according to Ian Prichard of CAAT, the 300,000 figure is an exaggeration: "It includes all the ancillary services connected with defence, such as the people looking after the [ministry of] defence estates. The actual defence industry workforce is, maximum, 215,000, and could well be 30,000 or 40,000 less." In 2003, Tony Blair told a prime ministerial press conference: "There are roughly 100,000 jobs in this country that depend on defence or associated industries."
The figure of 300,000, says CAAT, is also based on six-year-old government statistics. Conveniently for the industry, an official tally is no longer kept, for the defence workforce has been shrinking for decades: from 750,000 in 1980 in the nervous final phase of the cold war, according to the Defence Manufacturers Association, to 475,000 in 1989 as the Berlin Wall came down, to 350,000 in 1997 when Blair came to power. Despite Cameron's efforts, Johnston says the workforce will "probably continue to trend down".
The industry remains important by global standards. After the US, the world's biggest defence exporter in 2011, with a 35% market share, Britain came second, with a 15% share, narrowly ahead of Russia and France, according to UKTI. There are only a few other businesses – such as pharmaceuticals and pop music – where Britain is still so internationally prominent. Yet like other defence statistics, this ranking should be treated with caution. The value of military exports, with their complex, often politicised, sometimes deliberately slow and secretive payment and delivery schedules, is notoriously difficult to measure. "Our own government's figures are not very transparent in terms of what they're counting," says Professor Malcolm Chalmers of the defence thinktank the Royal United Services Institute. "They show a much higher level of export sales than other sources do. The American Congressional estimates of our defence exports are much less."
But a few things about the industry can be said with certainty. Air warfare has for at least a decade been by far its most important overseas market. And the keenest foreign buyers of British military products have for at least as long been Middle Eastern countries, particularly Saudi Arabia, and the US.
A customer checks out a grenade launcher at the Defence Systems and Equipment International Arms Fair at London's Excel Centre. Photograph: Rex Features Our defence business used to be broader-based. Barrow is a remote peninsula town that was created in a few decades by Victorian industrialists. Starting in the 1880s, naval shipyards and arms factories were established on its flat, watery western extremities. As well as pioneering military submarines, they produced guns and torpedos, warships and airships, depth charges and aircraft carriers. Barrow products were sold to Turkey, Chile, Israel, Iran, Portugal and Japan, and to Britain's own expanding armed forces. During the first world war, the dockyard workforce hit a peak of 30,000, and whole Barrow suburbs were built to house it.
"When I started in the yard in 1960, everything was done there," says Terry Waiting, a former leader of Barrow council who still works in the town for BAE – Barrow's politics and dominant industry have long been intimately intertwined. "We had our own foundries and engineering department." At lunchtime, bicycling workers would pour out of the yard and into Barrow's many pubs: "You used to have three pints, pie and peas, and go straight back to work."
In the 60s, the British defence industry was still benefitting from the fact that two potential rivals, Germany and Japan, were, as the second world war's defeated aggressors, unable to act as major military exporters. Meanwhile, the cold war was underway, Britain still had close ties to its former empire and the booming global oil trade was making many Middle Eastern countries rich but militarily anxious.
Overseas markets for our defence products were plentiful. In 1966, with the British economy struggling, Harold Wilson's Labour government set up the Defence Export Services Organisation (Deso). Part of the Ministry of Defence, but employing arms company executives as well as civil servants, Deso quickly learned to chase export orders without too many scruples. "Bribery has always played a role in the sale of weapons," Denis Healey, Wilson's defence secretary when Deso was established, told this newspaper in 2007. "In the Middle East, people couldn't buy weapons unless you bribed them to do so, and that was particularly true in Saudi Arabia."
During the 70s and 80s, British companies, first as nationalised then as privatised concerns, sometimes sold weapons to both sides in potential conflicts. A decade before the Falklands war, despite deteriorating Anglo-Argentinian relations, Barrow built identical destroyers for the two countries. But defence employees in the town, like defence employees generally, have always been good at justifying what they do, both to themselves and others. "I was in CND throughout the 60s and 70s," says Waiting. "I've still got a lot of time for the ideals of CND. In an ideal world, perhaps we might make big, beautiful liners in Barrow like we also did when I started. But nowadays, really, what else can you do in Barrow apart from build submarines? And they're good jobs."
Azza Samms is the union convenor for the submarine plant's manual workers. He started in the Barrow shipyard in 1975, following after his father and grandfather, a common local pattern. He says: "Everybody in Britain wants to be safe in their bed at night, but they don't want to build the submarines. And we build the submarines, not the [nuclear] missiles."

The plant looms over the town, a single vast building, corrugated and pale, like a cross between a grain silo and a medieval cathedral. Two thousand people work inside the near-windowless, 10-storey walls of Devonshire Dock Hall; and more than 3,000 more in satellite submarine-building facilities across western Barrow. As the defence industry always does, the submarine yard alternates between publicity-seeking – crowds of locals are invited for submarine launches – and high security – "We have Americans working here on the missile sections, but they have to be accompanied at all times," says Samms.
Margaret Thatcher opened the hall in 1986. Samms, a Labour supporter, stayed away from the ceremony. In the 80s, his party had turned critical of the defence business: "We are alarmed by the growth of the arms trade," said its 1983 general election manifesto. "Labour will limit Britain's arms sales abroad." Under the leadership of Michael Foot and Neil Kinnock, the party planned to reduce British manufacturing's dependency on defence by converting the factories involved to civilian use. At the 1983 election, the Labour candidate in Barrow, a safe seat, was Albert Booth, new to the area and an advocate of unilateral nuclear disarmament. He led a CND march through the town.
Work underway on a section of the first Astute class submarine at Barrow-in-Furness. It was launched in 2007. Photograph: BAE Systems/AFP/Getty Images The Conservatives took Barrow. Labour did not win it back until 1992. Two years later, Blair became party leader and Labour began to shed its qualms about the defence business. By 1996, the party's policy handbook stated that the industry was "of vital importance to the nation's economic performance". Labour figures who still worried about the ethics of the arms trade, such as Cook, won a concession from their party that British defence products would not be granted the necessary government export licences if, as Cook declared on becoming foreign secretary in 1997, "there is a clearly identifiable risk that the proposed export might be used for internal repression". But this assurance was quickly undermined by the Blair government's decision to sell military jets, water cannon and armoured cars to authoritarian Indonesia.
As prime minister, like Cameron, Blair travelled widely to lobby for defence sales, to India, Saudi Arabia and the Czech Republic. In 2006, he pressured the Serious Fraud Office into dropping an investigation into alleged bribes paid by BAE to secure Saudi orders.
Yet Blair's arms industry advocacy was less public, and perhaps a little less desperate-seeming, than Cameron's. The wider British economy was booming, and in the treasury under the chancellor Gordon Brown there were many who felt that the defence industry was unnecessarily feather-bedded. "Officials said to me: 'There isn't a good case for subsidising the arms industry,'" says Stephen Timms, then a treasury minister. Anti-arms trade campaigners such as CAAT – "thoughtful, sensible" people, says Timms – told him the same thing. In 2007, the ethical and free-market arguments against the defence industry came together, and its unique Whitehall helper, Deso, was shut down.
The industry vented its fury via its many friends in the rightwing press. But the closure of Deso was arguably a last victory for the industry's opponents. A year later, the organisation was revived as the Defence & Security Organisation (DSO), a remarkably similar body, no longer based inside the Ministry of Defence but still part of government. Timms says a little world-wearily: "I don't think there's a possibility of this Deso sort of activity wholly disappearing." Even Ian Prichard of CAAT admits that currently, "It's hard to see a mechanism" for reducing the industry's power behind the scenes.
The real threats to the business may be less ideological. Britain remains the fourth-biggest military spender in the world, but the very scale of that spending – currently £34bn a year – makes it a tempting target for Whitehall economisers. Since the coalition's austerity programme began in 2010, "defence cuts really have bitten hard," says Wheeldon. Thousands of defence workers have been laid off. Tellingly, Cameron's commitment last month that the cuts would cease in 2015 was quickly softened into something more ambiguous by other government figures.
And if Britain is becoming a less certain market for the industry, then so are some of its foreign ones. Defence budgets are under pressure across the west. Cameron's arms-related trips to Asia, South America and the Middle East are partly a tacit acknowledgement that the industry will increasingly have to look to non-western markets – which are already busy with defence companies from other traditionally strong military exporters such as France and the US, trying to escape their own domestic difficulties. Cameron's hopes of selling the Typhoon to India depend on the collapse of an Indian order for the French Rafale fighter aircraft. Yesterday, he also had to defend an Anglo-Italian helicopter maker, AgustaWestland, against allegations that its Italian parent company, Finmeccanica, had used bribery to win a recent Indian order for the British-made helicopters.
"Exporting is not an easy game – never was," says Wheeldon. Nowadays, says Chalmers, "there is a market saturation issue." Meanwhile, for reasons of strategy, national pride and economic development, more countries are aiming to be, like Britain, as self-sufficient in defence manufacturing as possible. Foreigners bearing defence goods are received with less gratitude and credulity than they once were.
The defence business can be adaptable. It survived the end of two world wars and the cold war. British firms are now diversifying into highly profitable service contracts – offering export customers training in how to use British products, and British staff to maintain them; and "security" – alarm systems, surveillance systems, forensic equipment and anti-hacker protection. "There's more being spent on intelligence, reconnaissance and electronic gizmos," says Chalmers, "and less on big platforms" – the industry euphemism for machines that kill people.
In Barrow, they no longer build aircraft carriers, or destroyers, or surface warships. The manufacture of guns and munitions is almost gone too. The local ironworks closed in the 60s, the steelworks in the 80s.
What remains is the submarines, and the alternating local pride, confidence and anxiety around them. Currently, Barrow is making the Astute class of conventionally-armed nuclear submarines. The work will last until the "early 2020s", says BAE. If the next government approves a new generation of submarines to carry nuclear missiles – in a typical instance of how defence policy often outflanks democracy, the decision has been postponed until after the general election – then the beehive of Devonshire Dock Hall will be busy with that "from 2016 to the 2040s", says Samms. Few 21st-century British employees have that sort of security.
And yet, people in Barrow worry. "This town would die without the shipyard," he says. Unlike in the past, it now does almost no export work. Even with the yard, Barrow is the 32nd most deprived borough in the country. Hard to get to, its once-handsome streets now a little empty and tatty, for all its military history and gothic atmosphere it is unlikely ever to draw tourists like the Lake District a dozen miles north. And the north-west of England is ominously full of towns from which economic life has moved on.
The current Barrow MP is John Woodcock, a well-connected young Labour figure and defence hawk. He has a not-impregnable majority of 5,208. He says of the local submarine business – but he could equally be talking about the defence industry as a whole – "This is a sort of shark. It's got to keep going forward." Perhaps not a metaphor for pacifists to dwell on.