Code GR16
Title Introduction to the UK defence industry
Author
Date Jan 1997

 

Overview

 

The UK defence industry is a significant component of the UK economy through its contribution to exports, R&D, production and above all employment.

The defence industrial base is a very diverse collection of companies that supply military or dual use equipment to the Ministry of Defence or foreign governments.

Britain’s most important industrial sectors, like aerospace, electronics and vehicle manufacture, are reliant upon defence contracts to fill order books and justify R&D expenditure.

Despite heavy job losses in recent years the defence industrial base remains one of the largest sectors of the UK manufacturing economy.

The UK defence industry has achieved considerable export successes and has been No 2 in the world for the last few years.

 

Statistics

 

Defence industry sales 1995: 14.563 billion

 Ministry of Defence equipment expenditure 1996/7: 8.460 billion

 Expenditure on defence industry R&D 1995: 2.165 billion

Employment from exports and UK orders in the defence industry 1995: 360,000

Service personnel and MoD civilians (1 April1996): 354,000

Regular and volunteer reserves, auxiliary forces (1 April 1996): 327,000

In 1994 there were 11,000 firms on the Ministry of Defence Contractors List. (the UK Defence Forum database identifies approximately 5,000)

In 1995 172 defence companies were paid 5 million or more by the MoD

Identified export orders in 1995: 4.970 billion

  

 

Issues

Technology

Defence equipment emphasises high technology and performance. Defence orders represent an investment in cutting-edge technology from UK firms. The top four areas of MoD equipment expenditure in 1995 were aerospace,

electronics, shipbuilding, and data processing equipment. All these areas have significant civil markets, defence orders enable UK firms to maintain a technological lead over our international competitors. in 1993 defence R&D employed 13,000 scientists and engineers in UK firms - some 15% of all scientists and engineers employed on all R&D in UK businesses. About 65% of defence R&D is allocated to aerospace and electrical machinery.

 

Job losses

Between 1990 and 1995 defence industry employment fell from 550,000 to 360,000. The root cause of the job losses was the cuts in the value of UK defence expenditure and the export market following the end of the Cold War

Between 1990 and 1995 real defence expenditure was cut by 6.827 billion (using 1994/5 prices). Its share of GDP fell from 4.2% in 1990 to 3.5% in 1994.

Exports

The UK is the world’s second largest exporter of military equipment. However its sales are dwarfed by the USA. In 1994 the UK had 15% of the world market, while the US controlled 56%. The provisional figures for 1996 show the UK taking 25% of the world market. During recent years the most important UK markets have been the Middle East, South-east Asia, and other Nato states. In recent years the two most important customers have been Saudi Arabia and the USA.

It is estimated that 90,000 jobs are dependant upon defence exports.

The value of defence to the general economy

The defence industrial base accounted for 2.6% of UK GDP in 1993.

In the same year it was estimated that the defence industry accounted for 10% of UK manufacturing output and 8% of industry employment.

There are highly complex supply networks of firms that supply components, materials, and services to defence manufacturers that are little understood but account for thousands more jobs.

Earnings and R&D from defence act as a motor for the rest of the economy, supplying it with technology and funds for investment.

 

The role of the Ministry of Defence

The MoD is the largest single customer of UK industry. Some 270,000 jobs are dependant upon government contracts.

Aerospace, shipbuilding and ordnance are dependant upon defence orders. Further cuts in defence spending would put these industries at risk.

Procurement decisions made by the MoD affect the size and nature of both the defence industry and manufacturing as a whole. Expenditure and R&D funds can be directed toward key industries and diversification.

The Ministry of Defence has the opportunity to use its expenditure to enhance the capability of UK industry and safeguard the jobs and economic prosperity of hundreds of thousands of workers.

 

Sources

UK defence statistics, HMSO: London, 1996

Statement on the Defence Estimates, HMSO: London, 1996

Sipri Yearbook 1996, Oxford University Press: Oxford, 1996

Study of the value of the Defence Industry to the UK economy, by Hartley and Hooper, University of York, 1995