The figures show that investing in weapons waste resources as well as destabilising strife-riven countries

The merits of international peacekeeping operations will always be debatable. But, at the very least, troops taking part should not be shot at by subsidised weapons exported from their own country.

Yet this is the fate that very nearly overtook British armed forces in the 1990 Gulf war, an episode that resulted in the Scott inquiry into "arms to Iraq". French forces in the Gulf war were at risk from Mirage aircraft. Sir Anthony Parsons, who was ambassador to Iran before becoming foreign affairs adviser to Margaret Thatcher, became an opponent of arms sales when he saw from his window forces of the Shah using British weapons against unarmed demonstrators.

Do subsidised arms sales make even economic sense, when governments of all political persuasions have been trying to promote competition and move away from supporting national champions? Because of the secrecy that surrounds the issue - not to speak of the corrupt nature of many of the dealings - consistent facts and figures have been hard to come by.

Paul Ingram of the Oxford Research Group and Ian Davis of Saferworld now provide a comprehensive analysis, The Subsidy Trap.* They have examined every scrap of official information and have had discussions with military experts. Their own policy proposals consist of modest, step-by-step improvements. The UK ministry of defence has said that it will be publishing its own cost-benefit appraisal. But greater credibility would attach to an independent report, which should be undertaken by parliament's national audit office.

The present study contains two very different estimates. There is £420m a year in direct government services and subsidies to exports; and a much larger figure of "up to £4.25bn" a year for the "total UK defence industrial base". The composition of the smaller figure is given in the first table. The direct cost of the Defence Exports Services Organisation (DESO) is modest. But it is pivotal in organising many other kinds of official assistance. When the predecessor of DESO was first announced, the head was promoted as a "super arms salesman".

"Distortion of procurement choices" refers to cases where domestic purchases by the Ministry of Defence are influenced by a desire to promote arms sales. As for "tax breaks on bribes, etc", such expenditure is allowable against tax when it occurs outside the UK. Britain has still to embody in domestic legislation an international convention that would forbid the practice.

Half the total direct support arises from the acceptance of risk by the Export Credits Guarantee Department (ECGD). On average, about 27 per cent of its guarantees have been provided to arms exporters.

Since 1991 the ECGD has been instructed to break even on a cash basis. The biggest cost, however, arises because ECGD is not required to earn a normal return. The Subsidy Trap looks at the commercial premiums that weapons exporters would have had to pay to insure exports to the countries concerned. Another report, commissioned by the ECGD itself from the economic research firm NERA, advocated a gradual elimination of this subsidy.

The £420m of direct export support should be compared with total arms exports which have now come down to about £4bn a year, largely owing to the welcome end of the Al Yammamah arms-for-oil deal with Saudi Arabia - a subsidy of roughly 10 per cent, which is much higher than any civilian export aid.

The authors provide evidence that much of the research and development financed by the Ministry of Defence is for the purpose of supporting arms sales and they estimate this at £570m a year - but they cautiously do not add it in.

Where, however, does the much larger figure of "up to £4.25bn" come from? Apologists for subsidies for arms sales say that they provide economies of scale that reduce the cost of domestic government arms purchases. This is disputed by the new study. In any case, much bigger economies would arise from a free market policy.

Drawing on the work of Keith Hartley, a highly respected defence economist, the authors look at a variety of ways in which the UK could maintain its alliances at lower cost. That means treating weapons like any other industry and buying arms in the cheapest market. The greatest saving would come from a single European procurement agency. But simply buying "off the shelf" would save nearly £4bn.

The £4bn and £400bn figures cannot be added together. For if the UK government phased out its support for what is euphemistically called the "defence industrial base", its support for exports would disappear as well. The real argument, when all debating points are put aside, is whether Britain still needs to have such a base. There is obvious lobbying by a few large defence contractors. But, as usual, it is ideas that do most harm; and the underlying belief still is that the UK should be able to fight an important war on its own - or nearly so. This is a relic of pre-first-world-war thinking, when the military chiefs campaigned for the building of Dreadnoughts.

More down-to-earth concerns about exports and jobs tip the balance at the political level. The subsidy element is put at £4,600 per job, probably even more than agriculture receives. The study usefully reminds us that arms exports account for less than 1.2 per cent of overseas earnings. They are officially estimated to account for 90,000 jobs. This is less than 0.3 per cent of total UK employment and much less than the 240,000 people who leave the unemployment register each month. The effects would be sharper in a few individual constituencies in towns in the north-west and south-west; and the study has some suggestions for diversification, drawing on successful experience in other countries.

A little bit of the flexibility and retraining for which ministers are constantly arguing would be a small price to pay for ending arms exports to areas such as Zimbabwe and Indonesia. The Subsidy Trap has a list of 11 countries involved in internal or regional conflicts still receiving arms export licences in 1999.

One important topic not covered in detail is the export of small arms, which is responsible for so many deaths and maimings in places such as Africa, aspects of which will be the subject of a United Nations conference on Monday. This is because subsidies on arms sales benefit the big boys more than they do those who broker in the re-export of Kalashnikovs. Nevertheless the report's recommendations would have an influence even here; and it is bad news that business interests have watered down the bill to regulate the activities of UK traders and brokers.

* The Subsidy Trap is published by the Oxford Research Group and Saferworld (46 Grosvenor Gardens, London SW1W OEB)

More on arms

Exports and arms brief
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A sceptical look at the export drive
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Why arm sales are bad for Britain
The New Statesman 31/01/00