The case against ECGD underwriting of arms sales

Summary

Apart from the moral case against arms exports, there are solid economic grounds for the UK Export Credits Guarantee Department (ECGD) not to support military deals abroad. The ECGD’s own figures make it clear that its underwriting of defence related exports has consistently lost the department money every year for the past 12 years. This strongly suggests that arms sales are being deliberately subsidised, contends this presentation at an NGO Seminar on Export Credit Reform, held in the House of Commons, London.

Main text

The Religious Society of Friends has a settled opposition to arms exports:

• On the basis of the harm arms may cause in warfare
• The distortion that they cause to the economies of developing countries with the diversion of scant resources from productive expenditure
• The contribution they make to instability and conflict in some of the poorest parts of the world.

Quite apart from these issues of principle there are solid domestic economic grounds for the withdrawal of ECGD from the underwriting of arms related contracts. Not only is the underwriting of arms exports making a loss but it appears to conflict with ministerial statements of principle. In an organization, which exists in the twilight of legality and transparency previous papers have highlighted something of the conflict between aspirations and practice.

For many years concerns have been expressed that ECGD has been used to subsidise the arms trade. ECGD and Ministers responding on its behalf have countered almost as a matter of convention that ECGD involves insurance and that criticisms suggesting it provides subsidies to the defence sector are misconceived. ECGD provides insurance not subsidies. But is precisely by the losses that it makes in this sector of insurance that it is providing subsidies. The issue has been complicated both because in any one year in its accounts, claims paid will relate to previous years premiums and present premiums will relate to claims yet to be paid. Profit and loss can only be calculated retrospectively and over a period of time. Such calculations have been made harder by a lack of transparency in that ECGD and an unwillingness to disaggregate figures so as to show profit and loss for individual sectors. Answers to successive PQs have both promised detailed disaggregation¹ and then refused to supply disaggregated figures.²

What is becomingly increasingly clear is over the longer term ECGD is making a loss specifically in relation to defence related exports.

ECGD is required by the government to "operate with a reasonable confidence of breaking even" and to add a reserve margin to the premium, yet in relation to the arms sector it has made a loss to every one of the past twelve years. In any one year a loss could be an anomaly what is inconceivable is that there should be a loss in twelve consecutive years without their being a policy of either monumental incompetence or deliberate subsidy. This evidence of subsidy is not on the basis of flimsy and selective figures but on the basis of government accounting released in response to Parliamentary Questions.³

The significance of these figures is that they present premiums; recoveries and losses disaggregated for the Defence sector. To give figures for 1999/2000, in relation to the export of arms, ECGD paid out claims of £152 millions but recovered only £9 millions. Against that the Premiums were £27 million. Over a ten year period while premiums in this sector amounted to £213 million claims paid out were £667 million, over three times that figures. In not one of these ten years have premiums earned exceeded payments made. Figures for the years 2000/2001 and provisional figures for 2001/2002 do nothing to suggest that there has been any change in this pattern

More sensational figures could be used to support the economic case for an end to ECGD subsidies for the arms trade. Matthew Parris has estimated that Sadam Hussein benefited from £630 million pounds of arms subsidies for which not one penny was recovered.

Samuel Brittain has made a compelling economic case in the Financial Times. But on the case of the Government`s own figures the ECGD is making a loss in its underwriting of arms sales.

The case against ECGD underwriting of the arms trade is compelling:

• There is a moral case for ECGD withdrawal from the underwriting of arms exports;
• an economic case;
• a case of transparency;
• when taken together with the conflict between Ministerial statement and practice the case becomes overwhelming ..

With good will reform is possible.

To end on a positive note in the Mauritius Mandate of 1998 the Chancellor of the Exchequer announced the end of export sales for non-productive expenditure to the world`s most highly indebted poor countries. That is warmly to be welcomed what is needed is to extend that first to all developing countries and then globally.

Michael Bartlet - Religious Society of Friends
Friends House, 173 Euston Road
London NW1 2BJ

Tel: 0207 663 1107

Notes

1 Richard Body PQ 97/2987 12 March 1998

2 Harry Cohen PQ 2001/191 10 July 2001

3 Paul Stinchcombe PQs 12 June 2000 Hansard 463 W and PQ number 2001/2153 14 January 2002