“We should not have acquired systems that we are not going to use, for conflict situations that do not exist and, what is worse, with funds that we did not have then and we do not have now.”

Former Spanish Secretary of Defence, Constantino Méndez

Debt & Military Spending

The Jubilee Debt Campaign produced a briefing in November 2012, auditing the debts owed to the UK’s Government department, UK Export Finance. The report revealed that:

  • 75% of Indonesia’s £400 million debt comes from loans for military equipment. This includes exports of aircraft and tanks later used against the Indonesian people. The Indonesian people currently pay £50 million a year on this debt.
  • 38% of Argentina’s debt comes from loans for military equipment. In the late-1970s, the UK government lent the brutal Argentinian dictatorship money to buy two warships, helicopters and missiles, which were later used to invade the Falkland Islands.
  • 56% of Ecuador’s debt comes from loans for military equipment.
  • 23% of Egypt’s debt comes from loans for military equipment – including military equipment to dictators Sadat and Mubarak in the 1970s and 1980s.
  • 11% of Zimbabwe’s debt comes from Land Rover vehicles, which were later used in internal repression
  • Only 1% of Iraq’s debt is said to come from military equipment. However, the Scott Report and investigations by journalists have previously revealed that some exports were classified as exports such as construction, which were actually used for activities such as building a chemical weapons factory.
  • The military spend related components of these historic odious debts still impact on the present day and they also give insight into the current relationship between the arms sellers of the north and the buyers of the global south.

Tax Avoidance:  Military Contractors, Taxation and Profits from War

The UK

According to Guardian’s analysis in 2015 of business accounts for the financial year 2012-13 (Kevin Farnsworth, University of York), UK taxpayers are handing businesses £93bn a year – equivalent to a transfer of more than £3,500 from each household. It also show that many of the  companies receiving the largest public grants over the past few years previously paid little or zero corporation tax.

The elements of the £93bn corporate handout include:

Subsidies and grants: £14.5bn This includes cash to the train operators to run services, subsidies to defence firms and grants to businesses to induce them to invest.

BAE Systems  is one of the largest recipients of government grants. In 2011, BAE made a tax settlement with HMRC that boosted earning by £40m. HMRC disputed how much of BAE’s spending (around £6bn) qualified for R&D tax credits between 2002 and 2008. Many considered this as another case of HMRC’s controversial ‘sweetheart’ tax deals with big corporations (Goldman Sachs and Vodafone) for them to significantly underpaying their tax bills.

Corporate tax benefits: £44bn

Insurance, advice and advocacy services: £406m Includes such vital services as the state’s insurance scheme for trading abroad – the export credit guarantee – of which the defence firm BAE Systems says: “Many of our customers require it.” It also includes government trade advisers and overseas business networks.

One of the least recognised forms of support provided to businesses lies in the everyday efforts of governments to advise, defend and support private companies in various ways. One estimate of the cost of marketing and other
support services that accrues to the defence industry alone, excluding export
credit guarantees, is in the region of £60m in 2010-11. (SIPRI, 2011)

UK Trade and Investment (UKTI)  provides examples of the forms of direct assistance it offers to exporting companies in its annual reports, including the defence industry:

In 2010, two major contracts, valued at over £1 billion, were placed by India. These were the sales of Hawk trainer aircraft by BAE Systems and AW101 VVIP helicopters by Agusta Westland. The conclusion of these contracts reflected the long-standing defence equipment relationship between the UK and India and the involvement of UKTI DSO [Defence and Security Organisation] in facilitating the necessary government-to-government
understandings that underpin the sale, and in supporting the final discussions between the companies and the Indian Government (UKTI Annual Report, 2010-11).

In addition to this, governments intervene directly to promote certain products or industries. When he was Prime Minister, Tony Blair intervened personally to persuade the Indian and Saudi governments respectively to award lucrative defence contracts to BAE.


Low to ‘Negative’ Tax

“Most Americans can rightfully complain, ‘I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.’ That’s an unacceptable situation.”

Report: Corporate Taxpayers & Corporate Tax Dodgers 2008-10

Citizens for Tax Justice released two reports on the corporate taxes in USA; on both occasions, they found that Boeing paid “paid less than nothing in aggregate federal income taxes” over both the entire 2001-2003 and the 2008-10 periods. Because of huge tax rebates Boeing received, their effective tax rates were -18.8% and -1.8% respectively during these two periods.  ‘Negative tax rates’ mean that Boeing made more after taxes than before taxes in those no-tax years.” In the aerospace and defense industry, the average effective tax rate were 1.6% and 17% respectively during the same two periods – much less than the federal corporate income tax rate, which is set at 35%.

Boeing and Lockheed, the two largest defense contractors in the world, prove that war is most certainly profitable – in every way.

While the US federal corporate income tax rate is 35%Citizens for Tax Justice in the USA have found that between 2001 and 2003, combined aerospace and defence industries’ profit was  $17.7bn, yet effectively they only paid a tax rate of 1.6%. In the same period, Boeing made a profit of $5.7bn, and yet received a tax rebate of $1.1bn.

Between 2008 and 2010, the same sector made profits of $71.6 billion in total and paid an effective tax rate of only 17%.  Again, Boeing made a large profit of $9.7 billion in this period, yet it received a tax rebate of $178m.

And according to USA based Institute for Policy Studies, Boeing has 38 subsidiaries in foreign tax haven jurisdiction, as of February 2011.

The War on Drugs – a development issue also linked to military spending

Current drug policy is having devastating consequences for poor people and is deeply damaging to the cause of development.  ​While​ the development sector, for the most part, has so far failed to address this​ issue, some groundbreaking work is underway to get it onto the development sector’s agenda. Health Poverty Action is calling on ‘governments, academics, civil society and all those with an interest in social justice, to support research into alternative approaches to the War on Drugs. We urgently need an evidence-based assessment of the alternatives, especially those that take a public health perspective.  This must be set about innovatively and with a completely open mind, actively encouraging creativity  and trialling new policy options.’

The so-called ‘war on drugs’ incurs massive military spending costs for the USA (and by extension also for its ‘allies’ in this ‘war’).

The UK is mired in this through its military involvement in Afghanistan –one of  the world’s largest supplier of opium, a crop that hit record levels in 2018 – and the war on drugs on that country is  seen an abject failure.

More widely, Billions of dollars are wasted globally on ineffective law enforcement, undermining international development and security,  resulting from an enforcement-led approach that puts organised crime in control of the trade. The Global Commission on Drug Policy, including the former presidents of Switzerland, Colombia, Mexico and Brazil, along with a former U.N. Secretary General, a former U.S. Secretary of State, the prime minister of Greece and the former U.N. High Commissioner for Human Rights, called for the drug war to shift its focus from enforcement and interdiction to medical treatment and harm-reduction policies.

The ‘war on drugs’ is deeply intertwined with the ‘war on terror’; while the US/NATO occupation of Afghanistan has cost the coalition hundreds of billions of dollars, Afghanistan has quickly became the world’s first true ‘narco-state.’ After just 5 years since 2001, Afghanistan’s production of opium jumped from a modest 185 tons to 8,200 tons, a remarkable 53 percent of the country’s GDP and 93 percent of global heroin supply. The UK took a lead role in counter-narcotics, and sent troops to Helmand which has been the biggest poppy cultivating province by far. Deployment in Helmand since 2006 has cost £15 million per day. Despite this, the cultivation of opium in Helmand has tripled from 25,500 hectares of land in 2005 to 75,000 hectares in 2012. The drug problem is not going away, and the coalition’s presence continues to cost billions of dollars per year.3

According to a U.S. Senate report (2011), the Latin American war on drugs has ‘largely failed’. From 2005 to 2009, the majority of counternarcotics contracts in Latin America went to only five major defense contractors: DynCorp, Lockheed Martin, Raytheon, ITT, and ARINC, who collectively received contracts worth over $1.8 billion; many of the contracts were awarded on a no-bid basis. The Department of Defense has spent $6.1 billion since 2005 to help detect planes and boats heading to the U.S. with drug payloads, as well as on surveillance and other intelligence operations.

The militarisation and privatisation of the ‘war on drugs’ shows no sign of stopping or even slowing down anytime soon. A  long overdue and fundamental re-evaluation of the war on drugs – a ‘war’ started under the Nixon administration – will inevitably have a knock-on effect on the global military spend and will especially impact on both the defence industry and the private military industry.