The economicThe economic contribution contribution of BAE of BAE Systems to the UK in 2009 Contents
Executive Summary ...... 1
1 Introduction ...... 4 1.1 BAE Systems in the UK...... 4
2 The direct economic contribution of BAE Systems...... 8 2.1 Employment at BAE Systems...... 8 2.1.1 Regional contribution to employment...... 8 2.1.2 Contribution to UK skilled employment...... 9 2.2 Fixed investment at BAE Systems ...... 10 2.3 Exports of BAE Systems ...... 10 2.4 Value added of BAE Systems ...... 11 2.5 Tax contribution of BAE Systems...... 12 2.6 Research and Development via BAE Systems ...... 13
3 The indirect and induced economic contribution of BAE Systems ...... 14 3.1 Indirect employment supported by BAE Systems ...... 14 3.2 Indirect value added supported by BAE Systems ...... 16 3.3 Indirect contribution to taxes supported by BAE Systems ...... 18 3.4 Induced value added, employment and tax supported by BAE Systems ...... 18 3.5 Sum of direct, indirect and induced economic contributions of BAE Systems...... 19
4 Regional and local development ...... 20 4.1 Introduction...... 20 4.2 The Policy Context ...... 20 4.3 BAE Systems in the knowledge economy landscape ...... 22 4.4 The wider impacts of BAE Systems procurement...... 31
5 The catalytic and dynamic contribution of BAE Systems...... 33 5.1 Impact of R&D spending...... 34 5.2 Skills, education and innovation within BAE Systems...... 37 5.3 BAE Systems’ wider contribution to skills, education and innovation ...... 38 5.4 Corporate Responsibility Programmes...... 38
Appendix: Economic contribution of Warton...... 40 A.1 Key findings ...... 40 A.2 Introduction...... 40 A.3 Approach to measuring the contribution of Warton...... 40 A.4 Description of results ...... 41 A.5 The local employment impact of Warton ...... 42 A.6 The impact of procurement from Warton on the North West region ...... 46
Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Executive Summary
BAE Systems is a UK-headquartered principal defence systems supplier
BAE Systems is a global defence and security company headquartered in the UK. The company’s range of activities consists of the design, development and manufacturing of defence equipment/products (such as ships, submarines and aircraft), equipment preparation and support, cyber security, border and transport security, and high technology electronic systems. The company employed 97,200 people worldwide in 2009.
The company’s UK operations employed 42,360 people in 2009 measured on a full-time equivalent (FTE) basis. The company is the largest manufacturing-based employer in the UK in terms of the number of people employed, and is the country’s largest single private sector employer of professional engineers, with over 18,000 FTE engineering staff. Total revenues accruing to the UK part of the business were £9.2 billion in 2009.
BAE Systems represents a substantial base of intellectual capital in the UK, and continues to invest in maintaining and upgrading that capital.
BAE Systems makes major contributions to UK GDP, taxes, investment, R&D and skills
BAE Systems is a substantial contributor to the UK economy through employment, value added (GDP), taxes, investment and R&D spending.
In 2009 BAE Systems directly employed over 42,000 people in the UK on a FTE basis
The company’s direct (value-added) contribution to UK GDP was £3.3 billion in 2009 prices.
Productivity at BAE Systems, as measured by value added per FTE employee, was £78,175 in 2009. This was 85% higher than the estimated UK economy average of some £42,200, and 34% higher than the estimated average for the manufacturing sector of £58,300. Productivity at BAE Systems is above the estimated level in financial and business services.
In addition, the company’s UK operations generated net exports of £4.9 billion and contributed £653 million in taxes for the UK economy. Combined company and contract-funded R&D spending totalled nearly £900 million.
However, BAE Systems’ total economic impact is much greater than just its direct contribution. Its spending on goods and services supports jobs and GDP in firms and industries in the wider economy. These are the supply-chain or “indirect” benefits of BAE Systems to the UK economy. In 2009 BAE Systems spent an estimated £4.1 billion on the procurement of equipment, components, raw materials, rent, energy and services from UK suppliers.
In addition, the jobs dependent on the company (both direct and via supply-chain effects) stimulate consumer spending in the general economy. These are the “induced” benefits of BAE Systems to the UK economy. Thus, when indirect and induced effects are taken into account BAE Systems’ overall impact on the UK economy is even more significant, with the company supporting 125,000 jobs in total.
The indirect employment multiplier for BAE Systems is around 1.2. This means for every 10 jobs directly created by BAE Systems in the UK, another 12 jobs are supported in the supply chain. Accounting for induced effects a further 7 jobs are supported in the wider economy.
1 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Furthermore, BAE Systems provides “catalytic” and “dynamic” contributions to the UK economy (such as support for R&D) which contribute to increased productivity and living standards in the longer term. It is estimated that R&D spending channelled through BAE Systems adds a cumulative 1% to UK GDP over a period of 12 years.
Table ES-1 below provides a summary of BAE Systems’ impacts on the UK economy.
Table ES.1: Summary of BAE Systems’ economic impact on the UK economy, 2009
Direct Indirect Induced Total contribution contribution contribution contribution Employment (FTE jobs) 42,360 52,088 31,000 125,448 Investment (£m) 198 - - 198 Exports (£m) 4,879 - - 4,879 Taxes (£m) 653 518 300 1,471 Value added (£m) 3,311 2,407 1,400 7,118 R&D Adds cumulative total of 1% to GDP over 12 years Community benefits £1.6 million donated to charity in UK in 2009. Source: BAE Systems, Oxford Economics
Productivity is high
BAE Systems’ staff productivity, as measured by value added per FTE employee, was approximately £78,175 in 2009. This is 85% above the national average and 34% higher than that in the overall manufacturing sector.
BAE Systems makes an important contribution to regional (knowledge) economies, particularly in the North West
The North West is by far the most important region within BAE Systems UK, accounting for about half of all of its UK employment. BAE Systems now accounts for exactly one in eight jobs in knowledge- intensive production within the North West.
The role of BAE Systems’ Warton site has a particular local significance, contributing over 8,700 jobs and £300 million in value added to the economy of the North-West. BAE Systems also has a particularly important impact in areas such as Barrow-in-Furness where nearly 80% of manufacturing jobs are provided by the company. The company also has a strong direct employment presence in the South East and Scotland.
BAE Systems is a major supporter of R&D
The R&D funds channelled through BAE Systems (and BAE Systems’ own internal R&D spending) have a catalytic or spillover effect, improving the productivity of other industries in the UK by advancing the technological frontier.
Breakthroughs and developments arising from BAE Systems’ R&D spending offer many potential applications in other areas. These include the DEMON “flapless” aircraft, developed in collaboration
2 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
with ten UK universities, which demonstrates a radical aerodynamic system for flight control. Other examples include the development of liquid armour with a range of potential uses in areas such as policing and emergency services. In addition BAE Systems research on UAV (unmanned aircraft vehicle) technology may have potential applications in emergency rescue services, border security and fire fighting while its research into anti-IED (Improvised Explosive Devices) could help clear former war zones of explosives and assist in a return to civilian life.
These potential applications are an illustration of the way BAE Systems’ work is an important contributor to the “knowledge economy” and can generate long term economic benefits across the broader economy.
There is a strong focus on internal staff development and encouraging science and technology education
Across the UK business as a whole, approximately £56 million was spent on staff training (including apprenticeship employment and training costs) and on encouraging science and technology education within the broader community in 2009. BAE Systems’ long-term commitment to the development of its employees has been integral to its success as a business and the value it contributes to the UK economy. Continued investment in its staff has enabled the company to have a highly skilled employee base, able to deliver its products and services. To this end, the company provided over 97,000 days of training for its employees during 2009.
BAE Systems also has a substantial presence in the higher education sector as a recruiter of apprentices and engineering graduates. The company hired 256 graduates in 2009. Together with those graduates recruited in 2008 there were a total of around 480 trainees in the company’s 2-year graduate programme in 2009. In addition a further 1,000 people were enrolled in the company’s apprenticeship programme.
The company also seeks to encourage careers in engineering within schools through travelling “roadshows” and through sponsorship of events such as the “Big Bang” - the UK’s largest ever national science, technology and engineering fair.
3 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
1 Introduction
Box 1.1: Key points
BAE Systems is a global defence and security company, headquartered in the UK and employing 97,200 people worldwide in 2009.
The company’s activities range from the design, development and manufacturing of defence equipment/products (such as ships, submarines and aircraft) to equipment preparation and support, cyber security, border and transport security, and high technology electronic systems.
Recent years have seen a pronounced shift towards the higher end of the value chain, as BAE Systems’ typical product has become progressively more knowledge intensive and service-oriented.
BAE Systems is the principal systems integrator in the defence field headquartered in the UK. It represents a substantial base of intellectual capital in the UK, and continues to invest in maintaining and upgrading that capital.
The company’s UK operations employed 42,360 persons in 2009 measured on a full- time equivalent (FTE) basis.
Total revenues accruing to the UK part of the business were £9.2 billion in 2009.
The company is the largest manufacturing-based employer in the UK measured in employment terms, and the largest single private sector employer of engineers in the UK.
BAE Systems is a global defence and security company. It is involved in manufacturing, design, development and support services in sectors as diverse as aerospace and information technology. Other key business areas include cyber security, and border and transport security.
It employs 97,200 staff globally 1, with employment centres within the UK, Australia, Saudi Arabia, South Africa, Sweden and the US. It is the 206th largest company in the world and the 15th largest UK company 2.
1.1 BAE Systems in the UK
BAE Systems employed 42,360 full-time equivalent 3 (FTE) employees in 2009 4 5.
1 BAE Systems (2009) Annual Report 2009 , excluding joint ventures.
2 Source: Forbes Global 2000 by sales (2010).
3 Full-time equivalent (FTE) employment is a measure of employment which accounts for the number of part-time staff to give an estimate of the “effective” or equivalent number of persons employed on a full-time basis. The calculation for FTEs is: FTE employment = full-time employees + (0.5 * part-time employees)
4 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
The company is the largest manufacturing-based employer in the UK in terms of the number of people employed, and the largest single private sector employer of engineers in the UK, with an estimated headcount of 18,100 engineering-related staff – just under one half of its UK workforce.
Chart 1.1 compares employment of UK engineers by BAE Systems with estimates for other aerospace and defence companies (red bars) and for likely major employers of engineers in other sectors (green bars). For the aerospace and defence firms the assumption is that the proportion of companies employees who are engineers is the same as at BAE Systems – that is just under one half of employees are engineer-related staff.
The non-aerospace and defence companies in Chart 1.1 were chosen because:
1. they operate in sectors which are likely to have a significant proportion of engineers within the workforce; and
2. they are the largest companies in their respective sectors (Centrica – gas and electricity; Ford – motor manufacturing; Shell – Oil and gas extraction; IBM – computer manufacturing; BT – telecommunications) for whom UK employment could be identified from publicly available sources 6.
For each company the number of engineers was estimated using official (Labour Force Survey) data on the proportion of employment in engineering-related occupations 7 within the industry group 8 that the company belongs to.
4 2009 was the latest complete year for which data was available at the time of this report.
5 Unless otherwise indicated all figures and comparisons in this section exclude joint ventures and are in constant 2009 prices i.e. inflation-adjusted. All 2009 figures have been normalised to include BVT Surface Fleet up to end October 2009. This was a BAE Systems joint venture, which was wholly acquired in October 2009, following which its figures were absorbed into BAE Systems accounts. All figures also include Detica, an information services entity acquired by BAE Systems in September 2008.
6 The companies were selected from those listed in: “The 2009 Value Added Scoreboard: The top 800 UK and 750 European companies by Value Added”, BIS (2009).
7 A broad definition of “engineer” was adopted, to include skilled electrical trades (e.g. telecommunications/installation engineers), engineering technicians and computer engineers. The following SOC2000 occupations were considered: SOC212 (Engineering Professionals), SOC213 (Information and Communication Technology Professionals, SOC311 (Science and Engineering Technicians) and SOC524 (Electrical Trades).
8 The industry classification system used is SIC2003. The companies are defined to be in the following industries: Centrica = SIC code 40 (Electricity, Gas, Steam and Hot Water Supply); Ford = SIC code 34 (Manufacture of Motor Vehicles, Trailers and Semi-trailers); Shell = SIC code 11 (Extraction of Crude Petroleum and Natural Gas); IBM = SIC code 30 (Manufacture of Office Machinery and Computers); BT = SIC code 64 (Telecommunications and Post).
5 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart 1.1: Estimated UK engineering employees by company, persons
Estimated UK engineering employees, headcount Balfour Beatty (worldwide) Carillion Companies in sectors other than Centrica Aerospace and Defence (green Ford Shell bars) IBM BT Airbus Astrium Atomic Weapons Establishment Babcock (worldwide) Bombardier Cobham (worldwide) Aerospace and Defence Doncasters (worldwide) companies (red bars) GE Lockheed Martin Meggitt QinetiQ (incl Mid East & Asia) Rolls-Royce VT Group Westland Helicopters BAE Systems
0 5,000 10,000 15,000 20,000 Source : Company accounts/publicly released figures; BIS Value-added Scoreboard 2009; Oxford Economics analysis. Note: Some estimates may refer to 2010 employment.
Chart 1.2 compares headcount employment at BAE Systems (42,900 employees) with employment in the largest firms across the manufacturing sector 9.
Chart 1.2: UK-based employment of major companies in the manufacturing sector
Major employers in the UK manufacturing sector, headcount
IBM Premier Foods (UK & Ireland emp) Northern Foods
Tulip BMW GlaxoSmithKline Tata Steel (2008)
Unilever (2008) Siemens
Ford (including dealers) BAE Systems
0 10,000 20,000 30,000 40,000 50,000 Source : Company accounts/publicly released figures; media reports; BIS Value Added Scoreboard 2009
9 See footnote 6.
6 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
The productive capacity of the company is significantly above the UK average. Value-added per FTE employee was equal to £78,175 in 2009, 85% higher than the estimated UK all-industry average of £42,200.
7 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
2 The direct economic contribution of BAE Systems
Box 2.1: Key points
BAE Systems employed an estimated 42,360 full-time equivalent (FTE) employees in the UK in 2009, with a particular concentration of employment in the North West of England, but large operations in a number of other regions.
The company workforce is highly skilled. 43% of employees are employed either as engineers or have engineering backgrounds/competencies. Overall, 70% of employees at BAE Systems are either engineers, senior executives/managers or other professionals.
BAE Systems’ direct contribution to UK GDP was £3.3 billion in 2009.
The company exported a total of £4.9 billion from the UK in 2009, equivalent to 2.1% of total UK goods exports.
Net exports of BAE Systems’ UK operations were worth £3.1 billion in 2009, which generated a corresponding improvement in the current account of the UK balance of payments.
BAE Systems and its employees’ direct contribution to UK tax revenues was some £653 million in 2009.
BAE Systems invested just under £200 million in fixed capital in the UK during 2009.
£883 million was channelled into research and development (R&D) in the UK via BAE Systems in 2009.
BAE Systems is a major UK employer, contributing particularly to employment in the North West of England, but with large operations in a number of other regions, including Scotland and the South East.
The economic contribution in this report relates only to UK operations of BAE Systems that are wholly owned. The economic benefit from joint ventures is not captured as these are not wholly owned elements of BAE Systems.
2.1 Employment at BAE Systems
FTE (full-time equivalent) employment at BAE Systems in the UK was 42,360 in 2009.
2.1.1 Regional contribution to employment
Chart 2.1 below shows the regional employment split for BAE Systems in 2009. Employment is concentrated in three main regions: the North West, South East and Scotland.
The North West has the largest regional share of employees. Just over 19,000 FTE employees are based in this region, accounting for 45% of employment in the company’s UK operations. Major centres of BAE Systems’ employment in the North West include facilities at Warton (6,550 FTEs), Barrow-in- Furness (5,050 FTEs) and Samlesbury (4,850 FTEs). These and other facilities provide employment
8 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
opportunities in high-value-added industry which are often difficult to find in this area. The economic impact of the Warton site is examined in more detail in the Appendix.
BAE Systems is an important component of a significant aerospace cluster which exists in the North West economy. The existence of such clusters boosts economic growth in a variety of ways. Clusters raise productivity by allowing access to specialised inputs and employees, and increase firms’ capacity for innovation by diffusing technological knowledge and innovations more rapidly. They also stimulate higher rates of new business formation, as employees become entrepreneurs in spin-off ventures.
As a result of these benefits, the formulation of clusters in high-tech industries such as aerospace is widely considered by both local and central Government to be an important goal in keeping the productivity of the whole economy close to the technological frontier.
It is likely that, without the activities of BAE Systems in the North West, the local cluster would lack the critical mass that facilitates the innovation and the associated productivity gains, although it can be difficult to quantify exactly what that critical mass is.
Chart 2.1: BAE Systems regional employment split
Overseas, 6% Wales, 2% Other (unspecified, Scotland, 11% mobile, offsite), 0.6% North East, 0.8%
South East, 24%
South West, 3.4%
Greater London, 0.4%
East of England, 2% North West, 45% East Midlands, 1.5%
West Midlands, 0.6% Yorkshire, 4% Source : BAE Systems
The South East and Scotland are the other key locations of BAE Systems’ employment, with 24% and 11% of the UK total in these two regions respectively. It is one of the largest employers in the West of Scotland and its apprenticeship scheme is the largest in Scotland. The company’s two Scottish shipyards - at Scotstoun and Govan – are involved in the Type 45 Anti-Air Warfare Destroyer and Queen Elizabeth Class Aircraft Carrier programmes for the MoD, as well as programmes for export customers. BAE Systems also maintains significant facilities in the South East at Farnborough, Rochester, Broad Oak, Portsmouth, Filton and Chelmsford.
2.1.2 Contribution to UK skilled employment
BAE Systems is not simply a large employer. The company’s workforce is highly skilled, which has benefits for the UK economy as a skilled workforce is key to productivity (and therefore economic)
9 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
growth in the UK. 43% are employed either as engineers or have engineering backgrounds/competencies 10 . Nearly a fifth (19%) are (non-executive) other professionals, in areas such as finance, IT and business development. Overall, 70% of employees at BAE Systems are either engineers, senior executives/managers or other professionals.
Chart 2.2: BAE Systems employment by skills split
Admin, Clerical and secretarial, 1%
Other professional, 19% Other (including apprentices and tradesmen), 30%
Senior Executives and Managers, 8% Engineer-related, 43%
Source : BAE Systems
2.2 Fixed investment at BAE Systems
BAE Systems is a major contributor to UK fixed capital investment. After excluding payments for foreign property development, BAE Systems’ (adjusted) UK capital investment totalled some £198 million in 2009. Investment per FTE employee was just under £4,700.
2.3 Exports of BAE Systems
BAE Systems’ UK operation is a highly export-oriented business, with exports equivalent to 53% of total UK sales revenues in 2009. BAE Systems contributed around £4.9 billion to UK exports in 2009 11 , accounting for around 2.1% of total UK goods exported in that year.
The UK trade balance has also benefited from BAE Systems’ activities. The UK part of BAE Systems imported an estimated £1.7 billion in goods and services in 2009, leading to a positive contribution to the UK balance of payments of around £3.1 billion (it should be acknowledged, however, that if this
10 For example senior executives who are qualified engineers.
11 Exports include sales of the Eurofighter Typhoon which are ultimately delivered to the UK.
10 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
contribution to the balance of payments ceased to exist, then dynamic effects such as exchange rate adjustments would mean that the deficit would not reduce by exactly the same amount).
2.4 Value added of BAE Systems
Value added (i.e. a company’s contribution to GDP) is calculated as the difference between total pre- tax revenue and total bought-in costs (costs excluding wages and salaries) adjusted for any changes in stocks 12 .
In 2009, the total direct value added of BAE Systems to the UK economy was worth £3.3 billion.
With 42,360 UK FTE employees value added per FTE at BAE Systems was £78,175 in 200913 . This was 85% higher than the estimated UK industry average for value added per FTE employee in 2009 of some £42,200, and 34% higher than the estimated average for the manufacturing sector of approximately £58,300. As indicated in Chart 2.3, it is also above estimated value added per employee for sectors such as financial and business services. Electricity, gas & water is the only sector with a higher productivity than BAE Systems. This sector has by far the highest productivity of any sector in the economy (£198,800 per FTE) as it is a very capital-intensive industry requiring relatively small amounts of labour.
The Department for Business Innovation and Skills (BIS) also provides information on ranking the top 800 UK companies by value added within industry sector 14 . Though based on BAE Systems’ global operations as a whole, this shows that value added per head at BAE Systems is above the UK averages for the aerospace and defence industry. By these estimates, value added at BAE Systems was £67,800 per employee in 2009, against an average of £61,200 per employee for the UK aerospace and defence industry.
12 The value of bought-in costs for BAE Systems’ UK operations is not given in BAE Systems’ Annual Report 2009, as this covers the global business. Information provided by BAE Systems for this report allowed for the estimate of bought-in costs, although information on the rundown of stocks was not readily available due to changing accounting systems. As the “rundown” is variable from year to year (and can actually be positive in some years) an assumption of £0 has been made for 2009. Given that this component is a relatively minor part of the estimates, this is unlikely to have a material effect on the estimation of total value added.
13 This value added per FTE employee figure of £78,175 is derived by dividing the value added estimate of £3.311 million by the number of FTEs (42,360).
14 BIS (2010) The 2009 Value Added Scoreboard, The top 800 UK and 750 European companies by Value Added.
11 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart 2.3: Value added per FTE employee, £000s, 2009 prices
BAE Systems 78.2 All industries 42.2
Government and other (mainly public) services 34.4
Financial & Business services 55.4
Transport & communications 55.3
Distribution, retail, hotels & catering 30.1
Construction 40.7
Electricity, gas & water 198.8
Manufacturing 58.3
Oil & gas extraction 56.3
Agriculture, fishing & forestry 17.8
0 50 100 150 200 250 Source : Oxford Economics; BAE Systems £ 000s, 2009 prices
The Department for Business Innovation and Skills (BIS) also provides information on ranking the top 800 UK companies by value added within industry sector 15 . Though based on BAE Systems’ global operations as a whole, this shows that value added per head at BAE Systems is above the UK averages for the aerospace and defence industry. By these estimates, value added at BAE Systems was £67,800 per employee in 2009, against an average of £61,200 per employee for the UK aerospace and defence industry.
2.5 Tax contribution of BAE Systems
In 2009 BAE Systems and its employees directly contributed a net £653 million to the Exchequer in taxes. This consisted of corporation tax of £167 million and estimated BAE Systems employee-related contributions of around £487 million via Income Tax and National Insurance 16 .
15 BIS (2010) The 2009 Value Added Scoreboard, The top 800 UK and 750 European companies by Value Added.
16 Includes employees and employers’ National Insurance Contributions (NICs). The inclusion of employee income tax and NICs reflects the fact that, from an economic perspective, it is the total contribution to GDP generated by BAE Systems as a whole that is of relevance to this study. Taxes are a part of this GDP contribution, regardless of whether they are designated as being paid by “employees” or “employers”.
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Table 2.1: BAE Systems’ direct tax contribution
Sector Tax payments (£ m)
Corporation tax 167 Income tax and National Insurance 487 Total 653
Source: BAE Systems, Oxford Economics
2.6 Research and Development via BAE Systems
In 2009 a total of £883 million was channelled into research and development (R&D) through BAE Systems in the UK. £97.3 million of this sum was funded internally by BAE Systems, while £785.2 million was funded through customer contracts (i.e. largely through the MoD).
This type of R&D support is not peculiar to the defence sector as the UK Government – the prime customer in the UK – also invests heavily in other sectors. Moreover, there are specific reasons in the defence sector why it is more beneficial for MoD to invest at the start rather than to purchase equipment in the market place through normal pricing mechanisms (i.e. off-the-shelf with the R&D investment already included in the price). Off-the-shelf purchasing is how customers usually pay for R&D in other sectors – e.g. the purchase of computer systems by various Government departments.
One of the fundamental reasons why upfront payment is beneficial is due to the structure of the defence market, specifically, that the MoD is a monopsonist 17 . The MoD is the unique customer for prime defence contracts and so it is more effective for the MoD to pay for the R&D directly and at the start. This is because the Government needs to dictate in considerable detail the specific product requirements for equipment in order to meet particular defence policy requirements. Upfront payment allows the research to be directed into the most appropriate areas – avoiding the need for speculative development – so that the most appropriate technology is developed in the medium term to meet the longer-term requirements of the nation.
It should also be noted that investment in R&D can lead to future efficiencies for the customer (i.e. MoD) on other projects and avoid “learning curve” costs. That is, the knowledge, skills and know-how developed through funding of R&D on one project could be applied in the future to deliver products at lower cost and/or more quickly than would otherwise be the case.
The catalytic effects of BAE Systems’ R&D expenditure are discussed further in Chapter 5.
17 A monopsonist is a firm, institution or government department that is the only source of demand in a given market. It is the demand-side equivalent of a monopolist (the unique supplier).
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3 The indirect and induced economic contribution of BAE Systems
Box 3.1: Key points
BAE Systems indirectly supports the employment of a further 52,088 FTE jobs in the UK through supply-chain purchases, with indirect employment concentrated in the metals and business services sectors.
The indirect employment multiplier for BAE Systems is around 1.2. This means for every 10 jobs directly created by BAE Systems in the UK, another 12 jobs are supported in the supply chain.
BAE Systems indirectly supports £2,407 million of value added further down the supply chain.
The firm indirectly supports a contribution of £518 million to the Exchequer via taxes
The indirect effects result from BAE Systems’ procurement of equipment, components, raw materials, rent, energy and services from UK suppliers, which amounted to £4.1 billion in 2009.
“Induced” effects may also be calculated in addition to indirect effects. Employees supported by BAE Systems (whether directly or indirectly) use their income to purchase goods and services for their own consumption. This induced spending then helps to support additional businesses (and so additional value added, jobs and taxes) in the industries that supply these purchases.
BAE Systems’ induced effects include some £1,400 million in value added, 31,000 jobs and £300 million in tax contributions to the Exchequer.
3.1 Indirect employment supported by BAE Systems
In addition to its own activities, and its own employees, BAE Systems is indirectly responsible for supporting activity and employment in other firms, to the extent that those firms rely on sales to BAE Systems as part of their total revenues.
Moreover, those firms that do benefit from sales to BAE Systems will in turn buy in goods and services from a range of other firms. In proportion, as a firm sells to BAE Systems, so its own bought-in costs can be said to be indirectly attributable to BAE Systems. The overall reliance of other firms on initial demand from BAE Systems can be thought of as the “indirect” contribution of BAE Systems to the economy.
Indicative data returns from BAE Systems for 2009 indicate that its main suppliers (by company Group) include Rolls-Royce Group, Finmeccanica Group, MDBA, Thales Group and Computer Services Corporation (CSC).
This is consistent with industry-wide input-output tables which suggest that the main suppliers for companies in the aerospace and defence sector lie in the aerospace, weapons, metal forging, computer services and technical consulting/architectural industries.
14 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
In 2009, BAE Systems spent an estimated £5.9 billion on procurement of equipment, components, raw materials, rent, energy and services from its suppliers. It is estimated that some £4.1 billion of this was spent in the UK. This represented 45% of the turnover of BAE Systems’ operations in the UK of £9.2 billion. How does that translate into employment indirectly supported by BAE Systems?
Distributing BAE Systems’ UK procurement spending across industrial sectors and examining the impact of that spending on total sales of different industries (using input/output tables) suggests that a typical job in BAE Systems in the UK supports a total of 1.2 jobs elsewhere in the economy. (The indirect “multiplier” is therefore 1.2.) Put another way, taking into account the first and second tiers of suppliers, together the 42,360 FTE UK jobs at BAE Systems in 2009 supported a further 52,088 FTE jobs further down the supply chain.
This is similar to Oxford Economics’ past estimates and analysis by Dowdall, Braddon and Hartley (2000) 18 . Those jobs were distributed across various sectors of the UK economy, as shown in the table below.
18 Oxford Economics (2005) The Economic Contribution of BAE Systems to the UK and Oxford Economics (2008) The Economic Contribution of BAE Systems to the UK in 2006
15 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Table 3.1: BAE Systems indirectly supported employment, 2009
Indirectly supported Sector employment Agriculture 63 Extraction 795 Food, drinks and tobacco 102 Textiles 124 Wood products 215 Pulp, paper and printing 1,056 Coke, oil refining and nuclear fuel 27 Chemicals and man-made fibres 529 Rubber and plastic products 308 Other non-metallic mineral products 61 Metals 13,102 Machinery and equipment 5,189 Electrical optical equipment 1,345 Transport equipment 7,767 Other manufacturing 329 Electricity, gas and water supply 215 Construction 1,245 Distribution 283 Hotels 647 Transport and communications 2,064 Financial services 1,471 Business services 12,943 Public admin and defence 294 Education 668 Health 405 Other personal services 841 Total 52,088 Source: Oxford Economics
3.2 Indirect value added supported by BAE Systems
To the extent that BAE Systems supports employment in other firms down the supply chain, it also supports the value added that they create. Since value added per head at BAE Systems is higher than the UK average, the value-added multiplier is lower than the employment multiplier: In this case, for every £1 of value added created at BAE Systems, approximately £0.7 of value added is indirectly supported further down the supply chain, making a total of £2,407 million of indirectly supported value added in 2009.
16 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Table 3.2: BAE Systems indirectly supported value added, 2009
Indirectly supported Sector value added Agriculture 1 Extraction 41 Food, drinks and tobacco 6 Textiles 6 Wood products 7 Pulp, paper and printing 58 Coke, oil refining and nuclear fuel 5 Chemicals and man-made fibres 69 Rubber and plastic products 12 Other non-metallic mineral products 3 Metals 495 Machinery and equipment 234 Electrical optical equipment 72 Transport equipment 417 Other manufacturing 13 Electricity, gas and water supply 40 Construction 47 Distribution 9 Hotels 13 Transport and communications 106 Financial services 145 Business services 537 Public admin and defence 13 Education 20 Health 11 Other personal services 28 Total 2,407
Source: Oxford Economics
The indirect contributions, calculated above, probably understate the role of BAE Systems in supporting its supply chain. This is because they attribute indirect jobs to BAE Systems only in proportion as BAE Systems makes use of physical inputs to the production process from its suppliers.
Analysis of these companies underlines the fact that the contribution of a large company like BAE Systems cannot be captured simply in the resources that it employs directly or indirectly. It has a much wider importance than that, interlocking in numerous ways with local communities, many of which would be severely affected if the employment associated with BAE Systems were lost.
17 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
3.3 Indirect contribution to taxes supported by BAE Systems
To the extent that BAE Systems supports the activities of other firms in its supply chain, it also supports tax contributions from those firms. The estimation of industry value added, together with an estimate of average industry gross operating surplus (i.e. profit) and an allowance for depreciation-related corporate tax write-offs allows for the derivation of corporate tax effects. It has been estimated that gross operating surplus typically accounts for 39% of value added and assumed that large and small firms are equally represented among BAE Systems’ suppliers 19 .
In addition, employees indirectly supported by BAE Systems (i.e. in BAE Systems’ supply chain) also pay personal taxes. Therefore the impact of these taxes (i.e. income tax, employee NIC and council taxes) has also been calculated 20 .
These assumptions suggest that BAE Systems’ £667 million in direct tax payments in 2009 indirectly supported a further £518 million in tax payments to the Exchequer.
3.4 Induced value added, employment and tax supported by BAE Systems
Employees supported by BAE Systems (whether directly or indirectly) use their income to purchase goods and services for their own consumption. This spending then helps to support additional businesses (and so additional value added) and jobs in the industries that supply these purchases. These benefits from consumer spending are termed “induced” effects.
Our own past estimates of the induced impact, based on simulations conducted on Oxford Economics’ Macroeconomic Model of the UK economy, suggest that this induced value added created by BAE Systems may equate to around 25% of the sum of direct and indirect value added attributable to BAE Systems.
Using this figure allows for the estimation of induced value added and employment 21 . By these estimates, induced value added was £1.4 billion and induced employment equal to 31,000 jobs.
The estimated induced value added allows for induced tax effects to be derived, using a similar methodology to that adopted for indirect tax effects. These are estimated to total £300 million.
19 The estimate of 39% was based on the average of all UK industries, and the most recent release of UK input- output tables (relating to 2008). This allowed for the use of GOS as a proxy for firm profits, subject to statutory tax rates. It was further assumed that half of all firms were classified as large and paid a corporation tax rate of 30%, while the other half paid a small firm tax rate of 19%. A depreciation rate of 30% was estimated based on past Oxford Economics analysis.
20 Data from the ONS’, Economic and Labour Market Review Vol. 4, No.7, July 2010 Effects of taxes and benefits on household income 2008/09, Table 8 indicated that these taxes account for some 22% of non-retired household income. Combined with a UK average wage of £31,748 (sourced from the ONS’ 2009 Annual Survey of Hours and Earnings ) and the number of indirectly supported employees (52,088) this allowed for the estimation of the personal tax contribution.
21 Estimates of indirect value added per job were used in combination with induced value added estimate to derive induced employment.
18 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
3.5 Sum of direct, indirect and induced economic contributions of BAE Systems
The figures for BAE Systems’ direct economic contributions, provided in Chapter 2 can be added to the induced and indirect economic contributions to provide an estimate of BAE Systems’ total economic impacts on the UK in 2009. Table 3.3 provides this summary.
Table 3.3: Summary of BAE Systems’ economic impact on the UK economy, 2009
Direct Indirect Induced Total contribution contribution contribution contribution Employment (FTE jobs) 42,360 52,088 31,000 125,448 Investment (£m) 198 - - 198 Exports (£m) 5,334 - - 5,334 Taxes (£m) 653 518 300 1,471 Value added (£m) 3,311 2,407 1,400 7,118 Source: BAE Systems, Oxford Economics
Note that these estimates of total economic impact provide a snapshot for a given year - 2009. However, BAE Systems is also an important contributor to regional development and provides “catalytic” and “dynamic” contributions to the UK economy, which will also contribute to increased productivity and living standards in the longer term. The following chapters examine these issues more closely.
19 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
4 Regional and local development
Box 4.1: Key points
The labour market and procurement impacts of BAE Systems are spread widely across the country. They make a strong contribution to supporting the aim of the government to encourage the growth of private sector job opportunities in all areas.
The knowledge intensive employment generated by BAE Systems continues to act in many areas of the country as a counterbalance to the continuing concentration of knowledge intensive activities close to London.
The North West remains by far the strongest concentration of BAE Systems activities. The company provides one in eight of the knowledge intensive jobs within this region.
The impacts of BAE Systems’ individual sites on local economies and labour markets can be very significant. Its strongest impact is on Barrow-in-Furness where nearly eighty percent of manufacturing jobs are provided by the company.
4.1 Introduction
Having analysed the economic impacts of BAE Systems at the national level it is clear that, on the evidence of its innovation, research, and skills embedded within its workforce, it maintains its position as one of Britain’s leading knowledge-based businesses. Its activities will continue to make a strong contribution to the Government’s strategies to improve productivity, enhance skills and promote private sector development throughout the country.
This chapter considers the regional and local impacts of BAE Systems in terms of its role within local and regional labour markets and in terms of the distribution of its procurement of goods and services – its supply chain – across the country.
4.2 The Policy Context
Our earlier report on the economic contribution of BAE Systems, published in 2008, emphasised that regional and local disparities in economic development and well-being have been a persistent problem in Britain which, for many years, have stimulated an extensive range of government policies that have sought to diminish these disparities.
The current government has recognised the need to continue these efforts within the “Coalition Agreement”22 .
22 HM Government, 2010, The Coalition: our programme for government: http://www.cabinetoffice.gov.uk/media/409088/pfg_coalition.pdf
20 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Coalition Agreement
“We want to create a fairer and more balanced economy, where we are not so dependent on a narrow range of economic sectors, and where new businesses and economic opportunities are more evenly shared between regions and industries.”
The urgency of translating the spirit of the Coalition Agreement into practical policies has been increased by the growing realisation that job reductions resulting from current cuts in public spending will hit some regions and local areas much harder than others. The government’s approach to this relies heavily on the stimulation of private sector growth to offset the negative effects of reductions in public spending.
So far the government has committed to establishing a Regional Growth Fund (with resources of £1bn) and has encouraged the formation of Local Enterprise Partnerships that will bring together local councils and local businesses to provide the strategic leadership in their areas to set out local economic priorities.
The essence of its current thinking is captured in the introduction to the “Consultation Paper on the Regional Growth Fund”23 circulated in July 2010.
Consultation of the Regional Growth Fund
“Sustainable economic growth in all areas needs to be based on private sector enterprise and increased capacity, and a growth in private sector jobs. Government will empower
locally elected leaders and businesses to take more responsibility for local economic development, through strong local enterprise partnerships.”
Complementing these approaches to regional and local economic growth is a continuing commitment to enhancing the levels of education and skill within the national workforce to increase levels of productivity and growth 24 .
23 HM Government, 2010 , Consultation on the Regional Growth Fund : http://www.bis.gov.uk/Consultations/regional-growth-fund-consultation
24 Department for Business, Innovation and Skills, 2010, Setting out the Path to Sustainable Growth : http://interactive.bis.gov.uk/comment/growth/
21 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Setting out the path to sustainable growth
“A highly educated and skilled workforce are essential components of our growth potential. They enable people to find employment and create high value goods and services within a knowledge based economy, and to deliver high quality public services.”
The government’s approach to skill development is broad. It covers everything from encouraging apprenticeship schemes through vocational training in Further Education colleges to support and protection of university training in science, technology and engineering subjects. It specifically recognises that improving skills and education at all levels throughout the workforce is a key contribution to closing the ‘productivity gap’ that still separates the U.K. from some of its main global competitors.
Previous sections in the report have considered BAE Systems’ contribution to skill development, research and employment at a national scale. The next section analyses the regional and local distribution of its activity in a context of continuing government efforts to sustain and develop knowledge based economies throughout Britain with particular emphasis on stimulating private sector expansion.
4.3 BAE Systems in the knowledge economy landscape
We approach mapping and measuring Britain’s knowledge economy from a human capital perspective. The analysis uses the proportion of employment generated by “knowledge-intensive” sectors to benchmark economic development. These “sectors” are defined as industries where 25% of the workforce has a degree and 30% are engaged in professional, managerial and scientific and technical occupations. The 25% criterion is intended to capture the importance of generic and codified knowledge, the 30% one is meant to capture the importance of “on-the-job” learning or knowledge formation. The Geoeconomics grid of knowledge-intensive sectors for Britain is shown in Table 4.1 below, based on the current definitions, as set down in 2005.
22 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Table 4.1: Knowledge-intensive sectors of the UK economy
Manufacturing Production Private Services Public Services
Oil and gas extraction Financial and Business: Education:
Tobacco products Finance Higher
Printing, and publishing Real estate Secondary
Coke, petrol, nuclear Computer-related Primary
Chemicals/products R&D Adult other
Machine equipment – Professional Markets weapons and ammunition
Office machinery, computer Cultural: Health and Social Work: manufacture
Travel agencies Human Electrical machinery Radio, TV Veterinary Radio, TV, and communication equip. Other entertainment Social Work
Medical, precision and optical News agencies equip. Museums, libraries, archives Motor vehicles Motion picture, video Other transport (incl.
aerospace)
Utilities Transport Telecommunications
Electricity, gas, etc Railways Telecommunications
Infrastructure Water Pipelines
Sea/inland
Air
Government Non-Governmental Organisations
Business, employers and Public Administration professional organisations Governance Defence , law, fire, etc Trade unions Compulsory social security Other membership and non- profit bodies
Source: Geoeconomics, 2010
23 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
The grey and yellow cells in the knowledge economy grid represent the private and public sectors respectively. The industries marked out in red-coloured text are knowledge-intensive sectors where BAE Systems has a business presence. As a group, BAE Systems operates as a family of knowledge- intensive businesses, cutting across manufacturing and services. In this respect, it is a model of how most experts see the future of manufacturing in Britain’s knowledge economy.
The geographical distribution of private sector knowledge intensive activities within Britain is shown in Chart 4.1 with the locations of BAE System’s sites together with their numbers of employees superimposed on this base in Chart 4.2. Levels of knowledge intensity are calculated using the latest information available from the government’s Annual Business Inquiry which was collected in 2008. This is three years later than the data used in our earlier 2008 report. Over those three years very little changed in the geographical distribution of knowledge intensive activities. The pattern is still dominated by a strong concentration of activity in and around London, particularly to the west.
The majority of BAE System’s sites – and many of those with the largest number of employees – lie outside this area. With significant concentrations of knowledge intensive employment in North West England, Central Scotland, and on the south coast of England, BAE Systems has maintained its role of providing an important counter-balance to the continuing concentration of knowledge intensive employment close to London.
This is directly relevant to the government’s commitment to aim towards a ‘fairer and more balanced economy’. In a context where 66% of the differences in earnings between local authorities in Britain can be accounted for by their relative intensity of private sector knowledge-intensive activities, it will be crucial for the government to encourage the spreading these activities more widely throughout the country, both by encouraging new firms to establish and by supporting existing employers generating knowledge intensive employment beyond the core southern concentrations.
24 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart 4.1: Private Sector Knowledge Intensive Employment in Britain
Source: Geoeconomics, 2010
25 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart 4.2: The Location of BAE Systems’ Employment within Britain
Source: Geoeconomics and BAE Systems, 2010
26 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
At a regional scale, Chart 4.3 shows that BAE Systems has, in recent years, maintained its important role within the economy of the North West. Approximately half of all BAE System’s employment within the UK is located in this region. BAE Systems now accounts for exactly one in eight jobs in knowledge intensive production within the North West.
The South East and Scotland are the other two regions where BAE Systems has a strong direct employment presence.
Chart 4.3: Regional Shares of BAE System’s Employment and of Employment in Knowledge Intensive Private Sector Activities
West Midlands East Midlands London Regional share of KI national employment East of England Wales Share of BAE's employment North East Yorkshire and Humber South West Scotland
South East North West
0 10 20 30 40 50 60 %
Source: Geoeconomics, BAE Systems, Annual Population Survey 2009
It is, however, at the local level where the strength of the impact of BAE Systems’ employment on local labour markets can be seen clearest. Charts 4.4 and 4.5 show the ten local authorities where this impact is strongest - in Chart 4.4 by where BAE Systems’ employees live, and in Chart 4.5 by where they work. In both charts the number of BAE Systems’ employees is expressed as a percentage of all people working in manufacturing industry within each local authority.
The most striking conclusion from both charts is the strength of BAE System’s impact on local economies and local labour markets in North West England. The company contributes nearly eighty percent of all manufacturing jobs within Barrow, while just over half of all Barrow’s residents who work in manufacturing do so at BAE Systems.
Other local authorities in the North West have more varied local economies but it can still be seen that, in both Preston and Fylde about one in four residents working in manufacturing are employed by BAE Systems. Not unexpectedly, the large sites at Samlesbury and Warton dominate manufacturing employment in the local authorities in which they are situated, contributing about 70% of Ribble Valley’s manufacturing jobs (Samlesbury) and about half of Fylde’s (Warton).
The local importance of BAE System’s plants is, however, not wholly confined to the North West. In the case of Portsmouth about 40% of manufacturing jobs are linked to BAE Systems while, at the other end of the country, the equivalent figure for Glasgow City is about 15%. In a setting where the government is trying to reinforce and extend private sector employment opportunities in all local
27 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
economies across the country, it is relevant to note that BAE Systems is contributing more than one in ten jobs in manufacturing within all the local authorities shown in both charts.
Chart 4.4: BAE Systems’ Share of Manufacturing Employment in selected Local Authorities (based on employees’ place of residence)
Gosport Blackpool Winchester Portsmouth
South Ribble Wyre South Lakeland Preston
Fylde Barrow-in-Furness
0 10 20 30 40 50 60 %
Source: Geoeconomics, BAE Systems, Annual Population Survey 2009
Chart 4.5: BAE Systems’ Share of Manufacturing Employment in selected Local Authorities (based on employees’ place of work)
Christchurch Glasgow City Monmouthshire Surrey Heath
Medway Rushmoor Portsmouth
Fylde Ribble Valley Barrow-in-Furness
0 10 20 30 40 50 60 70 80 90 %
Source: Geoeconomics, BAE Systems, Annual Population Survey 2009
28 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
An important additional feature of any employer’s impact on local labour markets is the quality of jobs that they provide as well as their quantity. Charts 4.6 and 4.7 show (once again by place of residence and place of work) the local impact of BAE Systems’ employment on skilled manual and managerial, professional and technical jobs in selected local authorities where their influence is strongest.
Chart 4.6: BAE System’s share of Local Employment by Type of Occupation in selected Local Authorities (resident based)
Blackburn with Darwen
West Dunbartonshire Skilled Manual Blackpool Occupations Chorley Executives, Managers, Wyre Professionals and South Ribble Technical Occupations
Inverclyde Preston Fylde Barrow-in-Furness
0 5 10 15 20 25 30 %
Source: Geoeconomics, BAE Systems, Annual Population Survey 2009
Chart 4.7: BAE System’s share of Local Employment by Type of Occupation in selected Local Authorities (workplace based)
Rushmoor
Christchurch Skilled Manual East Riding of Yorkshire Occupations Glasgow City Medway Executives, Managers, Professionals and Monmouthshire Technical Occupations Portsmouth Ribble Valley
Barrow-in-Furness Fylde
0 5 10 15 20 25 30 35 40 45 50 55 60 %
Source: Geoeconomics, BAE Systems, Annual Population Survey 2009
29 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
As would be expected from the preceding discussion, local impacts are strongest in North West England. Within Fylde, BAE Systems contributes more than half of all managerial, professional and technical jobs while also contributing about a third of all skilled manual jobs. In Barrow almost one in four residents working in skilled manual jobs and one in five residents in managerial, professional and technical jobs are employed by BAE Systems.
As the final component of considering BAE Systems local labour market impacts Chart 4.8 shows the areas from which the company’s employees at some of its key sites commute to work. The coloured ‘contour lines’ on each map show the area that captures (in the most compact way) three quarters of all employees at each site. Once again, the most extensive – and intensive impacts – are within the North West and, particularly, mid-Lancashire and Cumbria. The combined catchment areas of Warton and Samlesbury cover much of mid-Lancashire while the more localised catchment area of Barrow still has an important influence on south Cumbria.
Portsmouth and the Clyde shipyards have less intense local catchment areas but their influence extends well beyond the local areas in which they are located.
Chart 4.8: Labour Catchment Areas for Key BAE Systems Sites
30 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Source: Geoeconomics, BAE Systems, 2010
Source: Geoeconomics, BAE Systems, 2010
4.4 The wider impacts of BAE Systems procurement
In addition to its direct impacts on regional and local labour markets from its direct employment, BAE Systems also has an indirect impact on both employment and production across the country through the distribution of its procurement. The geographical spread of orders for goods and services from its 200 principal suppliers generated by BAE Systems is shown in Chart 4.9.
In the context of current government policies that seek to encourage “sustainable economic growth in all areas, based on private sector enterprise and increased capacity…” the important characteristic of this geographical spread is that it is widely dispersed across many areas within England and has important extensions into both Wales and Scotland. The principal suppliers plotted on Chart 4.9 received orders from BAE Systems worth £2.4bn that helped to support their capacity and employment across all regions of the country.
31 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart 4.9: The Distribution of BAE System’s Principal Suppliers
Source: Geoeconomics and BAE Systems, 2010
32 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
5 The catalytic and dynamic contribution of BAE Systems
Box 5.1: Key points
R&D spending channelled through BAE Systems improves productivity across the whole economy. BAE Systems’ R&D spending is estimated to boost UK GDP by a cumulative total of 1% over a period of 12 years.
BAE Systems’ R&D spending has the potential to impact on a wide range of civilian sectors in the future. Programmes with important potential spin-off benefits include: the development of “liquid armour” which may assist with police and ambulance roles; “flapless” aircraft which are pushing the boundaries of aviation technology; UAV (unmanned aircraft vehicle) technology which may have potential applications in emergency rescue services, border security and fire fighting and anti-IED (Improvised Explosive Device) research which may help clear former warzones of explosives and assist their inhabitants to return to civilian life.
BAE Systems is a significant developer of, and contributor towards, skills development, both in its own business and more widely through encouraging an interest in science and technology in school students.
Within the company itself, BAE Systems offers a range of training opportunities, from graduate to leadership programmes. BAE Systems’ long-term commitment to the development of its employees has been integral to its success as a business and the value it contributes to the UK economy.
Over £56 million was spent on staff training (including apprenticeship employment and training costs) and on encouraging science and technology education within the broader community in 2009, while over 97,000 days of training were provided for employees.
BAE Systems has a substantial presence in the higher education sector as a recruiter of apprentices and engineering graduates. In 2009 the company had around 480 trainees in their graduate programme, and more than 1,000 people in their apprenticeship programme.
The “catalytic” and “dynamic” contribution of BAE Systems relates to a variety of ways in which it contributes to increased productivity and living standards across the wider community and the development of a “knowledge economy”.
Dynamic and catalytic factors typically operate over the longer-term and may not be immediately visible in any given year. While some (such as the annual contribution to R&D expenditure) may be quantifiable to an extent, others (such as encouraging science and engineering education in schools or support, guidance and assistance along the supply chain) are less directly measurable. However, they clearly have important longer term economic effects.
33 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Dynamic and catalytic factors may include:
Spillover effects of R&D spending by BAE Systems
Skills education and innovation within BAE Systems
BAE Systems’ wider contribution to skills education and innovation
Other Corporate Responsibility Programmes
5.1 Impact of R&D spending
In general, R&D advances a nation’s technological frontier, helping it to deliver improvements in whole economy output.
In particular, it has also been argued that defence spending is an important source of overall economic growth. The literature in this area has been heavily influenced by a seminal paper by Emile Benoit, which argues that defence spending boosts the economic growth of the whole economy: this became known as the ‘Benoit hypothesis’.
One possible explanation of this in the UK might be that the defence industry, since it makes intensive use of research and development, is at the forefront of the nation’s “knowledge economy”. This is significant given that knowledge intensive industries are characteristically high value-added and high- growth industries that contribute positive externalities to the rest of the economy.
Past work by Oxford Economics has indicated some empirical evidence of a positive relationship between whole economy Total Factor Productivity 25 (TFP) growth and defence and non-defence R&D. This work indicated that a 1% point increase in defence R&D as a proportion of GDP would, on average, boost total factor productivity (and therefore GDP) by 15.9%. However, this is a long run result and it could take 10 to 20 years before the full benefits of such an increase were realised 26 .
This work allows for the re-estimation of the catalytic effects of BAE Systems’ spending on R&D using updated information. BAE Systems’ defence R&D expenditure in 2009 equated to some 0.078% of UK GDP in current prices 27 . So, the loss of BAE Systems’ R&D expenditure would reduce UK TFP (and therefore GDP) by some 1.2% (i.e. 0.078*0.159) in the long run. Or, put another way, (and defining the “long run” as 15 years, consistent with past work) BAE Systems’ R&D expenditure has the effect of boosting the UK’s GDP by a cumulative total of 1% over a period of 12 years.
This is consistent with past research published by the DTI (now BIS), looking at the key factors that contribute to productivity. For example, a past DTI Economics Paper 28 suggests that low R&D in the UK may have been responsible for at least a quarter of the past “productivity gap” between the UK and
25 Total Factor Productivity can be defined as output/GDP per unit of “input” in the economy, where “input” captures the total level of labour and capital inputs.
26 Oxford Economics (2005) The Economic Contribution of BAE Systems to the UK
27 Note that this figure is based on total R&D spending channelled through BAE Systems’ in 2009 (i.e. £883 million). This consists of £785m in contract funded work (chiefly through the MoD) and £97 million in internally funded work.
28 DTI Economics (2003), Paper #7, Competing in the Global Economy – the innovation challenge
34 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
the US, and one sixth of the gap between the UK and France/Germany. Conversely, R&D channelled through BAE Systems has the potential to boost growth.
Another DTI document ( Prosperity for All ) emphasises the positive externalities that derive from R&D spending. The literature cited in this document suggests that the social return to R&D may exceed the private return by a factor of between 2 and 5. In other words, the R&D performed by companies such as BAE Systems has spillover effects to the broader economy which are 2 to 5 times greater than the internal benefits to the firm itself. This also corresponds to the earlier work of Griffith (2000) which indicates that while firms typically enjoy private rates of return of 17-30%, social rates of return are typically around 100% 29 .
Further, a report by CHI-research 30 confirms that the aerospace sector is more-than-usually efficient in producing technological innovations – measured by the number of new patent filings – compared to the UK average, thanks to the quantity of R&D that it undertakes. Given BAE Systems’ importance within the sector, this suggests that the estimate of a 1.2% contribution to UK TFP growth from the R&D spending channelled through BAE Systems over 15 years may be conservative.
Some direct practical examples of the influence of R&D spending within BAE Systems have already been noted (e.g. reduced “learning curve costs” and thereby efficiencies for the customer – i.e. MoD). However, BAE Systems’ R&D spending also holds the potential to deliver specific benefits for the UK economy as a whole in coming years.
In particular, BAE Systems’ Advanced Technology Centre (ATC), with locations at Filton, Great Baddow, Towcester and Loughborough, focuses on the development of the development of cutting edge technologies with applications to both the military and civilian spheres.
Significant examples of BAE Systems’ investment in R&D with important future applications include:
DEMON “flapless” aircraft – BAE Systems, in collaboration with Cranfield university and 9 other UK universities, have developed and successfully tested an experimental aircraft which uses a radical “flapless” aerodynamic control system. DEMON forgoes the use of conventional mechanical wing flaps to control the movement of an aircraft in favour of aerodynamic control devices based on blown jets of air.
Such an approach offers several advantages over 'moving flap' technology which has been used since the early days of aviation, in that it means fewer moving parts, less maintenance, and a more stealthy profile for the aircraft. DEMON's trial flights were the first 'flapless flights' ever to be authorised by the UK Civil Aviation Authority.
While DEMON itself is not expected to become a production aircraft, a number of the technologies it contains have and will continue to filter through to a range of other aviation platforms.
The DEMON project highlights BAE Systems’ collaborative work with leading experts and institutions in the UK to produce technologies which enhance the country’s capabilities in these areas.
29 Griffith, R. (2000), How Important Is Business R&D and Should the government Subsidise it ?, Institute for Fiscal Studies, Briefing Note 12
30 CHI-Research, New Jersey, quoted in the Financial Times , 26 August 2003.
35 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Liquid Armour – BAE Systems ATC at Filton has assisted in the development of what is known as “liquid armour” – a liquid which hardens when struck. The armour was developed to offer soldiers greater ballistic protection and ease of movement in combat situations.
Whereas ceramic based armour plates used in current body armour systems can be heavy and bulky, restricting movement and contributing to fatigue, liquid armour can offer increased protection with reduced mass, wider area coverage, greater manoeuvrability and easy integration with other systems. In the future BAE Systems hope to further develop liquid armour to create a lightweight version of the material and incorporate the technology into body armour systems.
In addition, BAE Systems has indicated that there may be potential civilian uses such as developing a version that could be of interest to police forces and ambulance crews.
Unmanned Aerial Vehicles (UAVs) – BAE Systems has been heavily involved in research programmes testing and demonstrating technologies in UAVs. These programmes which including MANTIS and TARANIS have delivered a number of milestones in UAV technology in the UK, provided experimental evidence on the potential capabilities of UAVs and helped inform decisions on the future mix of manned and unmanned fast jet aircraft.
A few possible uses of UAV technology include emergency rescue services, pipeline maintenance monitoring, border security, fire fighting, farm management and monitoring traffic conditions.
BAE Systems research on UAVs is part of a more general R&D effort focussed around the theme of Autonomy. In contrast to traditional automation (which does not take account of changing circumstances) Autonomy-based systems make rational decisions based on evaluations of current information. The concept of Autonomy is obviously key to the development of UAS. However, apart from this, the same processes could be applied to a wide range of other tasks. For example, the use of autonomous systems to identify safe and reliable train paths within complex networks (such as South East England). This could ultimately allow for an increase in capacity, reduced crowding and greater service reliability.
Anti-IED technologies – The use of Improvised Explosive Devices (IEDs) is a pervasive and immediate threat to UK Forces and represents a major risk to the success of current operations in Afghanistan. In 2008 the MOD Counter Terrorism Science and Technology Centre (MoD CT S&T C) recognised that a new and novel approach was required in order to deliver potential solutions to the IED detection problem. This lead to the formation of an ‘IED Detect (IEDD) Tiger Team’ which included the MOD, BAE Systems and seven other industrial partners and which operated over several months in 2009/2010.
Costs for this initiative were covered by MoD, however industrial investment was made in personnel development by BAE Systems. The learning generated from the BAE Systems’ involvement in the Tiger Team was later exploited after the end of the initiative, ultimately enabling BAE Systems to provide five innovative technology concepts back into MOD that are now attracting funding and have plans for exploitation.
Investment in solutions to combat IEDs has applications well beyond current military engagements. Given ongoing threats, and a terrorist preference for asymmetric warfare, the potential use of IEDs is of concern to a variety of domestic policing bodies. Improved technologies enabling the easier detection and neutralisation of such devices would therefore be of considerable benefit. Likewise, efforts by charitable organisations, governments and
36 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
security forces to rid past combat zones of IEDs (or similar devices) may be assisted by the development of such counter-IED technology. Given the acknowledged dangers of IEDs and their disruptive potential, this would help prevent civilian casualties and allow for much more rapid post-combat social recovery.
There are also many other instances of clear spin-off benefits to other industries arising from contract funded work e.g. developments associated with the Astute nuclear programme may be applicable to medical physics. Further, BAE Systems employees ultimately moving to other industries will carry their R&D “skill set” with them, encouraging the diffusion of such knowledge.
In general, these potential applications are an important illustration of the way BAE Systems’ work is an important contributor to the “knowledge economy”. As illustrated, such work has the potential to generate widespread and long term economic benefits across the broader economy.
5.2 Skills, education and innovation within BAE Systems
BAE Systems places a strong emphasis on developing the skills of it workforce and encouraging students to take an interest in science and technology. Against this background, in July 2010 BAE Systems launched its Skills 2020 strategy and programme which represents the company's commitment to ensuring it has the right skills to remain competitive and operate successfully in the UK over the next decade, into 2020 and beyond.
Over £56 million was spent on staff training (including apprenticeship employment and training costs) and on encouraging science and technology education within the broader community in 2009. BAE Systems’ long-term commitment to the development of its employees has been integral to its success as a business and the value it contributes to the UK economy. Continued investment in its staff has enabled the company to have a highly skilled employee base able to deliver its products and services. During 2009 the company provided over 97,000 days of training for its UK employees.
BAE Systems offers various training opportunities from graduate training programmes up to leadership programmes for top executives. All graduate engineering recruits complete a two-year development programme (The Graduate Development Framework). This consists of a mix of on-the-job training and external learning, divided into both engineering and business streams.
BAE Systems has created the “Developing You Frameworks” for all its major business functions. These define the skills, competencies and knowledge required to deliver functional capabilities. In particular, the “Engineering Developing You” (EDY) programme is a core capability of the business. It provides a framework which assists in mapping individual career aspirations with BAE Systems’ business needs. The EDY programme applies throughout the working life of BAE Systems staff and is equally applicable to graduates, directors and all levels in between.
Employees also benefit from the Sigma leadership programme. This is a fast-tracked leadership programme, designed to develop engineering and business talent for future business leadership, with its members committing to 3+ years of multiple placement. BAE Systems’ emphasis on moving towards a customer service focus and through-life support has (see below) recently increased the emphasis on such leadership training programmes.
BAE Systems also offers exchange programmes around the world in order to boost the knowledge and experience of its staff.
37 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
The effects of BAE Systems’ staff development programmes are not merely internal but are ultimately spread across the broader economy. BAE Systems staff are in high demand by other firms, who, in turn, benefit from many of the human capital programmes described above.
Given the investment levels described above, this represents a significant transfer of knowledge and skills to other firms and industries. While this may be seen as a short term “loss” to BAE Systems, it also means that the benefits of BAE Systems’ training are spread further, adding to the national engineering and science skills and knowledge base as a whole. Moreover, many skilled engineers ultimately return to BAE Systems after experience at firms such as Rolls-Royce and Airbus.
5.3 BAE Systems’ wider contribution to skills, education and innovation
As well as the education and skills development, BAE Systems provides to its own staff, it also makes a significant investment in the wider education sector, both through encouraging interest in science and technology throughout the school system and by acting as a major employer of graduates and apprentices.
Key facts and highlights include:
Major employer of graduates and apprentices – Apart from the employee skills development noted above, the company is a major employer of young graduates and apprentices in the first instance. 256 graduates joined BAE Systems in 2009. Together with those recruited in 2008 this meant a total of around 480 people were being trained as part of the company’s 2-year graduate programme. In addition, more than 1,000 apprentices were in training at BAE Systems in 2009. This makes BAE Systems one of the largest employers of engineering apprentices.
Big Bang sponsorship - BAE Systems is a lead sponsor of the Big Bang event, the UK’s largest ever national science, technology and engineering fair for young people and teachers, attended by over 6,500 people.
Schools Roadshow - BAE Systems runs a Science and Technology “roadshow” for schools which combine workshops and performances to get young people interested in science and technology. The road shows commenced are now into their fifth year of operations.
Educational partnership with universities and government – The company partners with universities and government in developing courses to meet industry needs. For example it has partnered in the development of the UK government’s Diploma in Engineering for 14-19 year olds.
5.4 Corporate Responsibility Programmes
Some aspects of BAE Systems’ Corporate Responsibility programmes (such as support for education) have been touched on above.
BAE Systems’ total global community investment was £13.8 million in 2009 31 . This figure includes cash and in-kind donations, as well as the direct support for education, mentioned above. A total of £1.6 million was donated for charitable purposes in the UK in 2009 32 .
31 BAE Systems (2009) Corporate Responsibility Report 2009 .
38 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Notable UK charitable donations during 2009 included:
As a part of Charity Challenge, a company-wide employee fundraising and volunteering program, employees elect partner charities for 18 month periods. Sue Ryder Care was designated as a partner charity for the UK in 2008/09. UK employees volunteered their time to decorate residents’ rooms at Sue Ryder Care homes and organised collections for items to be sold at Sue Ryder Care shops.
Employees were also involved in several projects with the Royal British Legion in the build-up to Remembrance Day. Between August and October 2009, employees from sites across the country visited the Royal British Legion Factory making over 46,000 poppies.
Past work by Oxford Economics, has assessed the implicit social returns from various forms of corporate responsibility programmes. This work involved the application of typical social benefit-cost ratios for various forms of community investments. In the case of BAE Systems, previous applications of this work indicates that each £1 invested through BAE Systems’ Corporate Responsibility programmes might ultimately generate £1.4 worth of long term net benefits 33 , though such net benefits accrue over the long-term and may take 20-30 years to be fully realised.
32 BAE Systems (2009) Annual Report 2009.
33 Oxford Economics (2008) The Economic Contribution of BAE Systems to the UK in 2006
39 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Appendix: Economic contribution of Warton
A.1 Key findings
The following sections outline the local and regional economic contribution of BAE Systems’ operations in Warton, Lancashire. The key findings are as follows:
The Warton facility directly contributed over £250 million in valued added and over 6,500 jobs to the Lancashire economy in 2009.
When the flow-on economic impacts to Lancashire are taken into account, total impacts were over £300 million and 8,200 jobs.
The equivalent figures for Warton’s total impact on the North-West region were over £320 million and nearly 8,800 jobs.
The facility is also an important employer within the local manufacturing and professional/technical sectors. Over one fifth of all manufacturing employees in Fylde work at Warton, while one in seventeen professional/technical employees living in Preston are employed at the facility.
A.2 Introduction
The Warton Aerodrome (“Warton”) serves as the headquarters and a major assembly/testing facility for the company’s MAS (Military Air Solutions) division. The facility is located near Warton village in the local authority of Fylde, between Preston and Blackpool. It is a major employer in the area with a highly skilled workforce of engineers, technicians and other professionals.
The following sections are organised as follows:
Sections A.3 and A.4 provide an overview of the direct, indirect and induced contributions of Warton to the economy of Lancashire and of the North West as a whole.
Sections A.5 and A.6 provide further details on the role of BAE Systems’ operations at Warton within the local and regional economies.
A.3 Approach to measuring the contribution of Warton
Warton’s economic contribution to these areas can be divided into direct, indirect and induced impacts and expressed through the metrics of Gross Value Added (GVA), a concept similar to GDP, and Full-Time Equivalent (FTE) employment.
As their name suggests, direct impacts relate to the value of goods and services and personnel employed by Warton itself.
40 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Indirect impacts are economic impacts which occur through Warton’s supply chain. Warton purchases goods and services (e.g. industrial goods, financial services) in the local area in order to produce its output. This is a benefit to local suppliers, who in turn must purchase goods and services from their own suppliers in order to meet the initial demand from Warton and so on.
Induced impacts are the economic impacts which arise from the consumer spending by those working at Warton and in the industries which supply it. The presence of Warton means that these workers are paid wages which they can then spend within the local economy, driving further cycles of economic activity.
In combination, these direct, indirect and induced components add up to Warton’s total economic impact on the Lancashire economy and more broadly on the economy of the North-West 34 . The direct impacts can be measured through information sourced from BAE Systems, while the indirect and induced (and therefore total) impacts can be estimated by a process known as input- output modelling.
A.4 Description of results
The site at Warton employed over 6,500 people in 2009 measured on a full-time In total, Warton equivalent (FTE) basis; its activities directly generating an estimated £257 contributes over million in value added. In addition, as indicated, the Warton facility has £300 million in significant knock-on (multiplier) impacts on the wider economy through supply- chain linkages and the consumer spending of employees whose jobs are value added and dependent on the Aerodrome. The facility purchased just over £33 million of over 8,200 jobs to goods and services from suppliers located elsewhere in Lancashire. At a the Lancashire regional level, around £53.5 million was spent on suppliers operating in the economy North West.
Oxford Economics undertook regional input-output modelling in order to estimate the impacts of Warton on the economies of Lancashire and, more broadly, the North-West. This modelling focuses on Warton’s impacts within these geographical areas and allows for the fact that some demand might “leak out” of the local area (through the sourcing of purchases from the rest of the UK and abroad).
Table A.1 reports the total economic impact of Warton, broken down by direct, indirect and induced effects.
34 These are also referred to as “multiplier impacts” due to the fact that the total economic impacts are a multiple of the direct ones.
41 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Table A.1: Total economic impact of the Warton facility to the Lancashire and North West economies
Economic contribution of Warton, 2009 Lancashire North West economy GVA (£m, 2009 FTE employment GVA (£m, 2009 FTE employment prices) (persons) prices) (persons) Direct 257.3 6551 257.3 6551
Indirect 14.1 473 26.9 857 Induced 36.3 1219 41.3 1379 Total impact 308 8243 326 8786 Source: Oxford Economics estimates based on BAE Systems data
The £33 million spent by the Warton facility in Lancashire generated an estimated £14 million in indirect GVA for the county, accounting for supply-chain effects. Around 470 jobs in the county were dependent on this indirect activity. An additional (induced) impact of £36 million in GVA and 1,200 jobs stems from the consumer spending of those directly and indirectly employed by the Warton Aerodrome.
The total benefit of the Warton site to Lancashire GVA was therefore an estimated £308 million in 2009, equivalent to around 8,250 FTE jobs in the county.
At a regional level the total impact (direct, indirect and induced) of the Warton site was an estimated £326 million in GVA terms, with around 8,800 FTE jobs in the North West dependent on BAE Systems’ operations at the facility. The higher figures for the North West (relative to Lancashire) reflect two factors. The first is that the facility buys more from the region as a whole (£53.5 million) than from Lancashire (£33.5 million). The second is that multiplier impacts are greater for the North West economy as a whole than in Lancashire, as larger economies tend to be more self-sufficient. This greater self-sufficiency means more of the potential knock-on benefits are contained within the region.
These figures provide a “snapshot” of Warton’s local benefits for a given year. However, the facility also has the capacity to provide longer term “catalytic” benefits for the local, regional and national economies as a while. For example, Warton’s R&D expenditure in 2009 was £273 million in total, of which £29.6 million was company funded. R&D spending has the potential to create long term benefits through the promotion of technical innovation, boosting productivity and thereby long-run growth rates.
A.5 The local employment impact of Warton
The public policy context for considering the local employment impacts of Warton is based on the Coalition Government’s concern with stimulating private sector enterprise in local economies throughout the country, to offset the losses in public sector employment that will follow the substantial reductions in public
42 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
spending to be announced in the Comprehensive Spending Review on the 20 th October.
Although full policy statements are still being developed, it is clear that policies for local economic development will seek to improve the resilience of local areas to losses of public sector employment by:
Encouraging ‘balanced’ and ‘sustainable’ development that reduces local dependence on public service employment.
Supporting the further development of knowledge-led and export oriented manufacturing activity to help secure national economic growth and the More then one in strengthening of local skills. five of Flyde residents involved As a key global manufacturing corporation with a strong UK presence BAE in manufacturing, Systems will play an important part in these strategies both nationally and locally. work at Warton
The extent of Warton’s role in providing skilled manufacturing employment to residents in the areas that surround it can be seen in Chart 3.1 (exact proportions are given in Table A.2 below). More that one in five of all residents within Fylde, employed in manufacturing, work at Warton. The influence of the plant also extends into neighbouring local authorities. In both Preston and Wyre around one in eight residents employed in manufacturing work at Warton, while in Blackpool the figure is close to one in ten.
The impact of BAE Systems as a whole can also be seen in Chart A.1. In both Preston and Fylde more than one in four local manufacturing employees work at BAE Systems – principally the sites at Warton and Samlesbury.
Chart A.1: Warton and BAE Systems’ share of Manufacturing Employment in selected Local Authorities (resident based)
Local share of West Lancashire Manufacturing Employment Lancaster - Warton Blackburn with Darwen Ribble Valley Local share of Manufacturing Employment Chorley - other BAE Systems sites
South Ribble Blackpool Wyre Preston
Fylde
0 10 20 30 %
Source: Geoeconomics, BAE Systems, Annual Population Survey 2009
43 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Table A.2: Proportions of local residents employed in manufacturing who work at Warton and other BAE Systems sites Economic Proportion of Local Manufacturing Employment from Warton and other BAE Systems' sites by Local Authority Other BAE Systems Warton Sites Fylde 21.3 5.2 Preston 14.8 11.7 Wyre 12.1 5.0 Blackpool 8.9 2.1 South Ribble 5.6 9.0 Chorley 4.5 5.2 Ribble Valley 1.4 4.0 Blackburn with Darwen 1.3 4.7 Lancaster 1.0 1.2 West Lancashire 0.9 0.7 Source: Geoeconomics, BAE Systems, Annual Business Inquiry 2008
The shape of the catchment area from which residents travel to work in Warton can be visualized in Chart A.2. The red line on the map captures the area from which 75% of Warton employees travel to the site (assessed by their postcode of residence). It includes a significant part of mid-Lancashire extending from the site in all directions. The map also shows that the strongest local impacts of Warton’s employment are felt in the boroughs of Fylde (containing the Warton site), Preston, and Wyre (to the north of the site), with significant impacts on both Blackpool and South Ribble.
44 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart A.2: Warton and BAE Systems’ share of Manufacturing Employment in selected Local Authorities (resident based)
Source: Geoeconomics, BAE Systems
45 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart A.3 considers the overall impact of skilled employment generated by Warton. Almost one in ten of all residents in Fylde who are employed in managerial, professional and technical roles work at Warton. For Preston the equivalent figure is about one in seventeen.
Chart A.3: Warton’s share of local employment by occupation in selected Local Authorities (resident based, exact percentage shares shown as numbers on chart)
0.0 Lancaster 0.2 West Lancashire 0.1 One in seventeen 0.3 Skilled Manual 0.0 Preston residents Ribble Valley 0.3 Occupations Blackburn with Darwen 0.2 involved in 0.6 Chorley 0.6 Executives, Managers, pro fessional/technical 1.1 Professionals and 0.6 roles, work at Warton South Ribble 1.3 Technical Occupations
0.9 Blackpool 2.1 1.0 Wyre 2.9 1.2 Preston 5.8 Fylde 4.8 8.9
0123 45678910 %
Source: Geoeconomics, BAE Systems, Annual Population Survey 2009
This impact strengthens if it is considered in terms of workplaces. Within Fylde, about one in four (24%) skilled manual jobs are located at Warton, while the proportion for managerial professional and technical grades is slightly higher at 27%.
A.6 The impact of procurement from Warton on the North West region
Within the North West region the value of procurement orders originating from Warton was £53.6 million in 2009. The majority of this, £33 million, was in the form of orders for goods and services placed with companies in Lancashire.
Chart A.4 provides a county-level breakdown of Warton’s purchases from the North-West as a whole.
46 Economic Contribution of BAE Systems to the UK April 2011 – Final Report
Chart A.4: Warton site’s total order value by county within the North West Region 2009 (exact values shown as numbers on Chart)
Cumbria 0.2
Greater Manchester 1.9
Cheshire 8.3
Merseyside 10.2
Lancashire 33.0
0 10 20 30 40 50 £m
Source: Geoeconomics, BAE Systems
47
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