THE IMPACT OF BAE SYSTEMS ON THE UK ECONOMY Eurofighter Typoon undergoing anechoic chamber testing. The impact of BAE Systems on the UK economy
CONTENTS:
Foreword 2 Executive summary 4 Introducing economic impact analysis 7
1. Core GDP contribution 9 1.1 Total contribution 9 1.2 Labour productivity 9 1.3 Supply chain contribution 10 1.4 Consumer spend contribution 13
Supply chain 14
2. Employment contribution 18 2.1 Total employment 18 2.2 Skills base 18
Apprenticeships 20 Graduates 22
2.3 Supply chain and consumer spend contribution 24 3. Tax contribution 27 4. Wider economic impacts 28 4.1 Exports 28 4.2 Capital and R&D investment 29
University partnerships 31 R&D investment driving innovation 32
5. Regional contribution 34 5.1 Glasgow 35 5.2 South Cumbria 37 5.3 North West 40 5.4 South 42
6. Technical appendix 45
7. Further information 48
1 The impact of BAE Systems on the UK economy
FOREWORD
The UK is home to one of Our employees are incredibly the most advanced defence proud to engineer the industries in the world. It has equipment and services to a rich heritage in the design, protect and serve those who production, modification protect and serve us. The and maintenance of military UK’s role in an increasingly combat aircraft and training fragmented world is platforms; complex naval underpinned by its defence vessels, the radar and combat capabilities – and the industrial systems they carry and nuclear base that provides those powered submarines. In this capabilities. In an evolving sector, BAE Systems leads the geopolitical environment, with field and is one of the world’s ongoing pressure on defence largest defence, aerospace and budgets, we are continuously security companies. evaluating and changing the way we work to improve Our business and the many efficiency. Our job is to keep thousands of companies we delivering on our programmes work with across our UK supply and to maintain affordability for chain are helping drive the UK’s our customer and the taxpayer. economic fortunes by creating valuable jobs, investing in We are also developing new research and development, technologies to meet future improving the UK skills base threats, including a significant and generating significant capability in cyber defence. export revenues. This report showcases some of the world-leading projects that We commissioned Oxford are currently in development. Economics to undertake We also reveal details of the a comprehensive analysis significant multi-million pound to quantify BAE Systems’ investment we are making economic impact in the UK. to progress our research and This report reveals that our development activities and the activities directly contribute work we are doing to build and £3.2 billion to the UK economy, foster important relationships generating £3.8 billion in with universities all over the UK. exports, and as we spend £3.9 billion annually with I am proud to be Chairman of UK suppliers, helping to a company that makes such sustain 122,700 UK jobs. I’m a material contribution to the particularly proud that BAE economic health of the country Systems is one of the most and the safety of the nation. productive companies in the UK, with labour productivity of Sir Roger Carr £95,000 per worker, more than Chairman, BAE Systems plc twice the national average.
2 FOREWORD The impact of BAE Systems on the UK economy
EXECUTIVE SUMMARY
BAE Systems is the UK’s largest defence, aerospace and security company. As such, it makes a substantial contribution to the UK economy. In this report, Oxford Economics measures BAE Systems’ economic impact in the UK with primary reference to 2013. The study quantifies BAE Systems’ impact in two stages: the Company’s immediate contribution to the economy measured in terms of gross domestic product (GDP), employment and tax receipts, and the wider economic impact it generates, in particular through exports, capital investment and R&D. The Company’s impact is explored at a national and regional level.
In 2013 BAE Systems’ operations made a £7.9 billion contribution to the UK economy and sustained 122,700 full-time equivalent (FTE) jobs. This impact is the sum of three channels of economic impact: the direct contribution of BAE Systems’ activities; indirect activities within its UK supply chain; and the induced effect that results as employees of the Company, and within its supply chain, spend their wages in the wider consumer economy. With a GDP multiplier of 2.5, for every £10 in GDP created directly by BAE Systems, £25 is created across the economy as a whole1, while for every 10 FTE jobs at BAE Systems, 37 are supported across the economy. Labour productivity is high at over £95,000 per FTE. The contribution of BAE Systems’ employees is more than double the UK industry average.
BAE Systems’ economic impact goes well beyond its immediate economic footprint. Wide-ranging benefits are created for the UK economy as its goods and services boost economic activity elsewhere in the economy. For example, BAE Systems’ UK operation is a highly export-oriented business. In 2013, BAE Systems’ exports at £3.8 billion comprised one per cent of all UK exports, and made a net positive contribution to the UK balance of payments of around £2.5 billion.
The economic impact of BAE Systems is widely distributed throughout the UK. This reflects the Company’s wide geographical footprint with sites in regions all around the UK, from Scotstoun near Glasgow to Portsmouth on the south coast. The wide distribution of its sites means that both supply chain and consumer spend-related benefits and jobs are broadly felt across the country. For example, in South Cumbria, where its Barrow shipyard builds some of the world’s most advanced submarines, BAE Systems’ operations supported 7,800 FTE jobs in 2013.
4 1 Including the £10 directly created at BAE Systems. The impact of BAE Systems on the UK economy
EXECUTIVE SUMMARY
The workforce of BAE Systems is highly skilled, and so makes an important contribution to national productivity and economic growth. Some 74 per cent of its direct workforce is employed in professional, managerial and engineering roles. The £7.9 bn importance of this skills base to the Company is also reflected in its talent identification and training programmes. BAE Systems GDP contribution in 2013 spends almost £80 million on training employees each year. In 2013 it recruited 772 apprentices and 251 graduates. In 2015 the Company will recruit 808 apprentices and 293 graduates. BAE Systems’ operations By 2018 it has committed to having over 2,000 apprentices contributed £7.9 billion to working for the Company. BAE Systems also trains apprentices the UK economy in 2013, and on behalf of small and medium enterprises (SMEs) and suppliers sustained 122,700 full-time in its supply chain; an approach rarely seen in the sector that equivalent jobs. underlines its commitment to developing a pipeline of future talent that reaches beyond its own doors.
BAE Systems invests heavily in research and development (R&D), advancing the nation’s technological frontier and 122,700 helping to deliver greater economic output. In 2013, the Company managed £695 million in R&D investment, including FTE jobs in 2013 £84 million of its own funds and in 2014, the overall R&D investment increased to £902 million, including £63 million of its own funds. BAE Systems’ R&D spans a wide range of technologies and applications, and includes innovation in products and processes ranging from visualisation suites that advance the design and build of UK warships to ‘smartskin’ technology to give aircraft human-like skin, enabling the early detection of injury or damage. BAE Systems’ R&D contribution is also reflected in the significant investments it makes in university partnerships and in the number of patent applications it makes. The European Patent Office recognises BAE Systems as one of the largest filers of patent applications in the UK high- tech sector. BAE Systems’ businesses in the UK hold around 1,200 granted patents in various territories, with a further 2,100 pending patent applications.
BAE Systems’ impact on the economy is substantial. From the contribution to UK GDP and employment of its operational spending, to the impact its exports have on the trade balance, through to the innovation generated by its R&D investment and the partnerships it has developed with some of the nation’s top universities, the impact that BAE Systems has on the UK economy is considerable, making an important difference to prosperity and growth across the length and breadth of the country.
5 Computer generated image of the successor to the Vanguard Class submarine. The impact of BAE Systems on the UK economy
INTRODUCING ECONOMIC IMPACT ANALYSIS
The economic impact of a company or industry is measured using a standard means of analysis called an economic impact assessment. The report quantifies the three ‘core’ channels of impact that comprise the organisation’s ‘economic footprint’, comprising:
• Direct impact - the economic benefit of BAE Systems’ operations and activities in the UK; • Indirect impact - the economic benefit and employment supported in BAE Systems’ supply chain as a result of the procurement of goods and services; and • Induced impact - the wider economic benefits that arise when employees of BAE Systems and its supply chain spend their earnings, for example in local retail establishments.
From these channels, BAE Systems’ total economic footprint in the UK economy is presented, using three key metrics:
• GDP, or more specifically, BAE Systems’ gross value added (GVA) contribution to GDP; and • Employment, as the number of people employed, measured on a full-time equivalent (FTE) basis; and • Tax, representing the tax receipts paid to the Treasury.
In addition to the core economic impacts, this report examines the wider effects of the Company’s services or products in boosting economic activity elsewhere in the economy. These impacts represent the wider benefits that governments, consumers, society and other industries derive from the services BAE Systems provides. For BAE Systems these are primarily captured in the contribution that the Company makes to UK exports, capital investment and research and development (R&D). In the context of R&D investment, the report explores the Company’s impact in terms of its expenditure through research councils, in university partnerships and in the number of patents that it registers.
The modelling on which this report is based computes the economic footprint of BAE Systems in the UK in 2013, the latest year for which full economic data are available at the time of publication (July 2015). Where available, 2014 and 2015 data have been incorporated. Economic contributions are shown for the whole UK economy and employment contributions are shown for four key business hubs: Glasgow (Naval Ships), South Cumbria (Submarines), North West England (Military Air and Information) and Southern England (Maritime Services). Further detail about the economic impact methodology is included in the technical appendix.
7 An engineer prepares a Eurofighter Typhoon for flight trials involving a Storm Shadow missile. The impact of BAE Systems on the UK economy
1. CORE GDP CONTRIBUTION
1.1 TOTAL CONTRIBUTION 1.2 LABOUR PRODUCTIVITY
In total, BAE Systems Calculating the direct contributed £7.9 billion to the contribution of BAE Systems £95,000 UK’s gross domestic product to UK GDP (£3.2 billion in in 2013. As explored in figure 2013) allows the measurement Value added per employee 1, this total contribution of labour productivity– represents the sum of three that is, value added to types of impact–direct, indirect, the UK economy on a per In 2013, at over £95,000 per and induced. FTE employment basis. At FTE employee, BAE Systems’ over £95,000 per full-time labour productivity was more With a GDP multiplier of 2.5, equivalent, BAE Systems’ than double the UK average for every £10 in GDP created labour productivity was more of £46,000. directly by BAE Systems, £25 is than double the UK average created across the economy as of £46,000. It was also 35 per a whole.2 The Company’s direct cent higher than the average GDP contribution of £3.2 billion for the manufacturing sector increases to an economy-wide at £62,000.3 > 2 x contribution of £7.9 billion. To put this in context, this National average productivity means that if BAE Systems was a separate sector of the UK economy, it would have the sixth highest value added per employee of all sectors. The five sectors with higher value added per employee are all capital-intensive industries requiring relatively small amounts of labour (i.e. real estate; mining and quarrying and water supply).
2 Including the £10 directly created at BAE Systems. 9 3 Agglomeration of industries engaged in chemical, mechanical, or physical transformation of materials, substances, or components into consumer or industrial goods. The impact of BAE Systems on the UK economy
Fig. 1: BAE Systems’ contribution to UK GDP, 2013 1.3 SUPPLY CHAIN CONTRIBUTION
£ billions BAE Systems’ direct economic activity feeds 9.0 through to numerous other 8.0 related business activities 7.0 1.5 in its supply chain, fuelling 6.0 economic growth by creating and sustaining jobs in the 5.0 3.2 wider economy, for example 4.0 7.9 in transportation, storage, 3.0 communications services, 2.0 professional, financial services 3.2 and insurance. Procurement 1.0 data show that in 2013 0.0 the Company bought £3.9 Direct Indirect Induced Total billion worth of goods and Source: Oxford Economics/BAE Systems services from UK suppliers, representing 76 per cent of the total £5.1 billion spend. Fig. 2: Labour productivity at BAE Systems, 2013 The procurement from its UK- based supply chain generated an additional value added GDP £ thousands, 2013 prices contribution of £3.2 billion on 100 top of the £3.2 billion directly 90 created by BAE Systems (see figure 1). 80 35%
70 52% The supply chain activity 60 benefits companies located throughout the UK. As figure 50 95 3 shows, for BAE Systems 40 most of the indirect GDP 30 62 contribution is generated by 20 46 the professional and technical activities sector. 10 0 The supply chain impact is BAE Systems Manufacturing sector National average also spread throughout the Source: Oxford Economics UK reflecting BAE Systems’ widely-distributed sites. As figure 4 shows there are seven local authority regions in which the total procurement expenditure with BAE Systems’ top 300 suppliers exceeded £100 million in 2013.
10 The impact of BAE Systems on the UK economy
Fig. 3: Indirect GDP contribution of BAE Systems by sector, 2013
Administrative Public administration & defence 3% £3.9 bn & defence 4% UK procurement in 2013 Financial & insurance 7% In 2013, BAE Systems Information & bought £3.9 billion worth of communication 9% goods and services from UK suppliers, representing 76 per cent of the total £5.1 billion Manufacturing 11% procurement spend for the Professional, UK businesses. scientific & technical 52%
Others 14%
Source: Oxford Economics
Innovation to deliver Removing adhesive residue customer value: Advanced can be time-consuming, Masking Tape: damaging and costly. The tape has been so successful BAE Systems’ highly that it has already been put to skilled workforce delivers use in the production of the a significantly higher gross new F-35 Lightning II, with value added than the national projected savings of around average. The Company’s £15,000 per aircraft, and the priority is to deliver the best Company is now implementing quality at the best price to the it into the Hawk and Typhoon customer. A graduate at the aircraft production processes. Company has developed an advanced masking tape which will significantly reduce time and deliver cost savings of an estimated £45 million over the next two decades. This clever solution addresses a common problem of adhesive residue being left on airframe parts when traditional heavy aluminium tape is peeled away.
11 The impact of BAE Systems on the UK economy
Fig. 4: Procurement spend with top 300 suppliers and Local authorities where BAE Systems’ UK sites BAE Systems spent over £100 million in 2013
1. Stevenage: £208 million of goods and services procured by MA&I.
2. Fife: £207 million in product support procured by a variety of business units.
3. South Gloucestershire: £196 million of goods and services procured by MA&I, Maritime Naval Ships, Electronic Systems, and Munitions 2 UK divisions. 6 4. Luton: £170 million of goods and services, mainly procured by MA&I from two suppliers.
5. Preston: £165 million procured from 18 different suppliers for a wide range of business units.
BAE Systems’ Procurement (£m) 5 6. Edinburgh: £133 million procured by the Shared <2.5 Services division, with small 2.5 - 4.9 amounts procured by MA&I for Typhoon production. 5.0 - 9.9
10 - 99.9 7. Rushmoor: £115 million, with just over half ordered by MA&I 4 >99.9 1 for its Hawk aircraft.
BAE Systems’ sites 3 7
12 The impact of BAE Systems on the UK economy
1.4 CONSUMER SPEND CONTRIBUTION
In addition to the direct and indirect (supply chain) GDP £100 m+ contribution, employees of both Procurement spend in seven BAE Systems and of companies local authorities in its supply chain support economic activity by spending their wages on consumer goods In 2013, in seven local and services. This induced authority regions BAE Systems’ GDP contribution from BAE total procurement expenditure Systems’ activities was worth an with its top 300 suppliers additional £1.5 billion to the UK exceeded £100 million. economy in 2013.
This contribution is felt across Fig. 5: Induced contribution of BAE Systems to GDP, by sector, 2013 a wide range of industries as employees spend their salaries, Administrative Education 3% Human health & social work 2% as shown in figure 5. & support 3% Accommodation Others 12% & food 4% Professional, scientific & technical 14% Construction 5%
Transportation & storage 6%
Information & Real estate communication 7% activities 13%
Manufacturing 8% Wholesale & retail trade 12%
Financial & insurance 11% Source: Oxford Economics
Partnership approach: of years. Today, the company Since then, thanks to its adi Group employs around 450 people partnership approach with and had a turnover of £60m BAE Systems, adi Group’s Birmingham-headquartered in 2014. adi Group started work for the Company has adi Group was established 25 working with BAE Systems grown significantly: adi Group years ago to provide a one- in 2008, when it won a small now works with five different stop-shop for engineering maintenance contract in BAE Systems’ businesses companies. The company Radway Green. During the on a wide-ranging variety of has enjoyed excellent year- project, adi Group started projects. Today, approximately on-year growth thanks to its talking to the site engineering 10 per cent of its workforce is business strategy of adding team and shortly afterwards working for BAE Systems on competencies to its variety of won an electrical installation an FTE basis. core services over a number and data cabling project.
13 The impact of BAE Systems on the UK economy
SUPPLY CHAIN
1. Eurofighter Typhoon 2011 to 2013 period, supporting equipment for the ventilation supply chain 16,600 UK jobs within supply system to the cockpit and chain companies, companies glare shields on the main body BAE Systems works in that in turn purchase from of the aircraft. Its work on partnership along with other suppliers, and through Typhoon generates a turnover Airbus Defence and Space (in jobs created by the direct and of around £200,000, almost a Germany), Alenia Aermacchi indirect workforce spending third of the company’s overall (in Italy) and Airbus Defence their wages. aerospace and defence work. and Space (in Spain) to Denroy Plastics has plans develop and produce the Supplying the Eurofighter for growth in the aerospace Eurofighter Typhoon. Typhoon programme: industry with ambitions to Denroy Plastics create a centre of excellence The supply chain is supported for creating polymers for by BAE Systems’ involvement Plastics manufacturer Denroy the industry. Since starting in the partnership to build the Plastics makes around 180 to supply the Eurofighter Typhoon, comprising more parts for the Eurofighter Typhoon programme, Denroy than 300 UK suppliers. On Typhoon. The company, based Plastics has won several average, BAE Systems has in Bangor, Northern Ireland, contracts for other aerospace spent more than £690 million produces everything from sector projects. annually with suppliers on the parts for the exhausts and Typhoon programme over the escape ladders through to
Fig. 5: BAE Systems’ Typhoon procurement spend and employment contribution by region, 2011-2013 annual average 1 1. Scotland 8. London £147.83m / 1,378 £14.26m / 256
2. North East 9. South East £1.46m / 101 £90.01m / 1,966 2 3. Yorkshire & the Humber 10. South West £12.57m / 175 £147.83m / 3,764 3 4 4. North West 11. Wales £23.95m / 5,234 £4.70m / 135 6 5. West Midlands 5 £9.47m / 368 11 7 6. East Midlands 8 £223.70m / 2,728 9 10 7. East of England £15.11m / 523
14 SUPPLY CHAIN
The Eurofighter Typhoon which is in service with the UK RAF and five other air forces across the globe. The impact of BAE Systems on the UK economy
2. Type 26 Global Combat Ship supply chain
In 2015, BAE Systems was awarded an £860 million contract by the Royal Navy to deliver a demonstrator for the Type 26 Global Combat Ship to replace the UK’s Type 23 frigate.
With operations ranging from high-intensity conflict to humanitarian assistance, the ship will be a versatile multi- mission warship designed to support anti-submarine warfare, air defence and Supporting the Type 26 land and sea vehicles including general purpose operations. design: David Brown the Challenger II main battle Gear Systems tank, and Astute Class attack Over £660 million of the £860 submarine. In addition, the million contract value will be David Brown Gear Systems company is undertaking the spent by BAE Systems in its is a gearbox manufacturing design work for the main supply chain, with 42 per cent company based in Huddersfield. reduction gearbox and to be contracted to 17 First started in 1860, the associated systems on the UK suppliers. company now employs 240 Type 26 warships. Orders people at its UK site and 700 from BAE Systems currently worldwide–with operations account for approximately in France, Canada and South 20 per cent of David Africa–and generates annual Brown’s business. turnover of £110m.
The company has worked with BAE Systems for more than two decades, supplying gear and transmission systems to
16 The impact of BAE Systems on the UK economy
3. Successor submarine Supporting the Successor Destroyers and Queen Elizabeth supply chain submarine design: McGeoch Class aircraft carriers (a contract Technology Ltd worth £6 million alone). BAE Systems is designing a new generation of submarines Founded in 1832, McGeoch McGeoch currently has 14 to carry the UK’s independent Technology Ltd specialises in Design, Development & nuclear deterrent. These the design and manufacture of Qualification contracts with submarines are due to electrical light fittings for the BAE Systems for the Successor replace the Vanguard Class of defence marine industry. The submarine programme – with submarines (also designed and company employs around 115 the company set to fit a mix of constructed at BAE Systems’ people, with a turnover of more lighting and electrical panels to site in Barrow-in-Furness, than £10 million in 2014. It has the future Royal Navy vessels. Cumbria). The first submarine plans to increase this by 50 per The value of these contracts is under the ‘Successor’ cent over the next three to estimated at around £2.5 million. programme is scheduled to five years. enter service in 2028. This ongoing relationship has Beginning its relationship with given McGeoch long-term Around 240 suppliers are BAE Systems over 25 years ago, security through contracts that involved in the Assessment McGeoch has worked across span several years, as well as Phase on Successor, with 90 a number of projects and is additional contracts to per cent UK-based. These currently working to deliver support the delivery of spares suppliers are distributed fittings for BAE Systems’ Astute and repairs. widely throughout the UK. Class submarines, Type 45
17 The impact of BAE Systems on the UK economy
2. EMPLOYMENT CONTRIBUTION
2.1 TOTAL EMPLOYMENT 2.2 SKILLS BASE
As well as contribution to It is not just the number of 122,700 GDP, Oxford Economics’ jobs provided by BAE Systems modelling can translate BAE that matters for the UK FTE jobs in 2013 Systems’ overall economic economy. A skilled workforce impact into the number of jobs is important to national that are supported. productivity and therefore Comprising 33,000 direct national economic growth. The jobs, 62,400 supply chain jobs In 2013, BAE Systems workforce of BAE Systems is and 27,000 jobs supported by supported 122,700 full-time highly skilled, and so makes workforce consumer spend. equivalent workers in the UK an important contribution to economy, split between direct, national productivity. indirect (supply chain), and induced (consumer spend) Some 74 per cent of BAE employment contributions. Systems roles are classified as professional or engineering 3.7 BAE Systems has an roles. This includes 11 per employment multiplier of cent in senior executive and Employment multiplier 3.7–its direct employment managerial roles, 29 per cent contribution of 33,300 jobs working as engineers, seven increases to an economy-wide per cent in engineering-related For every 10 FTE jobs at contribution of 122,700 jobs. roles, and 27 per cent in other BAE Systems, a further 37 This means that for every 10 professional roles. jobs are supported across FTE jobs at BAE Systems, the broader economy. 37 FTE jobs are supported BAE Systems’ highly-skilled across the economy as a workforce is reflected in whole (including those directly its talent identification employed at BAE Systems). and training programmes,
Fig. 6: Total employment contribution, FTEs, 2013
FTE jobs 140,000
120,000 27,000 100,000
80,000
60,000 62,400 122,700
40,000
20,000 33,300 0 Direct Indirect Induced Total
Source: BAE Systems, Oxford Economics
18 The impact of BAE Systems on the UK economy
2. EMPLOYMENT CONTRIBUTION
providing training training and development of opportunities to a younger its UK workforce. This included and emergent workforce over £20 million on its throughout the UK; some apprenticeship programmes, of this workforce will go on around £9 million on its to work in its supply chain, graduate programmes having been trained at BAE and over £30 million on a Systems, spreading the broad range of programmes benefits of this investment in designed to ensure the wider the future workforce beyond workforce has the right its own doors. capabilities and skills to meet future requirements and In 2013, the Company changing customer needs. For recruited 772 apprentices example, in 2013 £2.4 million and 251 graduates through was spent on the Company’s three dedicated graduate ‘Developing You’ programmes, schemes, as well as additional a range of tailored courses direct entry routes. In 2015, available for employees BAE Systems will recruit in each business function 808 apprentices and 293 (i.e. Engineering, Finance, graduates, its biggest ever Procurement etc.). annual intake. The Company has committed to significantly grow the number of UK apprentices in training to 2,000 by 2018.
In 2013 BAE Systems invested almost £80 million in the
Fig. 6: Total employment contribution, FTEs, 2013 Fig. 7: Types of employment at BAE Systems, 2013
Other, 20% Senior Executives and Managers, 11%
Apprentices, 3%
Engineers and related, 36% Administrative, clerical and secretarial, 3%
Other Professional, 27%
Source: BAE Systems
19 The impact of BAE Systems on the UK economy
APPRENTICESHIPS
BAE Systems’ apprenticeship three per cent of the BAE Systems’ apprentices gain programme continues to Systems workforce comprised both regionally and nationally. grow and in 2015 it will of apprentices: in that year it BAE Systems is involved in recruit a record number of recruited 471 craft apprentices and leads many ‘trailblazers’, apprentices: including 513 and 301 technical apprentices. developing apprenticeship funded apprentices across the In 2013, BAE Systems spent standards for different roles Company and an additional over £20 million on salaries and across different sectors, 295 recruited as part of its and training for its apprentices. for example, in aerospace Skills Development Scotland and aviation fitting, aircraft (SDS) contract. By 2018, An apprenticeship at BAE maintenance and safety, and BAE Systems has formally Systems provides the maritime engineering and committed to having 2,000 opportunity for young people inspection, as well as in the apprentices working for to experience different areas development of degree-level the Company. within the business to help apprenticeships for both them decide which route they aerospace and nuclear trainees. The commitment of BAE would like to take as a Systems to its apprenticeship career path. The Company also trains programme as a mechanism apprentices on behalf of for talent development is BAE Systems’ commitment SMEs and suppliers in its clear. In 2013, 97 per cent to providing a pipeline of supply chain; an approach of apprentices completed future talent is reflected in the rarely seen elsewhere in the their framework and gained quality of its apprenticeship sector. For example, through full–time employment within provision, and in the awards the Employer Ownership the business. In 2013, around and recognition that BAE Programme (EOP), BAE Systems is working directly Fig.8: BAE Systems’ apprentices by site and business with 12 local SMEs to division, 2015 provide Level 3 Engineering Apprenticeships for 21 trainees Business Unit: Site: Apprentices: at Preston Training Centre.
Military Air & Information Brough, Yorkshire 25 All these apprentices have successfully completed their Military Air & Information Preston, Samlesbury, Warton, Lancashire 219 first year of training with one Military Air & Information Doncaster, South Yorkshire 76 trainee (Ben Farnsworth) winning the Engineering Electronic Systems Rochester, Kent 31 Employers’ Federation (EEF) Maritime Submarines Barrow-in-Furness, Cumbria 509 regional competition and
Maritime Naval Ships Portsmouth, Hampshire 8 another trainee (Oliver Cowley- Topping) winning an award Maritime Services Portsmouth, Hampshire 30 at the North West Aerospace Maritime Naval Ships Glasgow, Scotland 142 Alliance Awards.
Military Air & Information- Prestwick, Scotland 6
Regional Aircraft
Total 1,046
Source is BAE Systems Self Assessment Report 2014, Jan 2015 version.
20 The impact of BAE Systems on the UK economy
APPRENTICESHIPS
Ben Farnsworth, Apprentice, Techni-Grind (Machining)
Ben Farnsworth, a technical apprentice at Techni-Grind, received formal training as part of the BAE Systems’ apprenticeship scheme at the Preston Training Centre in 2013. In April 2015, Ben’s work was recognised when he was awarded an ‘Outstanding Achievement Award by a First Year Apprentice’ at the regional finals of the Engineering Employers’ Federation Future Manufacturing Awards.
At the end of his 12-month apprenticeship, Ben commented that he has benefited hugely from being able to work at Techni-Grind one day a week, whilst spending the rest of the time at training school. He said: “I have had the opportunity to work on a range of machines, putting the skills I have been learning into practice straight away. Now that I am going into the workforce full-time, I will be able to hit the ground running which is great for me and great for the business I am going into.”
Thomas Hornsby, Military Air & Information Apprentice, Warton
Thomas Hornsby, joined BAE Systems’ Military Air and Information business at Warton in September 2013, spending his first year learning manufacturing techniques before moving on to a second year position at Systems Integration for the Eurofighter Typhoon where he tests on-board data systems. In addition to the technical training, Thomas developed some vital soft skills in communication and team work in his first year as an apprentice. After finishing his apprenticeship, Thomas hopes to take on a permanent role at BAE Systems with the Military Aircraft Performance Testing & Diagnosis team.
21 The impact of BAE Systems on the UK economy
GRADUATES
BAE Systems, a Times Top 100 of four six-month business or The Sigma Scheme is a graduate employer, recruited 251 engineering placements. programme designed to graduates in 2013. In that year, help develop the Company’s 134 graduates were recruited The Finance Leader future leaders. It has an to one of the Company’s three Development Programme engineering stream and a core graduate schemes. In (FLDP) is a smaller, five-year separate business stream, addition, BAE Systems Applied programme. In the first three with graduates spending Intelligence recruited 117, mostly years, graduates complete three years on each stream. STEM graduates, into either three 12-month placements Graduates arrange their consultancy or technical delivery at various UK sites, gaining own roles with support from roles. In 2015, the Company experience of financial, the Sigma Steering Group. will recruit 293 graduates to its management and project These roles typically last graduate training schemes. One accounting whilst completing 6-12 months. On completion, third of these graduates will join a CIMA certificate in business graduates are expected to BAE Systems’ cyber security accounting. Graduates then take on substantive roles at a and intelligence division. move to a two-year role with management level. management experience, The Graduate Development helping to develop the skills Framework (GDF) is BAE they require to move into Systems’ core graduate more senior roles. programme and operates across the UK business and across all functions. It is two years in duration typically comprising
placement in Maritime Services career, but a means through in Portsmouth, working with which they can continually warships, he found a career expand on their knowledge path he wished to pursue and experience.” and where he later accepted a full-time role. Speaking As part of the scheme, Adam of his decision to join BAE was also given the opportunity Systems, Adam said: “Though I to be a part of BAE Systems’ understood the theoretical side partnership with UK Sport. He of engineering, the thing that worked on the development I enjoyed most was actually of a system to help the GB creating things, working with Taekwondo team to evaluate Adam Gaunt, Electronic my hands, and BAE Systems is the electronic scoring vests Design Engineer, well known for its work in very used in major international GDF graduate diverse fields and being at the competitions. The ultimate goal forefront of many technical for the project was to provide After completing a Master’s innovations. After delving insights into how the vests degree in Electronic further, I was very impressed work and how the GB team Engineering, Adam Gaunt with its approach to graduates should adjust their training joined BAE Systems’ graduate and providing them with not style to maximise points. scheme in 2011. In his first only a great start to their
22 GRADUATES The impact of BAE Systems on the UK economy
2.3 SUPPLY CHAIN AND CONSUMER SPEND CONTRIBUTION
As well as direct jobs supply chain are mostly in supported by the Company professional, scientific and at its sites across the UK, this technical activities. report quantifies the economic impact of jobs supported in The 27,000 FTE ‘induced’ jobs BAE Systems’ supply chain, supported by the consumer and the jobs that are supported expenditure of employees at by these sets of employees BAE Systems and its supply spending their wages in the chain are spread widely across consumer economy. The the UK economy. 62,400 FTE jobs that are supported by BAE Systems’
Fig. 9: Induced employment contribution by industry, FTE, 2013
Education 3% Other service activities 3% Human health & social work 4% Others 11%
Administrative & support 5% Professional, scientific Information & & technical 18% communication 5%
Financial & insurance 5%
Construction 7% Wholesale & Manufacturing 7% retail trade 16%
Transportation & storage 8% Accommodation Source: Oxford Economics & food 8%
24 The impact of BAE Systems on the UK economy
QUEEN ELIZABETH CLASS AIRCRAFT CARRIER
BAE Systems is the lead Work on the QE Class aircraft member of the Aircraft carriers has contributed Carrier Alliance working to between 7,000 and 8,000 deliver two Queen Elizabeth highly-skilled jobs across the Class aircraft carriers (QE alliance partners and their Class), the biggest warships shipyards in Glasgow, Rosyth, ever to be constructed Portsmouth and Devon. in the UK. BAE Systems’ Throughout the supply chain, procurement spending on it is estimated that a further the carrier will be £1.9 billion 2,000 to 3,000 jobs have throughout the course of been created, helping to boost the construction, with a local economies across the further £600 million spent UK. The programme has also by other alliance partners. reinvigorated investment in At least 120 suppliers will early career programmes–with contribute to BAE Systems’ almost 900 apprentices and portion of the construction 250 graduates recruited by programme, 100 of which alliance partners since the are based in the UK. contract was awarded in 2009.
25 Type 26 Global Combat Ship The impact of BAE Systems on the UK economy
3. TAX CONTRIBUTION
In 2013, BAE Systems made a supply chain. Finally, the induced total tax contribution of £1.3 figure (£250 million) includes billion to the Treasury. Its tax the corporate tax, income taxes multiplier is 2.5: for every £10 and NIC payments made by £1.3 bn paid directly by BAE Systems companies and employees of in taxes, a total of £25 is those companies in the wider Tax contribution in 2013 generated for the Treasury consumer economy as BAE across the UK economy.4 Systems’ workforce and its supply chain workforce spends In 2013, for every £10 The direct tax contribution (£530 their wages. paid directly by BAE million) includes income tax paid Systems in taxes, a total by employees, national insurance of £25 is generated for tax (employee and employer), the Treasury across the and various other small taxes UK economy. levied on BAE Systems. The indirect contribution (£560 million) is made up of corporate tax, income taxes and NIC payments made by companies and employees in BAE Systems’
Fig. 10: Total tax contribution in 2013
£ million 1,600 1,400 1,200 250 1,000 800 560 1,340 600 400 200 530 0 Direct Indirect Induced Total
Source: BAE Systems, Oxford Economics
4 Including the tax paid by BAE Systems. 27 The impact of BAE Systems on the UK economy
4. WIDER ECONOMIC IMPACTS
In addition to the core economic cent of total UK sales revenues in impacts that BAE Systems 2013. Exports provide additional generates for the UK economy, employment in the economy the report also examines the and enhance the productivity of £3.8 bn wider effects that the Company’s companies. These effects lead to Exports in 2013 services or products have in even more economic growth. boosting economic activity elsewhere in the economy. For In 2013, BAE Systems earned In 2013, BAE Systems’ exports BAE Systems these are primarily export revenues of £3.8 billion, at £3.8 billion comprised one captured in the contribution representing about one per cent per cent of all UK exports. that the Company makes to UK of all UK exports. Figure 12 shows exports and the trade balance, the destinations of BAE Systems’ and in the capital and research UK exports.5 The UK trade and development (R&D) balance has also benefited from investment that it supports. BAE Systems’ activities. BAE Systems imported £1.2 billion 1% worth of goods and services in 4.1 EXPORTS Of UK exports in 2013 2013, meaning that it made a net BAE Systems’ UK operation is a positive contribution to the UK highly export-oriented business, balance of payments of around with exports equivalent to 46 per £2.5 billion.
Fig. 11: BAE Systems’ exports by destination, 2013
USA Rest of Europe Middle East Others 15% 4% 69% 12%
5 Typhoon sales to Eurofighter are excluded from export figures, as they are ultimately UK by destination. The rationale for not 28 including Typhoon sales to Eurofighter as exports is that Eurofighter then ‘sell-on’ an amount (that approximates to BAE Systems’ workshare) to UK MoD. Whilst these sales are shown as sales to Europe in BAE Systems accounts, in the accompanying customer analysis they are included as sales to MoD and therefore they have been excluded from the exports reported here. The impact of BAE Systems on the UK economy
4. WIDER ECONOMIC IMPACTS
4.2 CAPITAL AND Previous work by Oxford R&D INVESTMENT Economics has identified empirical evidence of a BAE Systems invested £124 positive relationship between £124 m million, or nearly £4,000 per whole economy total factor employee, in fixed capital over productivity growth and defence Fixed capital investment the course of 2013. Higher levels and non-defence R&D.7 This work of fixed capital invested per indicated that a one percentage worker lead to more productive point increase in defence R&D In 2013, BAE Systems workers. As a result, fixed capital as a proportion of GDP would, invested £124 million, investment is considered to be on average, boost total factor or nearly £4,000 per an indicator for longer-term productivity (and therefore GDP) employee, in fixed capital. economic growth. by 15.9 per cent in the next 15 years.8 This means that the 2013 In addition to fixed capital investment alone will have the investments, BAE Systems also effect of boosting the UK’s GDP invests heavily in research and by a cumulative total of one per development (R&D). In 2013, cent over a period of 23 years. £695 m the Company managed £695 million in R&D investment, BAE Systems also makes R&D investment in 2013 including £84 million of significant investments in its own funds and in 2014, university partnerships, working the overall R&D investment with universities through various In 2013, BAE Systems increased to £902 million, research councils. Between invested £695 million in R&D including £63 million of its 2012 and 2013, funding with UK investment, including £84 own funds. BAE Systems’ universities rose by 52 per cent. million of its own funds. R&D spans a wide range of The top ten recipients of funding technologies and applications, from BAE Systems in 2013 and includes innovation in together received £7.4 million products and processes. in research funding of a total of £9.6 million spent with R&D makes a difference to UK universities. economic productivity in a number of ways: by improving the quality of goods, by reducing Fig. 12: Research spending at UK universities, top ten, 2013 the costs of producing existing goods, and by increasing the £ millions range of goods or intermediate 2.5 inputs available.6 Furthermore, 2.0 R&D carried out in one company 1.5 can have positive spill-overs to 1.0 other firms or industries as the 0.5 benefits accrue to competitors, other firms, suppliers and 0.0 customers. In this way, R&D
advances a nation’s technological Bristol Sheeld Cranfield frontier, helping it to deliver Liverpool Manchester Nottingham Oxford Said greater economic output. Birmingham Central Lancs Southampton
Source: BAE Systems Business School
6 Bronwyn H Hall and Jacques and Mohnen, Pierre Mairesse, “Measuring the returns to R&D”, National Bureau of Economic Research Working Paper Series (15622), 2009. 29 7 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. 8 Oxford Economics (2005) The Economic Contribution of BAE Systems to the UK The impact of BAE Systems on the UK economy
The granting of patents business. Each application can represents another way in result in a number of further which BAE Systems’ R&D international filings, boosting 6th activities have a wider economic the total number of new impact and serve to highlight patent applications per year to Biggest patent the innovative nature of the approximately 800-900.11 applicant in the UK Company’s work.9 By providing under the Patent protection to inventors, patents The European Patent Office Cooperation Treaty. and other intellectual property recognises BAE Systems as protections act to incentivise one of the largest filers of innovation, allowing those who patent applications in the UK invest in R&D to recoup the high-technology sector.12 The costs of their investments. By UK Intellectual Property Office positively impacting on the rate highlighted BAE Systems’ 1,200 of innovation, patents work contribution in four of eight key Active patents to bring about an increase in technology areas.13 In ‘big data GDP growth. and efficient computing’ BAE Systems is one of the top three BAE Systems’ businesses in the patent filers in the UK, along with UK have around 1,200 active IBM and BT, while in ‘satellites patents in various territories, and commercial applications of 2,100 with a further 2,100 pending space’ BAE Systems is the third Pending patent applications patent applications. In 2013, BAE highest patent applicant in the Systems was the sixth biggest UK. It is also the top UK-based patent applicant in the UK under patent applicant in ‘robotics the Patent Cooperation Treaty and autonomous systems’ system.10 The Company typically and amongst the top global files between 120 and 140 priority patent applicants in the area of patent applications each year ‘advanced materials for new inventions from its UK and nanotechnology’.
9 Corinne and Moschini, GianCarlo Langinier, “The Economics of Patents: An Overview”, Working Paper 02-WP 293, February 2002. 10 WIPO, “Statistical Country Profiles: United Kingdom,” accessed on 22/04/2015. 30 11 This compares to 51,296 UK-wide patent filings and 469,941 patents in force in 2013. WIPO, “Statistical Country Profiles: United Kingdom,” accessed on 22/04/2015. The impact of BAE Systems on the UK economy
UNIVERSITY PARTNERSHIPS
Cranfield: Transforming Birmingham: Augmented data to support operational reality systems set to decisions revolutionise battlefield operations Cranfield University is the largest recipient of BAE Engineers from BAE Systems Systems’ university funding, have worked in partnership receiving grants of £2.3 million with the University of in 2013. Research supported Birmingham to develop includes an Integrated Vehicle ground-breaking technology Health Management (IVHM) concepts to allow operators Centre of Excellence which to take control of real-time works to transform data from battlefield situations. The complex vehicles such as Company contributes funding luxury cars or commercial to the University’s technology airplanes into information departments, as well as that can be used to support supporting PhD students and operational decisions and others in further education. optimise maintenance– BAE Systems is developing ultimately benefiting both augmented reality systems industry and consumers. with Birmingham University.
12 European Patent Office, “Top EPO applicants from the UK – 2013”: http://www.prnewswire.co.uk/news-releases/uk-companies-granted-more-european-patents-in-2013-248705821.html and “UK Companies Granted More European Patents in 2013”, 6 March 2014, 31 13 Intellectual Property Research: Patents: https://www.gov.uk/government/collections/intellectual-property-research-patents The impact of BAE Systems on the UK economy
R&D INVESTMENT DRIVING INNOVATION
Unmanned combat air vehicle Taranis
The Taranis is the most advanced aircraft ever built by British engineers. It has successfully completed a second phase of flight testing in a full ‘stealth’ configuration, making it virtually invisible to radar. BAE Systems is the prime contractor on this project and leads on many elements of the demonstrator, including the low observability, systems integration, and control infrastructure.
NetReveal
NetReveal provides a suite of highly-specialised data ingestion, analytics and simulation tools which have revolutionised the detection of fraud and organised crime. It is used by major global banks and insurers, governments and law enforcement agencies around the world to provide intelligence and combat a range of criminal threats.
Head-Up Display (HUD)
Originally designed for use within military jets, the head-up display (HUD) is a semi-transparent display that presents flight data overlaid on the pilot’s view of the outside world through their windshield. The name stems from a pilot being able to view information with the head positioned “up” and looking forward, instead of angled down looking at lower instruments. Today, the technology has evolved significantly, to head/helmet-mounted displays–forms of HUD where the display moves with the orientation of the user’s head– such as BAE Systems’ Striker II Helmet.
32 The impact of BAE Systems on the UK economy
R&D INVESTMENT DRIVING INNOVATION
Aircraft ‘smart skin’
Engineers at BAE Systems are developing a ‘smart skin’ concept to give aircraft human-like skin, enabling the detection of injury or damage and the ability to ‘feel’ the world around them. The ‘skin’ could be embedded with tens of thousands of micro- sensors which, when applied to an aircraft, will enable it to sense wind speed, temperature, physical strain and movement far more accurately than current sensor technology allows. The ability to continually monitor the health of an aircraft, reporting back on potential problems before they become significant, hugely increases the efficiency of aircraft maintenance.
Virtual ‘visualisation suites’ for UK warships
BAE Systems has created a network of visualisation suites at its sites in Glasgow, Portsmouth and Bristol, which create full-scale 3D virtual prototypes of ships, enabling engineering teams to use virtual reality capabilities to test the design of vessels, and transform the way that complex warships, such as the Royal Navy’s new Offshore Patrol Vessels and the Type 26 Global Combat Ship, are designed and built. The suites enable potential engineering issues to be identified and addressed in advance of the first steel being cut and allow suppliers and customers to be brought into the design process at an earlier stage.
Wildcat driverless car
BAE Systems’ engineers transformed a Bowler Wildcat vehicle, using a cutting-edge autonomous piloting system, to develop one of the world’s most advanced driverless cars. Capable of not only traversing public roads, the Wildcat can also navigate off-road terrain and is able to avoid obstacles at speeds of up to 40 mph.
33 The impact of BAE Systems on the UK economy
5. REGIONAL CONTRIBUTION
As well as quantifying the Fig. 13: Four key regions impact of BAE Systems on the UK economy as a whole, this 1. Glasgow region report examines its impact at a regional level, focusing on four 2. South Cumbria region key regional hubs and the overall footprint of individual businesses 3. North West region within each geographical area. As at the national level, a BAE 4. South region Systems site within a given region will generate multiplier effects on jobs within the regional economy. 1 Accordingly, the direct, indirect, induced and total employment contributions of BAE Systems to the four regional economies are reported for each region. 2
Figure 13 identifies the four 3 regions and the BAE Systems’ sites14 within those regions as well as the local authorities and administrative units within which they are located.
4
Region Name: Business type: Sites within: Counties / local authorities within:
Glasgow Naval Ships Scotstoun, Govan, West Dunbartonshire, East Queen Elizabeth Dunbartonshire, Glasgow City, carrier activity Inverclyde, Renfrewshire, East at Rosyth14 Renfrewshire, North Lanarkshire, Fife
South Cumbria Submarines Barrow Cumbria
North West Military Air Warton, Samlesbury, Lancashire and Information Preston (Channel Way)
South Maritime Services Portsmouth Naval Base, Surrey, Hampshire, Isle of Wight and Cowes, Broadoak, Dorset Weymouth/Dorchester, Ash Vale, Frimley, New Malden, Christchurch
14 With the exception of Rosyth, which is not a BAE Systems’ site but houses BAE Systems’ 34 employees working on the QEC carrier programme. The impact of BAE Systems on the UK economy
5. REGIONAL CONTRIBUTION 5.1 GLASGOW - NAVAL SHIPS
The Glasgow region is home to Across the region, BAE Systems two BAE Systems Naval Ships’ Naval Ships directly employs sites–Scotstoun and Govan and 2,900 full-time equivalent covers a wide area comprising workers, with a further 3,100 of eight local authorities. The jobs supported in the indirect 7,7 0 0 Company also has a number supply chain, and an additional FTE jobs in 2013 of employees based in Rosyth 1,700 jobs supported through working on the Queen Elizabeth the consumer spend of these In 2013, in the Glasgow Class carrier programme. In employees. The employment region, BAE Systems addition to BAE Systems’ multiplier is 2.7 for the Glasgow supported 27 FTE jobs involvement in the design and region, meaning that for every 10 across the area as a manufacture of the two Queen FTE jobs at BAE Systems, 27 FTE whole for every 10 Elizabeth Class aircraft carriers, jobs are supported across the directly employed. the Company is manufacturing local area as a whole, including three Offshore Patrol Vessels. It those directly employed at is also in a demonstration phase BAE Systems. for the Type 26 Global Combat Ship, a programme expected to enter service for the first time in the 2020s.
Fig. 14: Employment contribution of BAE Systems Naval Ships in the Glasgow region
FTEs 9,000 8,000
7,000 1,700 6,000 5,000 3,100 4,000 7,700 3,000 2,000 2,900 1,000 0 Direct Indirect Induced Total
Source: BAE Systems, Oxford Economics
35 The impact of BAE Systems on the UK economy
Fig. 15: Sites and employees of BAE Systems Naval Ships in the Glasgow region15
Queen Elizabeth Class carrier activity
Glasgow (Scotstown) Glasgow (Govan)
BAE Systems’ employees by Unitary Authority
< 50
50 - 149
150 - 299
> 300
BAE Systems’ site
BAE Systems’ employees
Innovative approach to with build plan requirements. programme, in January 2015, logistics: Wincanton Wincanton provided a solution a long-term agreement was based on logistics ‘Best signed, which started with Wincanton is a leading Practice’: to deliver an efficient the outsourcing of all logistics provider of supply chain and affordable storage and and warehousing at BAE solutions in the UK and distribution service. By locating Systems’ sites in Glasgow to Ireland and currently employs the central warehouse in Wincanton, operating a central nearly 1200 people across Scotland, Wincanton identified warehousing facility, inbound 32 operations in its Defence the opportunity to deliver scheduling and collections Logistics business. environmental benefits by and provision of modular integrating the solution into their re-useable crates. As the Queen Elizabeth Class UK network of 3,900 vehicles. carrier programme is one of The benefits of this unique the largest engineering projects The multi-million per annum approach within the defence currently being undertaken in contract has not only provided industry were recognised the UK, an innovative approach long-term employment for externally when the Company to logistical support was 33 people but has been a key won the European Supply required. A central warehouse enabler to help Wincanton Chain Excellence award concept provides a single point win business with other in 2013. of storage for equipment and defence customers and materials for use within the double the workforce over build programme; this helps to the last six years. Following strengthen the ability to deliver the success of the company’s materials to operations in line involvement in the QEC
15 Rosyth, is not a BAE Systems’ site but houses BAE Systems’ employees working on the 36 QEC carrier programme. The impact of BAE Systems on the UK economy
5.2 SOUTH CUMBRIA - SUBMARINES The South Cumbria region that for every 10 FTE jobs at is home to BAE Systems BAE Systems, 14 FTE jobs are Submarines. The primary focus supported across the local area of the Barrow site is the design as a whole, including those and build of complex submarine directly employed at BAE 7,800 programmes for the Royal Navy. Systems. FTE jobs in 2013 The site is benefiting from a £300 million redevelopment The number of direct FTE investment that will ensure that workers at Barrow In the South Cumbria Barrow’s world-class submarine increased to 7,200 in 2015, and region in 2013 BAE Systems building capabilities are retained thus the indirect and induced supported 14 FTE jobs for the long term. contribution would also rise for across the area as a whole the region, increasing the total for every 10 directly The Barrow site in the South employment contribution. employed in the region. Cumbria region directly employs 5,400 full-time equivalent workers with a further 400 jobs supported in the indirect supply chain, and an additional 2,000 jobs supported through the consumer spend of these employees. The employment multiplier is 1.4 for the South Cumbria region, meaning
Fig. 16: Employment contribution in the South Cumbria region
FTEs 9,000 8,000
7,000 2,000 6,000 400 5,000
4,000 7,800 3,000 5,400 2,000 1,000 0 Direct Indirect Induced Total
Source: BAE Systems, Oxford Economics
37 The impact of BAE Systems on the UK economy
Astute Class submarines the value of the Astute Class supply chain totalled £323 Described as more complex million, with supplies procured to design and construct than from 430 UK companies (out a space shuttle, seven cutting- of a total of 461 suppliers). edge stealth submarines More than a quarter of these are being built for the Royal suppliers (114) are based in Navy at BAE Systems’ Barrow the Cumbria and North West shipyard in South Cumbria. England region. The submarines are powered by a nuclear reactor that can run for the full 25-year lifespan without refuelling.
Astute Class submarines are able to circumnavigate the globe without surfacing, limited only by their food storage capacity. In 2013,
38 The impact of BAE Systems on the UK economy
Fig. 17: BAE Systems Submarines’ sites and employees in the South Cumbria region
Barrow
BAE Systems’ employees by Unitary Authority
< 10
10 - 49
50 - 99
> 100
BAE Systems’ site
Accelerating Success: BAE work on the Astute Class Systems’ apprenticeship submarine programme. Self- programme: management, teamwork and communication are the main Employment at BAE Systems things Francesca has learnt Submarines’ business in through her apprenticeship Barrow is expected to rise where she liaises with different significantly as the Successor stakeholders across the build programme gets business to ensure projects underway. Many of those are completed on time and being brought into the on budget. She believes that business are high-potential her apprenticeship has helped apprentices at the start of her focus on progressing an their careers, such as 21-year exciting and challenging career. old Francesca McKenna. Francesca joined BAE Systems in 2011 to take up a three- year apprenticeship position. She has since extended her apprenticeship to five years, allowing her to work towards a full degree as a risk engineer. In 2015, she was awarded the BAE Systems’ Apprentice of the Year award for her
39 The impact of BAE Systems on the UK economy
5.3 NORTH WEST – MILITARY AIR AND INFORMATION
The North West16 region is The Warton, Samlesbury, and home to four BAE Systems Preston (Channel Way) sites Military Air and Information in the North West region 16,200 (MA&I) sites and covers the directly employ 9,500 full- area primarily comprising time equivalent workers, with FTE jobs in 2013 Lancashire. At these sites, the a further 1,600 jobs supported Company manufactures and in the indirect supply chain, completes the final assembly and an additional 5,100 In 2013, in the North of the Eurofighter Typhoon jobs supported through the West region BAE Systems and Hawk jet trainer, together consumer spend of these supported 17 FTE jobs with work on the rear section employees. The employment across the area as a whole of the F-35 Lightning II. multiplier is 1.7 for the North for every 10 directly West region, meaning that employed in the region. Lancashire is also home for every 10 FTE jobs at BAE to the future of flight with Systems, 17 FTE jobs are engineering teams behind the supported across the local Company’s Future Combat Air area as a whole, including Systems business based those directly employed at at Warton. BAE Systems.
Fig. 18: Employment contribution by BAE Systems MA&I in the North West region
FTEs 18,000 16,000
14,000 5,100 12,000 10,000 1,600 8,000 16,200 6,000 9,500 4,000 2,000 0 Direct Indirect Induced Total
Source: BAE Systems, Oxford Economics
16 To note, this is not the same geographic area as the North West regional designation, 40 which also comprises what is called ‘South Cumbria’, nor is it the equivalent of the North West UK Government Office region. The impact of BAE Systems on the UK economy
Fig. 19: MA&I sites and employees in the North West region
Samlesbury Warton Preston
BAE Systems’ employees by Unitary Authority
< 10
10 - 49
50 - 99
> 100
BAE Systems’ site
Innovating for growth: storage system for use in business in Barrow-in-Furness, Hurst Green Plastics production of the Eurofighter and BAE Systems Electronics Typhoon. The rivet and in Nashua, USA. Hurst Green Plastics used to fastener storage has proved be a small plastic fabrication so effective that today more In 2012, the company won factory based in the heart than 7,000 units are now in the Queen’s Award for of the Ribble Valley. Since use across the Eurofighter Innovation presented where starting work with BAE Typhoon production line. the company’s success Systems’ MA&I business story began, in the Typhoon in Samlesbury in 1997, Hurst Green Plastics has manufacturing facility at the company has tripled significantly upgraded its BAE Systems. its workforce – opening manufacturing capability, operations in Hurst Green investing in Injection Moulding and Whalley. It now exports tooling to meet demand and products from its home in produce dispensers quickly Lancashire to more than 50 and economically across two countries all over the world. production lines. Today, the units are widely used across The company designs and BAE Systems, including manufactures fabricated in Brough, Chadderton, storage equipment, used on Woodford and Warton, as well industry production lines. as by a large number of RAF Working closely with BAE and MoD bases in the UK. The Systems, Hurst Green Plastics system has also been used developed the TwinBin Kanban by BAE Systems Submarines’
16 To note, this is not the same geographic area as the North West regional designation, which also comprises what is called ‘South Cumbria’, nor is it the equivalent of the North 41 West UK Government Office region. The impact of BAE Systems on the UK economy
5.4 SOUTH – MARITIME SERVICES
The South region is home to the consumer spend of these eight BAE Systems Maritime employees. The employment Services sites and covers an multiplier is 1.7 for the South 9,200 area including parts of Surrey, region, meaning that for every Hampshire, Dorset and the Isle 10 FTE jobs at BAE Systems, FTE jobs in 2013 of Wight. The primary focus 17 FTE jobs are supported of these sites is to deliver across the local area as a everything the UK Royal Navy whole, including those directly In 2013, in the South region needs to live and work at the employed at BAE Systems. BAE Systems supported 17 Portsmouth Naval base, as well FTE jobs across the area as as support global operations, a whole for every 10 directly and provide training systems. In employed in the region. the Isle of Wight, the Company specialises in radar development and manufacturing.
The Portsmouth Naval Base, Cowes, Broadoak, Dorchester, Ash Vale, Frimley, New Malden, and Christchurch sites in the South region directly employ 5,500 full-time equivalent workers, with a further 1,300 jobs supported in the indirect supply chain, and an additional 2,400 jobs supported through
Fig. 20: BAE Systems Maritime Services employment contribution in the South region
FTEs 10,000 9,000 8,000 2,400 7,000 6,000 1,300 5,000 9,200 4,000
3,000 5,500 2,000 1,000 0 Direct Indirect Induced Total
Source: BAE Systems, Oxford Economics
42 The impact of BAE Systems on the UK economy
Fig. 21: BAE Systems Maritime Services sites and employees in the South region
BAE Systems’ employees by Unitary Authority
< 50
50 - 199
200 - 349
> 350 Frimley BAE Systems’ site Ash Vale
Broad Oak Christchurch Portsmouth Naval Base
Cowes Dorchester
43 The impact of BAE Systems on the UK economy
Success through continual benefited from a steady stream improvement: Jack Tighe of work in both Portsmouth and Govan shipyards. This long-term Jack Tighe Ltd is an industrial relationship and the security it and decorative painting provides has allowed Jack Tighe contractor employed by BAE Ltd to make vast improvements Systems to grit blast and add to its operating systems, helping protective coating to Royal it to become not only more Navy ships, including Type efficient but also improve health 45 Destroyers such as HMS and safety and work conditions. Defender and HMS Duncan. Working with BAE Systems Founded in 1954, the Company has allowed Jack Tighe Ltd to currently employs 35 staff successfully breed a culture of and has an annual turnover of continual improvement. approximately £13 million.
Jack Tighe Ltd started working with BAE Systems 13 years ago and over the years has
44 The impact of BAE Systems on the UK economy
6. TECHNICAL APPENDIX
Economic impact modelling • Direct impact–refers to activity conducted directly Economic impact modelling is a by BAE Systems in the UK. standard tool used to quantify the economic contribution of an • Indirect impact–consists of investment or company. Impact activity that is supported as a analysis traces the economic result of the procurement of contribution of an investment goods and services by BAE through three separate channels: Systems in the UK, purchases by those companies in turn and so on.
• Induced impact–reflects activity supported by the spending of wage income by direct and indirect employees.
Fig. 22: Direct, Indirect, Induced, and Total Economic Impacts
Direct impact Induced impact Total impact
Turnover
Consumer spending Value-added out of employees’ wages: Employment Expenditure by BAE Systems Food and beverages Taxes Indirect impact Recreation Clothing BAE Systems UK’s Housing purchases of inputs Houshold goods from UK suppliers R&D spend Suppliers’ own Fixed Capital spend supply chains Exports
45 The impact of BAE Systems on the UK economy
Direct Impacts model gives a snapshot of As these models measure an economy at any point in activity within an economy, The direct value added of time. The model shows the the direct impact figures will BAE Systems is calculated as major spending flows from often not match company revenues minus the cost of “final demand” (i.e. consumer annual accounts, which follow goods brought in. Value added spending, government spending accounting standards and rules. per employee, a measure of investment and exports to the productivity, is a figure derived rest of the world); intermediate An input-output model uses from dividing direct value spending patterns (i.e. what a matrix representation of added by the number of each sector buys from every a nation’s interconnected FTE employees. other sector – the supply economy to calculate the effect chain in other words); how of changes by consumers, by Indirect and Induced Impacts much of that spending stays an industry, or by others, on within the economy; and the other industries and therefore Indirect and induced impacts distribution of income between on the economy as a whole. are estimated using an input- employment and other forms The input-output models output model. An input-output such as corporate profits. are created using matrix
Fig. 23: A stylized Input-Output model
Industry Industry Industry Consumer Other Final Total 1 2 3 Spending Demand Outputs
Industry 1 C 1,1 C 2,1 C 3,1 C 4,1 C 5,6,7,1 C 8,1
Industry 2 C1,2
Industry 3 C1,3
Employment C 1,4
Incomes
Profits C1,5
Leakages C 1,6,7
Total Inputs C 1,8
46 The impact of BAE Systems on the UK economy
representation of an economy Industry breakdowns Regional models and these input-output tables ultimately measure “multiplier The UK 2010 input-output Input-Output models can also effects” of an industry by table is divided into 96 be made to measure regional tracing the effects of its different industry sectors, and impacts. In this case, ratios inter-industry transactions– the table shows how each of local economic activity to that is the number value of sector interacts with the 95 national economic activity goods and services that are other sectors. For purposes known as “location quotients” needed (inputs) to produce of illustration to show value are calculated in order to each dollar of output for the added and employment calibrate the national I-O individual sector being studied. supported across different model to describe each region These models can be used sectors, the 96 different in terms of the employment to measure the relationship industries have been pooled impact and to calculate between an economic change into 19 broad industry employment multipliers per region. or “shock,” and the final categories. For example, the outcome across the whole of professional, scientific and This process was adopted in the economy. technical activity industry order to develop employment amalgamates the following contributions for Glasgow, In essence an input-output 12 sectors: South Cumbria, the North model is a table which shows West and the South regions. who buys what from whom • Legal services in the economy. Figure 23 • Accounting, bookkeeping provides an illustrative guide to and auditing services; tax a stylized input-output model. consulting services • Services of head offices; Oxford Economics used the management consulting input-output table for the services United Kingdom for 2010, • Architectural and provided by the ONS, for this engineering services; analysis. This is the most recent technical testing and input-output table for the analysis services United Kingdom. • Scientific research and development services Direct, indirect and induced • Advertising and market employment figures in this research services report have been rounded to • Other professional, scientific the nearest 100 FTE jobs. The and technical services multipliers quoted in the report • Veterinary services represent the multiple of direct • Rental and leasing services impacts that account for total • ravel agency, tour operator impacts. For instance, if 20 and other reservation FTE jobs were direct impacts services and related services and the total impact multiplier • Security and investigation was 2, then the total impact services would be 40 FTE jobs. These • Services to buildings and multipliers are calculated from landscape the input-output model results.
47 The impact of BAE Systems on the UK economy
7. FURTHER INFORMATION
All data shown in tables and charts are the result of modelling by Oxford Economics based on input data from BAE Systems and a variety of sources, as stated in charts or otherwise cited in footnotes.
All information in this report is copyright © Oxford Economics Ltd.
All modelling and calculation results presented here are based on data and information provided by third parties. Any subsequent revision or update of those data will affect the assessments and projections shown.
To discuss the report further please contact:
Kareen El Beyrouty [email protected] Senior Economist
Oxford Economics Broadwall House, 21 Broadwall London, SE1 9PL UK
Tel: +44 (0)207 803 1400
48 7. FURTHER INFORMATION Report published July 2015
Europe, Middle East, and Africa: Americas: Asia Pacific:
Global headquarters New York Singapore Oxford Economics Ltd 5 Hanover Square, 19th Floor Singapore Land Tower Abbey House New York, NY 10004 37th Floor 121 St Aldates USA 50 Raffles Place Oxford, OX1 1HB Tel: +1 (646) 786 1879 Singapore 048623 UK Tel: +65 6829 7198 Tel: +44 (0)1865 268900 Philadelphia 303 West Lancaster Avenue Sydney London Suite 2e Level 4, 95 Pitt Street Broadwall House Wayne, PA 19087 Sydney, 2000 21 Broadwall USA Australia London, SE1 9PL Tel: +1 (610) 995 9600 Tel: +61 (0)2 8249 8286 UK Tel: +44 (0)20 7803 1418 Mexico City Email: Emerson 150, Despacho 802 [email protected] Belfast Col. Polanco, Miguel Hidalgo Website: Lagan House Sackville Street México D.F., C.P. 11560 www.oxfordeconomics.com Lisburn Tel: +52 (55) 52503252 County Down, BT27 4AB UK Boston Tel: + 44 (0)2892 635400 51 Sawyer Road Building 2 - Suite 220 Paarl Waltham, MA 02453 12 Cecilia Street USA Paarl 7646 Tel: +1 (617) 206 6112 South Africa Tel: +27(0)21 863-6200 Chicago 980 N. Michigan Avenue, Frankfurt Suite 1412 Chicago Mainzer Landstraße 41 Illinois, IL 60611 60329 Frankfurt am Main USA Germany Tel: +1 (773) 372-5762 Tel: +49 69 95 925 280 Miami Paris 1090 Oysterwood Street 25 rue Tiphaine Hollywood, FL 33019 75015 Paris USA France Tel: +1 (954) 815 0305 Tel: +33 (0)1 56 53 98 52
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