Grauniad:
Treasury plans to shut arms sales department
The Treasury is planning to disband the government's controversial arms sales department, the Guardian can disclose. The 450-strong defence export services organisation (Deso), based near Oxford Street in London, has long been the target of anti-corruption campaigners and opponents of the arms trade.
The former Treasury cabinet minister Stephen Timms launched proposals earlier this year to close down the secretive unit on the grounds that it subsidises profitable weapons giants such as BAE, Britain's biggest arms firm. According to Westminster sources, the Treasury's industrial productivity section argued that the taxpayer should not continue to subsidise an "anachronistic" department which had gained too much influence within Whitehall.
Leaked documents seen by the Guardian show that the review was ordered in March by Mr Timms before he left the department. He was replaced last month as chief secretary to the Treasury by Andy Burnham, in Gordon Brown's new prime ministerial appointments. Des Browne, the defence secretary, was told by Mr Timms before his departure that "he was not convinced of Deso's justification".
Deso, set up in 1966 when the arms industry was largely state-owned and was mainly concerned with selling off surplus equipment, spends £15m a year directly on helping British arms firms to sell equipment abroad. It also lobbies within Whitehall for export licences for sales to sometimes controversial regimes. Opponents say no other British industry is supported by such a large government-funded machine and that Deso, which is always headed by an arms company executive, relentlessly promotes the industry's interests within the government.
News of the Treasury initiative comes at an awkward time for Deso, which is accused of approving £1bn payments to Prince Bandar of Saudi Arabia from BAE. Deso runs the Al Yamamah arms deal for Saudi Arabia in return for a 2% commission. The Saudi transactions are now being investigated by the US justice department after Tony Blair ordered a British police inquiry to be closed down on alleged grounds of "national security".
Mr Timms approved the Treasury initiative as part of the comprehensive review of spending across Whitehall which is due to be completed in the autumn, in a climate of falling tax revenues. He was "keen" that it was pursued urgently.
The British arms industry sells around £5bn of equipment a year to foreign governments with the help of Deso, which organises arms fairs and marketing campaigns. The firms pay discounted fees for these services, but Treasury officials question why the companies cannot do this themselves or pay the full rate.
The Treasury disputes the claim that Deso-backed arms exports reduce the cost of equipment bought by UK forces. It says there is no evidence of this. On the contrary, Britain bought the over-priced Hawk trainer jet from BAE purely to help the firm's exports, when "an Italian equivalent would [have been] vastly cheaper, more capable and easier to maintain".
The Treasury analyses point out that the reputation of the British government is damaged by "promoting arms exports to countries with severe developmental shortcomings and/or human rights concerns (such as China, Colombia, India, Indonesia, Pakistan and Saudi Arabia".
The industry argues that exports are vital if Britain wants to retain the capacity to build its own weapons.
Interest at the Treasury in curbing Deso's role was first stimulated by a recent economic report from the British American Security Information Council, which attacked the financial rationale behind special treatment for the arms firms. Ian Davis, the thinktank's director, said: "The undue influence of Deso within the MoD gives the impression that securing contracts for the defence industry is more important than enhancing the fighting effectiveness of Britain's armed forces. It is time to end the cosy and corrupting relationship between public servants and private arms manufacturers."