Let us say that MOD wants to buy a new tank. There are two options available. One is a German tank costing £6M each, and one a British tank costing £10M each (the numbers are made up!!). The actual performance of each tank is broadly similar.
Which should MOD buy.....?
Its obvious isn't it, the German one. That is the approach the new CDS says he will take when he is in office.
However, let us look at it more closely.
For every German tank we buy, £6M goes out of the UK economy to Germany and, unless the Germans use some British parts in their tanks, that is the last we ever see of it.
Looking at the British tank. It is built by a firm in Swindon say. For every tank we buy £10M circulates in the UK economy:
The tank firm makes a profit - and pays the government Corporation tax.
The tank firms workers get paid - and pay income tax to the Government
The firm and workers both pay national insurance contributions to the government
The workers spend their money in Swindon shops - and pay VAT to the government as they shop
The Swindon shops in turn pay VAT, their workers pay income tax, etc....
The tank firm employs UK subcontractors, each of which pays corporation tax, national insurance, their workers, VAT, their workers pay income tax, etc, etc......
How much of that £10M the government has spent on each tank comes back to it one way or another in taxes. Probably over 40% I would say.
So from the UK plc point of view the British tank is probably actually "cheaper", and far better for the country as a whole. However, that doesn't help the MOD budget which is not getting any benefit from having "bought British", and is simply paying £4M per tank more than it wants to!