Official Statistics

MOD regional expenditure with UK industry and commerce and supported employment 2020/21

Updated 2 December 2022

The Finance & Economics Statistical Bulletin series provides figures on the composition and scope of the Department’s expenditure, information on the impact of defence spending on the wider economy, and compares Ministry of Defence (MOD) spending to that of other departments and countries.

This publication presents MOD expenditure with UK industry and commerce in 2020/21 by UK region and industry group. The number of direct and indirect jobs^{[footnote 1]} supported by this expenditure in the UK is also presented. This publication includes direct MOD expenditure with UK industry and commerce only, and excludes all other MOD spend types.

This publication has been revised to now include estimates of jobs supported in 2020/21 through MOD expenditure with UK Industry.

1. Key Points

£20.5bn

Total MOD expenditure with UK industry and commerce.

This represents a 5% decrease on the reported expenditure for 2019/20, after adjusting for inflation.

£310	MOD expenditure with UK industry for each person living in the UK.

With inflation accounted for, this is a slight decrease from the £320 reported in 2019/20.

5%	Proportion of MOD expenditure with UK Industry on Small and Medium-sized Enterprises.

This translates to just under £1 billion spending with SMEs.

219,000

Total number of direct and indirect jobs supported through MOD expenditure with UK industry.

This comprised of 141,000 direct jobs and 78,000 indirect jobs in 2020/21, up from a combined total of 203,000 the year before.

1 in 120

Proportion of all direct and indirect jobs in the UK which are supported as a result of MOD expenditure with UK industry.

This is a slight increase from the 1 in 130 reported in 2019/20

84,700

Total number of direct and indirect jobs supported in Technical, Financial and Other Business Services as a result of all MOD expenditure with UK industry.

Total MOD expenditure supports more jobs in this sector than in any other industry group.

17%	Increase in direct jobs supported in Shipbuilding and Repairing

The Shipbuilding and Repairing industry continues to dominate MOD supported employment in Scotland and the North West, accounting for more than 50% of all direct jobs in the regions.

Responsible Statistician: Analysis-Expenditure Head of Branch

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Background Quality Report: Background Quality Report

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2. Introduction

This publication provides statistics on direct MOD expenditure with UK industry and commerce. Industry is defined as an economic activity concerned with the procurement and processing of raw materials into finished products. Commerce is defined as a business activity where goods and services are exchanged for value. Hereafter, direct MOD expenditure with UK industry and commerce will be referred to as MOD expenditure. Tables and figures present statistics for the most recent financial year and comparisons will be made in the narrative to previous financial years where appropriate. Detailed statistics can be found in the supporting data tables.

MOD expenditure will be presented in the following ways:

• by ITL Level 1 regions.
• per person by UK region, to provide some context to the expenditure figures. By presenting expenditure per person the population differences between regions are accounted for.
• by industry group.
• the total amount spent with Small and Medium-sized Enterprises (SMEs), by ITL Level 1 regions.

This publication also presents estimates on the number of direct and indirect full-time equivalent (FTE) jobs supported in the UK by MOD expenditure.

Direct jobs will be presented:

• by ITL Level 1 regions.

• as the number of FTE jobs supported for every 100,000 people in FTE employment in each region. This measure is similar to the per person expenditure figure as it considers the employment levels of each region and will make these figures more directly comparable.

• by industry group.

Indirect jobs will be presented by industry group only. No reliable regional split can currently be given as there are no regional Input-Output Analytical Tables available from the Office for National Statistics (ONS) from which these estimates are derived. The limitations of this are discussed further in the Methodology and Background Quality Report.

Revision

This publication was revised in August 2022 to include estimates of the jobs supported by MOD expenditure with UK Industry in 2020/21. At the time of the original publication in January 2022, MOD were only able to publish expenditure figures. This was due to a delay in employment and turnover data from the Office for National Statistics (ONS), caused by the COVID-19 pandemic. This data is required for us to estimate the number of jobs in the UK supported by MOD spending and was subsequently published in July 2022. As well as allowing us to make estimates of jobs supported in 20/21, we were also provided with finalised data for the previous year so have revised the 19/20 jobs figures.

Context

Estimates on regional expenditure and jobs supported have been produced in recent years within the Regional Expenditure bulletin series. As well as looking at the split of direct expenditure with UK industry across UK regions, the bulletin estimates the number of direct and indirect jobs supported. The direct jobs are those supported within companies receiving payments for goods and services directly from MOD. Indirect jobs are those that occur further down the supply chain through sub-contracting or via suppliers to the direct contractor.

Prior to this, estimated jobs figures were published as part of the UK Defence Statistics (UKDS) publication and included both direct and indirect jobs. Indirect jobs are those that occur further down the supply chain through sub-contracting or via suppliers to the direct contractor.

Prior to this, regional expenditure with UK industry and estimated jobs figures were published as part of the UK Defence Statistics (UKDS) publication, before ceasing in 2009. When publication of Regional expenditure figures resumed in 2017, initially only estimates of direct jobs supported were included. Due to increased demand to once again produce figures on indirect jobs, an Experimental Statistic was released in October 2020 by the Analysis Directorate containing estimates of Indirect Jobs. These figures were subsequently subsumed into the 19/20 Regional Expenditure bulletin in January 2021. The information contained in this bulletin has potential for a wide range of users including the media, politicians, policy professionals and the general public.

Following an extensive data gathering exercise to improve the quality of Small and Medium-sized Enterprises (SMEs) markers in the contract data, we have now included expenditure with SMEs in UK industry in this bulletin. Figures on the number and value of new contracts let with SMEs can be found within the Trade, Industry and Contracts bulletin series.

Comparisons over time: overall

These statistics are based on MOD contract information and display natural variability. As a result, we would expect total expenditure to fluctuate year-on-year due to large value contracts starting and ending across different financial years or large one-off payments occurring. MOD Direct Expenditure figures published up until 2009 in UK Defence Statistics showed a similar amount of variation between years to the figures presented in the rest of this bulletin. This variability is likely carried over to the jobs estimates, which are furthermore particularly sensitive to changes in employment figures provided by the ONS.

Comparisons over time: by region and industry group

Throughout the bulletin we will compare data across different financial years. With a short time series, any trends could be due to the inherent variability of contract data and not indicative of a long-term trend. Therefore, these comparisons should be used with caution.

Comparisons over time: accounting for inflation

In simple terms, inflation measures how the cost of goods/services change over time. Inflation of 2% would mean that something that you could purchase for £1 last year would cost you £1.02 this year. Because of this, inflation can mask effects when comparing expenditure across different years. To account for inflation, expenditure is calculated in constant prices. This adjusts expenditure in one year so that it is in another year’s prices. Constant 2020/21 prices are used when comparing across different financial years.

Comparisons over time: to previously published statistics

Please note that these statistics are broadly similar to the Direct Expenditure with UK industry statistics published until 2009 in UK Defence Statistics, but should not be directly compared due to methodological differences. Since estimates of employment were previously produced, output per FTE has increased across most industries. Output per FTE is calculated as an industry’s total output divided by its number of FTE employees and can be used as an indicator of how much output is generated for each FTE employee in the industry. If MOD expenditure in an industry remains the same and output per FTE employee increases, then we see greater productivity per FTE employee and witness a reduction in the number of jobs estimated. This is of particular relevance in industries where MOD expenditure is high such as Shipbuilding and Aircraft manufacturing and repair. In addition, earlier estimates also included expenditure and jobs supported as a result of exports.
ADS (a trade organisation for Aerospace, Defence and Security) publish annual estimates of the number of direct jobs supported in the Defence Sector in their annual Industry Facts and Figures publication. ADS estimates are based on a specific definition of what constitutes the defence sector and also include estimated employment as a result of defence exports. In contrast, the estimates produced in this publication are based on all MOD expenditure with industry and include elements of spending that wouldn’t necessarily be considered as ‘defence’, such as financial services, so the two estimates are not directly comparable.

Accuracy

Several assumptions have been made during analysis of this data. For further information on these, and for more detailed explanations of the applications and limitations of this data, please refer to the Background Quality Report.

To access all of the data in both current and constant prices please see the supplementary data tables.

3. MOD Expenditure with UK Industry

MOD Expenditure decreases by 5% in 2020/21 after adjusting for inflation.

Total MOD expenditure in 2020/21 was £20.5 billion. Nominal increases have been seen year-on-year between the years 2016/17 and 2019/20, and this is again demonstrated in 2020/21. MOD expenditure increased by around £240 million since the previous year, however when adjusted for inflation, MOD expenditure fell by just under 5% from 2019/20 and total spending is the lowest seen in the last 8 years. This decrease could be attributed to a high inflation rate caused by the COVID-19 pandemic. The inflation rate as reflected in the GDP Deflator was 6% in 2020/21 in figures provided by HM Treasury, which is up from the 2% rate observed in 2019/20.

Figure 1: Total MOD Expenditure by Financial Year

The South of England received 53% of MOD expenditure in 2020/21.

The South of England received 53% of MOD expenditure in 2020/21 and has consistently received over half of total spend in each year from 2013/14 onwards. It is perhaps not surprising that this region of the UK receives the highest proportion of MOD spending, since many of the MOD’s largest suppliers can be found in the South East and South West of England including Babcock, BAE, Rolls-Royce and Thales.

The South West once again received the largest proportion of MOD expenditure in 20/21, and in addition had the largest increase in absolute value from the previous year, increasing by £365 million from 19/20. The North West also observed a large increase in spending on the previous year, receiving an extra £233 million. The South East and North East were the only other regions to observe a rise in spending, increasing by £13 million and £39 million respectively.

For the first time in eight years, there has been a decrease of spending in Scotland, by £77 million (4%). Between 2018/19 and 2019/20, Scotland’s expenditure increased by almost 15%, driven principally by increased in-year payments to BAE Systems Surface Ships Ltd, relating to the manufacture and demonstration phase of the Type 26 Frigate programme. Spending in the Shipuilding and Repairing sector has remained consistent through to 2020/21, but this is offset by reductions in spending in the Construction and Manufacturing sectors.

Figure 2: MOD Expenditure by Region 2020/21

The total expenditure for the East Midlands fell by £100 million, which in absolute terms was the largest reduction in total expenditure from 2019/20 to 2020/21. With spending in the region at around £780 million in 2020/21, this is the lowest value it has been since 2014/15. This is predominantly due to a reduction in payments for Other Manufacturing, and Technical, Financial and Other Business Services.

The largest single in-year contract payment in 2020/21 was £791 million with Devonport Royal Dockyard Ltd. This is operated predominantly at the main Devonport site in Plymouth, but further work was contracted to Scottish Shipyards. This contract combines work on the Maritime Support Delivery Framework and ensures the continuing support of the Royal Navy’s surface fleet, including the two Queen Elizabeth aircraft carriers.

This single contract payment was greater than the combined total expenditure in Yorkshire and The Humber, the North East and Northern Ireland. The disparity in spending between regions is such that for every £1 of MOD expenditure in 2020/21, 29 pence was effectively spent in the South West whilst just under one pence was spent in each of the North East and Northern Ireland.

4. MOD Expenditure per Person with UK Industry

MOD expenditure per person slightly lower in 2020/21 than in the previous year.

Expenditure per Person Calculated by dividing the total MOD expenditure by the population of an area. This shows how much money is spent for each person living in that area.

MOD average expenditure per person for the UK was £310 in 2020/21, which is slightly lower than the £320 observed in 2019/20. After adjusting for inflation, this has remained within a consistent range of £310 to £320 since 2016/17 but is around 11% lower than the initial high of £350 which was seen in 2013/14. The decrease in expenditure per person is larger than the decrease of total expenditure, where MOD spending was just 8% lower over the same period, with the effect being amplified by a growing UK population.

When regional population figures are considered, the South West is still the top ranked region for MOD spending. Due to denser population numbers in the South East, expenditure per person in the South West is just over double that of the South East, which is in second place. Expenditure per person in the South West is 21 times greater than in the North East.

Figure 3: MOD Expenditure per Person with UK Industry by Region 2020/21

London has the 8th highest expenditure per person (see figure 4), despite having the 5th highest total expenditure (see figure 2). This is due to its high population density. Wales, in contrast, historically ranks higher when expenditure is adjusted by population. However, expenditure in Wales fell by 13% in 2020/21, following a fall of 18% in 2019/20 from the previous year. This wasn’t only due to contracts beginning and ending but a combined effect of lower in-year payments to the region, demonstrating the inherent variability of contract data. This, in addition to an increasing population, led to a decrease of almost £70 per person in 2019/20 and a further £20 in 2020/21, to £270 per person in Wales.

Regions that saw an increase in MOD expenditure per person in 2020/21 were the North East, North West, and South West. The South West had the largest increase, increasing by £60, up to £1,070 per person.

Figure 4: MOD Expenditure per Person, Ranked from Highest (1) to Lowest (12) by Region

5. MOD Expenditure with UK Industry by Industry Group

Expenditure on Shipbuilding increases by nearly 6%. Expenditure on Real Estate and Renting increases by 16%.

Standard Industrial Classification (SIC) codes These codes are collected on the MOD contract system and classify which specific industry a contract relates to. These SIC codes are grouped together into industry groups.

Please note that typically only one SIC code is assigned to each contract, even though many contracts will involve multiple different industries. On some of the higher value contracts we have sought more detailed industry information, however for many contracts only a single code is available.

The top three industry groups to receive MOD expenditure has remained the same in every year since 2014/15. Technical, Financial and Other Business Services has furthermore occupied the top spot in each year since 2013/14. Whilst initially not a clear and obvious spending category for the MOD, this sector does include research and development, engineering drafting, and related technical testing and analysis. It therefore makes up a key component of current and future defence programmes with 28% of the industry’s work occurring in the South East, and 30% in the South West in 2020/21.

Since 2013/14, MOD expenditure in Aircraft and Spacecraft has decreased by 49%. Combined with increased defence spending on Shipbuilding and Repairing, the sector dropped to third spot in ranked expenditure by industry group in 2014/15. Over time, this has been a result of steadily reducing payments towards the RAF’s now retired Tornado jets. Expenditure on Real Estate and Renting and has increased by 15% since 2019/20. There looks to be no single contributing factor to this rise, but rather a result of increased spending across the board in this sector.

Expenditure on Shipbuilding and Repairing has increased by three quarters of that spent in 2013/14. With the exceptions of 2015/16 and 2016/17, this sector has seen a rise in spending in every year since 2013/14, with an increase of almost 6% in 2020/21 in MOD Shipbuilding expenditure. In part, this was aided by rising spend against the Dreadnought Class submarine programme operating out of the North West by BAE Systems Marine Ltd. Together, these next generation vessels form the future Continuous At Sea Deterrent and Carrier Strike Group as laid out in the National Shipbuilding Strategy and Defence Equipment Plan.

Figure 5: MOD Expenditure by Industry Group 2020/21

Note:

‘Technical, Financial Services & Other Business Services’ includes Financial Services, Business Services, Education, Health and other Service Activities.

‘Other Manufacturing’ excludes Weapons and Ammunition, Electronics, Precision Instruments, Shipbuilding and Repairing, and Aircraft and Spacecraft.

6. MOD Expenditure with Small and Medium-sized Enterprises

5% of MOD Expenditure with UK Industry is with Small and Medium-sized Enterprises.

**Small and Medium-sized Enterprises (SMEs) **

SMEs are an enterprise or business with fewer than 250 employees and an annual turnover of less than €50 million.

MOD Expenditure with Small and Medium-sized Enterprises (SMEs) in the UK was just under £1 billion in 2020/21.

SMEs in the South of England received the most expenditure, with 54% of the total SME spend. The South East received £301 million in 20/21, which was the largest proportion of SME expenditure (31%). This is not consistent with the total regional breakdown, in which the South West received the largest proportion of total MOD expenditure (see figure 2).

Scotland and the North West account for a small proportion of SME spend, ranking ninth and tenth, respectively. This is not in line with total MOD expenditure in the regions, where Scotland receives the fourth highest and the North West receives the third highest proportion of the total UK MOD expenditure (see figure 2). Both regions are a base for the Shipbuilding and Repairing industry, which would account for the high level of overall spending and a lower level of SME spending.

Figure 6: MOD Expenditure on Small and Medium-sized Enterprises by Region 2020/21

7. Total Jobs Supported by MOD Expenditure with UK Industry

Total jobs supported by MOD expenditure with UK Industry increases by 16,000 to 219,000 in 2020/21

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THE INCREASE IN 2020/21 JOB ESTIMATES COMPARED WITH THE PREVIOUS YEAR ARE NOT A DIRECT RESULT OF INCREASED MOD SPENDING

As we have already seen, MOD expenditure with UK Industry in 20/21 increased slightly from the previous year, although when adjusted for inflation represented a 5% decrease. It is therefore not increased MOD spending that is driving the increased number of jobs supported. The main driver is reduced business outturn across the country during the COVID-19 pandemic. The ONS has also reported that 11 of the 12 regions saw a decreases in the number of employees, where only the East of England has shown a marginal increase. This means UK turnover per FTE has decreased. With MOD spending remaining relatively stable through this period, when dividing MOD expenditure by a lower turnover per FTE, more jobs are now being supported. Effectively, MOD expenditure supports a larger share of the employment market than it had before.

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Full-Time Equivalent (FTE) employment

Full-time equivalent (FTE) employment is a figure that allows part-time workers’ hours to be put into the same units as full-time workers. This publication often uses the term jobs to mean full-time equivalent employment

UK turnover per Full-Time Equivalent employment

This shows how much money an industry takes for each person in FTE employment. It therefore allows us to estimate the number of jobs supported by MOD expenditure by dividing expenditure with UK industry by turnover per FTE employment for that industry.

It is estimated that MOD expenditure supported 219,000 FTE jobs in the UK in 2020/21, which is equivalent to 1 in every 120 jobs. This figure includes both direct and indirect jobs so accounts for employment through direct supplier payments as well as that arising through the supply chain. It is just under 8% higher than estimates for 2020/21, when 203,000 jobs were supported.

Total jobs figures experience inherent variability due to the fluctuations of year-on-year total contract expenditure from which they are derived. They are also particularly sensitive to changes in employment figures provided by the ONS. The increase in this instance is driven in absolute terms by direct jobs which rose by 18,000. As stated above, this rise is not a direct result of increased MOD spending, but instead influenced by reduced business outturn across the country during the COVID-19 pandemic and fewer employees across the UK. This has resulted in MOD expenditure accounting for a much larger share of industry jobs than in previous years. Care should therefore be employed when making year-on-year comparisons.

Figure 7: Total Jobs Supported by MOD Expenditure by Financial Year

The figure of 219,000 jobs only includes jobs supported through MOD expenditure with UK industry and does not include civilian personnel employed by the MOD nor those serving in the armed forces. Figures published by the Analysis Directorate show that in April 2020 the MOD employed 58,000^r civilian personnel and 145,000 UK regular forces. 52,000 civilian and 139,000 armed forces personnel were based in the UK. This shows that through direct expenditure, indirect expenditure and direct public sector employment, the MOD supported just over 422,000^r jobs in 2020/21, almost 410,000 of which were based in the UK.

Revision: The original release of this bulletin incorrectly stated that 52,000 civilian personnel were employed by MOD, but the correct figure is 58,000. This was due to a processing error, as 52,000 relates to those only employed in the UK.

8. Direct Jobs Supported by MOD Expenditure with UK Industry

Jobs directly supported by MOD increased by 18,000 in 2020/21.

Through its direct expenditure across the UK economy, the MOD supported an estimated 141,000 direct FTE jobs in the UK in 2020/21, up from the 123,000 jobs reported in 2019/20. Direct jobs are defined as those jobs supported within companies receiving payments for goods and services directly from MOD. When viewed as direct jobs alone, this supported employment equated to 1 in every 180 jobs in the UK in 2020/21, up from 1 in every 210 seen in the previous year.

Figure 8: Direct Jobs Supported by MOD Expenditure by Financial Year

Jobs supported in 2017/18 were particularly sensitive to variable employment rates reported by the ONS in three of MOD’s key industries. In the case of Aircraft and Spacecraft manufacturing, there was a drop of almost 8% in the industry’s expenditure by the MOD between 2016/17 and 2017/18. Owing to both lower spending and lower employment in the sector, estimates for MOD supported direct jobs in the industry fell sharply by almost a third that year.

South West and South East account for over half of all MOD supported UK jobs.

Matching the regional expenditure increases seen for 2020/21, this was mostly spread across four regions; the South West, the South East, Scotland and the North West. Much like with the expenditure figures also, the South East and South West account for over half of all the MOD supported direct jobs in the UK. Due to the much larger increase in direct jobs as a whole, the East of England, Scotland, Wales, West Midlands, and Yorkshire and Humber all saw a rise in direct jobs reported despite those regions also experiencing year-on-year expenditure decreases between 2019/20 and 2020/21. The North East, however, saw an increase in spending by £39 million which supported approximately 400 more direct jobs than in 2019/20.

Despite the increases in direct jobs supported in other regions of the UK, London sits on its lowest direct jobs total since 2013/14, with 6,200 reported in 2020/21. This is principally observed in the Technical, Financial and Other Business Services Sector, with 1,400 jobs reported, down from 2,500 reported in 2019/20. This industry historically has enjoyed the largest share of MOD expenditure; however, it also contains the largest number of different Standard Industrial Classification (SIC) codes. SIC codes are used to aggregate spending in unique sectors. Spending in this sector in London year-on-year has remained relatively consistent between 2019/20 and 2020/21, yet variability in contract data means that proportions of expenditure attributed to each SIC codes changes year-on-year. These SIC codes all have unique UK Turnover per Full-Time Equivalent employment figures, meaning that despite expenditure remaining consistent, the estimated number direct jobs supported can be wildly different. In this instance it has resulted in a lower direct jobs estimate in London in 2020/21 than in 2019/20.

Figure 9: Direct Jobs Supported Through MOD Expenditure by Region 2020/21

9. Direct Jobs Supported by MOD Expenditure with UK Industry per 100,000 FTE Employment

Direct jobs per 100,000 FTE Employment supported by MOD expenditure in the UK increased by 17%.

Jobs per 100,000 FTE Employment To compare the number of jobs supported by MOD expenditure across regions we have calculated jobs supported per 100,000 people in full-time equivalent (FTE) employment in each region. This adjusts the figures for the population and employment levels of the regions.

MOD expenditure in 2020/21 supported 550 direct jobs per 100,000 FTE employment in the UK which is up from 470 jobs per 100,000 in 2019/20. In Figure 8 we saw that MOD expenditure supported a comparably high number of jobs in both the South West and South East of England, yet when this is adjusted for overall levels of employment in each region we see in Figure 9 that MOD supported employment per 100,000 jobs is dominated by the South West. By reason of its increased expenditure, the South West now supports a further 380 jobs per 100,000 in FTE employment compared to the year before, the largest increase in absolute terms of all regions.

The Shipbuilding and Repairing industry continues to dominate MOD supported employment in Scotland and the North West, which accounts for over 50% of both regions’ direct jobs. The two regions combined account for 62% of all MOD supported employment in the sector.

Figure 10: The Number of Direct Jobs Supported Through MOD Expenditure for Every 100,000 People in FTE Employment by Region 2020/21

With the exception of Northern Ireland, every other region of the UK observed an increase in MOD supported jobs per 100,000 people in Full-time Equivalent employment. With total employment down across the board in Northern Ireland coupled with lower observed MOD spending, it is not unexpected to see this translate to a reduction in the number of jobs supported in the region by MOD expenditure. In 2021, The MOD awarded three contracts worth around £72.5-million to Thales and Raytheon UK to produce advanced laser and radio frequency demonstrators as part of the Novel Weapons Programme (NWP), which will help support future jobs at the Thales factory in Belfast. This may lead to increased MOD supported jobs in Northern Ireland going forward.

No change in top 8 regions in overall rankings for jobs supported per 100,000 people in FTE employment.

The only changes to the regional ranking positions for jobs supported per 100,000 people in FTE employment were Yorkshire and The Humber overtaking London to sit in 9th place, and the North East overtaking Northern Ireland to sit in 11th place.

Figure 11: The Number of Direct Jobs Supported Through MOD Expenditure for Every 100,000 People in FTE Employment, Ranked from Highest (1) to Lowest (12) by Region`

10. Direct Jobs Supported by MOD Expenditure with UK Industry by Industry Group

Direct jobs supported in Shipbuilding and Repairing rise by 17%.

Using SIC codes we can estimate how many direct jobs are supported in each industry group by dividing MOD expenditure in each group by turnover per FTE employment.

The highest number of jobs supported through MOD expenditure in 2020/21 was in the Technical, Financial and Other Business Services sector. Nationwide increases in MOD spending in the industry has increased its estimated number of direct jobs supported by just over 14% in 2020/21 compared to the previous year. It still supports nearly twice the amount of direct jobs than the next ranked industry group, although Shipbuilding and Repairing did close the gap slightly after jobs in the latter sector rose by 17%.

Transportation Services has jumped to 3rd position, overtaking Computer Services, after seeing a rise of 39% in 2020/21. This sector did see a nominal rise in MOD expenditure by just under 7%; however, this is another direct result of reduced business outturn caused by the COVID-19 pandemic. This sector saw its turnover per FTE drop by approximately 50% in 2020/21, meaning that MOD expenditure supported a much larger share of jobs.

Figure 12: The Number of Direct Jobs Supported Through MOD Expenditure by Industry Group 2020/21

Note:

‘Technical, Financial Services & Other Business Services’ includes Financial Services, Business Services, Education, Health and other Service Activities.

‘Other Manufacturing’ excludes Weapons and Ammunition, Electronics, Precision Instruments, Shipbuilding and Repairing, and Aircraft and Spacecraft.

11. Indirect Jobs Supported by MOD Expenditure with UK Industry

78,000 indirect jobs supported by MOD expenditure in 2020/21.

MOD expenditure indirectly supported an estimated 78,000 FTE jobs in the UK in 2020/21, a decrease of 2,000 to the revised figure estimated in 2019/20. Indirect employment refers to those jobs generated as a result of supporting and supplying goods and services to those in direct employment. It is therefore a measure of jobs that occur further down the supply chain through sub-contracting or via suppliers to the direct contractor.

The number of indirect jobs supported by MOD expenditure has remained relatively consistent apart from a slight fall in 2017/18. A similar drop was seen in the direct jobs but here this had particular relevance to indirect employment in the Technical, Financial and Other Business Services sector. This sector accounts for the largest proportion of both direct and indirect jobs supported through MOD expenditure; however, it owns a much larger share of indirect that direct jobs. Changes in the Technical, Financial and Other Business Services sector will therefore be observed more in the indirect jobs total. In 2019/20, indirect jobs estimated to be supported by MOD returned to a number more comparable to the 79,000 observed in 2016/17.

Figure 13: Indirect Jobs Supported by MOD Expenditure by Financial Year

The percentage decrease in indirect jobs supported in 2017/18 was roughly similar to that for direct jobs due to the way in which the figures are derived. For direct jobs, employment is solely estimated for the industry the contract is tendered for, i.e. a Shipbuilding contract will report jobs in Shipbuilding only. For indirect jobs, each industry will demand products and services from other industries such as, for example, where Shipbuilding will require metalwork, engineering activities, technical testing, etc. Where overall UK employment decreases in a couple of industries, as with Technical, Financial and Other Business Services in 2017/18, due to this sharing out of demand for goods and services across wider UK industry, the impact of direct job changes in an individual industry sector can be felt across multiple sectors.

12. Indirect Jobs Supported by MOD Expenditure with UK Industry by Industry Group

MOD expenditure on Shipbuilding supports the most indirect jobs across UK wide industry.

Using ONS Input-Output Tables, ONS Supply-Use Tables and known direct MOD expenditure against each industry we can estimate the indirect effect of MOD expenditure in the supply chain. From this demand on goods and services arising from MOD expenditure, we can subsequently estimate how many indirect jobs are supported in each industry group by dividing the demand in each group by its respective output per FTE employment.

When viewed in terms of the number of indirect jobs that MOD expenditure in each industry group alone supports, it is expenditure on Shipbuilding and Repairing that comes out on top for indirect employment. In 2020/21, £4.3 billion was spent in the Shipbuilding industry which supported 29,800 direct jobs in the same industry group and a further 21,300 indirect jobs across all industry sectors. It should be clearly noted that these indirect jobs are not necessarily further jobs in the Shipbuilding industry but rather made up of all industry components that are required to deliver end products and services in this sector.

Services and manufacturing dominate indirect jobs supported.

The highest number of jobs indirectly supported through MOD expenditure in 2020/21 was in the Technical, Financial and Other Business Services sector with 32,900 jobs. Since 2013/14 it has supported over double the number of jobs than the next ranked industry group, Other Manufacturing. Combined, these two industry groups accounted for just under 61% of all indirect MOD supported employment in 2020/21.

It is perhaps not surprising that there are more jobs supported in services or general manufacturing within the extended supply chain than in any other industry groups. These are likely to form part of the output from some of the more specialised industries where MOD expenditure is high such as in Shipbuilding, or Aircraft and Spacecraft manufacture.

Figure 14: The Number of Indirect Jobs Supported Through MOD Expenditure by Industry Group 2020/21

Note:

‘Technical, Financial Services & Other Business Services’ includes Financial Services, Business Services, Education, Health and other Service Activities.

‘Other Manufacturing’ excludes Weapons and Ammunition, Electronics, Precision Instruments, Shipbuilding and Repairing, and Aircraft and Spacecraft.

13. Methodology

This section sets out the data requirements and processes used to create the tables and charts in this bulletin. More detailed explanations of data sources, assumptions and methodologies used in this publication can be found in the Background Quality Report and Annex A. Any specialist terminology or acronyms used below (and throughout the publication) are defined in the Glossary.

Sources

As well as using MOD expenditure data identified by MOD’s Contracting, Purchasing and Finance (CP&F) system and information from individual MOD project teams, considerable data input for the estimation of jobs relies upon releases from the ONS.

• Supply-Use Tables (SUTs) are produced annually to show estimates of industry inputs and outputs, product supply and demand, and gross value added for the UK. SUTs for 1997 to 2019 are consistent with the UK National Accounts 2021 Blue Book.

• Input-Output Analytical Tables (IOATs) are produced semi-regularly and are derived from the SUTs. They highlight how products are used to produce further products and satisfy final demand across ONS industry codes.

• NOMIS annual data on regional employee and employment count.

• Annual UK population estimates produced by the ONS.

• Data on UK employment and turnover by MOD SIC group is produced by the ONS as a subset of the Business Register and Employment Survey (BRES) and Annual Business Survey (ABS).

• Dun & Bradstreet Solutions are used to source data on Small and Medium-sized Enterprises (SMEs).

Assumptions and Limitations

Various assumptions have had to be made throughout the process when concrete or reliable information was not available. These assumptions are listed in the Background Quality Report.

Regional Expenditure Figures

Location of Work (LOW) codes associated with HQ contracts are used to allocate expenditure to specific regions and calculate expenditure with UK industry. This expenditure is added to the Miscellaneous payments that have a UK postcode as the billing address. Expenditure with Other Government Departments (OGDs) and Trading Funds (TFs) are removed from both the HQ and Miscellaneous payments and added back in with improved location and work type information. This included expenditure with AWE, DIO, DSG/DECA, HRMS, JPA, NETMA, OCCAR and UKHO. Any electronic Procurement Card (ePC) expenditure is distributed based on the location of MOD personnel. Once combined, this provides a breakdown for MOD expenditure by region. This information is further presented as expenditure per person which is calculated using ONS mid-year population data. This is presented on choropleth maps to show expenditure in each region of the UK.

Industry Group Expenditure Figures

HQ contracts have SIC code information associated with them which identifies the type of work involved for each contract. MOD spending is aggregated over similar industries and used to calculate expenditure by industry group for these contracts. Miscellaneous payments have no SIC code assigned to them so the distribution of SIC codes from the HQ contracts is applied in this case. Expenditure against OGD or TF contracts that do not have a SIC code is distributed following discussion with project teams. Combining this expenditure we get a total figure for MOD expenditure by SIC group which is further aggregated into industry groups for presentation.

Small and Medium-sized Enterprises (SMEs) Expenditure Figures

Suppliers are classed as an SME or not according to the Organisation for Economic Co-operation and Development (OECD) definition of SMEs as companies with an annual turnover of less than €50 million and fewer than 250 employees. These suppliers are identified from Dun and Bradstreet supplier information.

Estimating Direct Jobs Supported by MOD Expenditure

Turnover per full-time equivalent (FTE) employment for the UK is calculated by dividing turnover figures obtained from the ABS, by employment figures from the BRES. We can then divide MOD expenditure for each region and industry group by its respective industry’s turnover per FTE employment figure. This provides an estimate of how many direct jobs are supported by MOD expenditure in each region as well as in each industry group. This information is also presented as the number of direct jobs supported for every 100,000 people in FTE employment in the area, which is calculated using employment figures from the BRES and NOMIS.

Estimating Indirect Jobs Supported by MOD Expenditure

To estimate the number of indirect jobs supported in the UK by MOD expenditure, we use direct MOD expenditure with UK industry as a measure of MOD’s demand for products and services across the UK economy. By aggregating the ONS Input-Output Table from the IOATs to match the SIC groups used by MOD, we can use this table to show total UK wide demand and output (including intermediate products) arising from this initial MOD demand. Subtracting MOD final demand from this leaves just the intermediate demand (i.e. that which occurs throughout the supply chain). An estimate of UK output per FTE employment is calculated using the ONS Supply of Products Table in the SUTs and BRES employment data. The amount of UK output generated from MOD intermediate demand is then divided by output per FTE employment to determine the number of indirect jobs supported by MOD expenditure. Due to the method employed in their derivation, as well as showing the overall total, these estimates can be presented by industry group.

14. Glossary

Annual Business Survey (ABS) is the main business survey carried out by the ONS. It is used to collect financial information on a large proportion of the UK economy and includes figures such as turnover, employment costs and capital expenditure.

Atomic Weapons Establishment (AWE) works under contract to the MOD and is responsible for national nuclear security and supporting the Continuous At Sea Deterrence (CASD) programme.

Basic Prices indicate values excluding taxes and subsidies on products.

Business Register and Employment Survey (BRES) is a survey carried out by the ONS that provides information on employee and employment estimates by location and industry.

Commerce is defined as a business activity where goods and services are exchanged for value.

Constant Prices indicate a value from which the effects of inflation have been removed. A constant price refers to a year as the basis for the calculation, e.g. “constant 2019/20 prices”. This would mean that historic expenditure figures have been adjusted so that they are in 2019/20 prices and take account of the effects of inflation.

Contracting Purchasing and Finance (CP&F) provides a single online end to end procurement system for all MOD procurement activity. All other processes, especially paper-based systems, will be either replaced or subsumed.

Current Prices are when expenditure is presented without removing the effects of inflation. This can cause difficulties when comparing expenditure across different years as inflation affects the value of a currency.

Defence Electronics and Components Agency (DECA) is a government organisation dedicated to maintenance, repair, overhaul, upgrade and procurement in defence avionics, electronics and components.

Defence Infrastructure Organisation (DIO) is responsible for the day-to-day estates activity at the MOD including maintenance, construction and sustainability of rural and built MOD estates.

Defence Science and Technology Laboratory (Dstl) was a former Trading Fund of MOD, created in July 2001. It supplies impartial scientific and technical research and advice to MOD and other government departments. In April 2017 it ceased to be a Trading Fund and became an On-Vote Defence Agency of MOD.

Defence Support Group (DSG) was a former Trading Fund of the MOD created following the merger of Army Base Repair Organisation (ABRO) and Defence Aviation Repair Agency (DARA) on 1 April 2008. On 1 April 2015 the land repair and maintenance business was sold to Babcock. The remaining part of the business, the Air division and Electronics and Components division, stayed under MOD ownership as DECA.

DEFFORM 57 Completion of this form was mandatory for all contracts where Defence Business Services (DBS) were the payment authority. It was used to set up a contract with DBS for payment purposes and was an important source of capturing data on contract activity within the Ministry of Defence. The form has now been subsumed into CP&F as data is input directly to the system by Commercial Officers.

Direct jobs are defined as those supported within companies receiving payments for goods and services directly from MOD.

electronic Procurement Card (ePC) is the first choice purchasing tool for goods and services, which are not covered by contractual arrangements and allows individual units to process mainly small value purchases. The cards are issued and monitored by the responsible Finance team.

Full-Time Equivalent (FTE) Employment is a figure that allows part-time workers’ hours to be put into the same units as full-time workers.

HQ Contracts are formal contracts set up by MOD Core Department which were previously set up by a DEFFORM 57. Details of HQ contracts are now recorded within CP&F with the data being input directly by Commercial Officers.

Human Resources Management System (HRMS) is a personnel administration system for civilians working at the MOD.

Indirect jobs are generated as a result of supporting and supplying goods and services to those in direct employment. It is therefore a measure of jobs that occur further down the supply chain through sub-contracting or via suppliers to the direct contractor.

Industry is defined as an economic activity concerned with the procurement and processing of raw materials into finished products.

Industry Groups are 22 groups based on the Standard Industrial Classification (SIC) 2007 guidelines maintained by the Office for National Statistics (ONS). Industry groups combine SIC codes that are related to similar types of activity. A breakdown of which SIC codes belong in each industry group can be found in the accompanying data tables to this publication.

Input-Output Analytical Tables (IOATs) are produced semi-regularly by the ONS and are derived from the Supply-Use Tables. They highlight how products are used to produce further products and satisfy final demand across ONS industry codes. These tables were historically produced once every five years due to the time it takes to compile additional data requirements yet due to the increased demand for their use this has been reviewed to become more timely. At point of release, the latest detailed tables are still those from 2015.

Input-Output Table (IOT) is one of the main tables from the Input-Output Analytical Tables. It shows which products go to produce other products as intermediate production.

Intermediate Demand is demand for goods and services that occurs throughout the supply chain.

International Territorial Levels (ITL) Level 1 Regions are 12 UK regions used in the production of statistics.

Joint Personnel Administration (JPA) is a personnel administration system used by the British Armed Forces.

Leontief Inverse Matrix shows how much of each industry’s output is needed to produce a unit of a given industry’s output. It is calculated from the ONS Input-Output Analytical Tables (IOATs).

Location of Work (LOW) Codes are entered on to the DEFFORM 57 or CP&F system, and indicate where work for a contract is being carried out. There are many codes for different areas of the UK and these have been amalgamated to identify the regions being reported on.

Ministry of Defence (MOD) is the United Kingdom government department responsible for implementation of government defence policy.

Miscellaneous Payments are the payment method employed by DBS Finance (MOD’s primary bill paying authority) for running service items such as the provision of utilities. These items are covered by “miscellaneous” transactions, where no MOD HQ Contract exists. These agreements for goods or services will have been set up locally between the MOD Branch and the supplier and are legally binding.

MOD Vector of Final Demand is in-year MOD expenditure for a given financial year broken down by SIC groups.

NATO Eurofighter and Tornado Management Agency (NETMA) is the prime contractor for the Eurofighter Weapon System. The arrangements for the management of the Eurofighter programme were set out in the NATO Charter dated 18 December 1995, in which the international management agencies of the Tornado and Eurofighter programmes were integrated into a single agency, NETMA. This NATO agency is essentially a multi-nation HQ project office for these two collaborative projects, involving the UK, Germany, Italy and Spain. In the UK, Eurofighter is now called ‘Typhoon’.

NOMIS is a service provided by the Office for National Statistics (ONS) to give free public access to detailed and up-to-date UK labour market statistics from official sources. It contains readily accessible data from the Business Register and Employment Survey (BRES).

Office for National Statistics (ONS) is responsible for the production of a wide range of independent economic and social statistics. The statistics are there to improve understanding of the United Kingdom’s economy and society, and for planning the proper allocation of resources, policy-making and decision-making. It is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to Parliament. ONS is the UK Government’s single largest statistical producer.

Organisation Conjointe de Coopération en Matière d’Armement – the Organisation for Joint Armaments Co-operation (OCCAR) was originally set up in November 1996 by France, Italy, Germany and the UK with the aim of improving the efficiency and lowering the cost of managing co-operative defence equipment programmes involving European nations (e.g. A400M). Belgium and Spain are now also members.

Other Government Departments (OGDs) refers to government departments outside the MOD that the MOD spends money with.

Small and Medium-sized Enterprises (SMEs) refers to an enterprise or business with fewer than 250 employees and an annual turnover of less than €50 million.

Standard Industrial Classification (SIC) Codes classify business establishments and other statistical units by the type of economic activity in which they are engaged. The classification is maintained by the ONS.

Supply-Use Tables (SUTs) are produced annually by the ONS and show estimates of industry inputs and outputs, product supply and demand, and gross value added for the UK.

Trading Funds (TFs) were introduced by the Government under the Trading Funds Act 1973 as a “means of financing trading operations of a government department which, hitherto, have been carried out on Vote”. They are self-accounting units that have greater freedom, than other government departments, in managing their own financial and management activities. They are free to negotiate their own terms and conditions with their staff. For this reason, their grading structures do not always match that of the rest of the Ministry. From 2017/18 there is now only one MOD Trading Fund - UK Hydrographic Office.

UK Hydrographic Office (UKHO) was formed as a Trading Fund of the MOD in 1996 and is responsible for the provision of global hydrographic products and services to UK Defence and commercial mariners. In addition, UKHO discharges the UK’s obligation to provide hydrographic products and services needed for safe navigation in UK waters.

15. Further Information

15.1 Symbols

Figures marked with a superscript ^p are provided as provisional estimates.

Figures marked with a superscript ^r are revised from the last edition.

15.2 Rounding

Where rounding has been used, totals and sub-totals have been rounded separately and so may not equal the sums of their rounded parts. Total expenditure figures have been rounded to the nearest £ million, and per person expenditure figures have been rounded to the nearest £10. Total estimates for jobs supported by MOD expenditure have been rounded to the nearest 1,000, the number of jobs supported by MOD expenditure by region or industry group have been rounded to the nearest 100, and the number of jobs supported per 100,000 in FTE employment have been rounded to the nearest 10.

15.3 Revisions

Corrections to the published statistics will be made if errors are found, or if figures change because of improvements to methodology or changes to definitions. When making corrections, we will follow the Ministry of Defence Statistics Revisions and Corrections Policy. All corrected figures will be identified by the symbol ^r, and an explanation will be given of the reason for and size of the revision. Corrections which would have a significant impact on the utility of the statistics will be corrected as soon as possible, by reissuing the publication.

15.4 Contact Us

The Analysis Directorate welcomes feedback on our statistical products. If you have any comments or questions about this publication or about our statistics in general, you can contact us as follows:

Analysis Directorate (Analysis-Expenditure)

Telephone: 030 679 84442
Email: <[email protected]>

If you require information which is not available within this or other available publications, you may wish to submit a Request for Information to the Ministry of Defence under the Freedom of Information Act 2000.

If you wish to correspond by mail, our postal address is:

Analysis Directorate (Analysis-Expenditure)
Ministry of Defence
Oak 0 West, #6028
MOD Abbey Wood North
Bristol
BS34 8QW

For general MOD enquiries, please call: 020 7218 9000

1. This publication often uses the term jobs to mean full-time equivalent employment. ↩