Britain wastes more than £200 million a year in subsidies to arms manufacturers, costing 30,000 lost jobs, says a former government adviser.
The wasted spending is linked to the activities of the Export Credit Guarantee Department of the Department of Trade and Industry, which gives a total of £500m to favoured exporters each year.

The figures will be presented by the think-tank British American Security Information Council (Basic) in evidence to the Trade and Industry Select Committee on Tuesday.

Paul Ingram, a senior analyst at Basic and former adviser to the Office of the Deputy Prime Minister, said the 30,000 jobs were lost because of distortions in the market. 'If the money went to jobs in hospitals and schools it would create far more jobs than [occurs] in these highly capital-intensive industries.'

Basic is to push for the privatisation or even scrapping of the ECGD, which has also come under fire for backing projects seen as controversial on environmental or ethical grounds. In its time the ECGD has underwritten British exports to help develop the military capabilities of both Saddam Hussein and Robert Mugabe.

Ingram's analysis shows that disproportionate support goes to a few companies; one is BAE Systems. Shell and BP have also benefited.

Some of the support directly feeds the banks' profits. 'Those banks are getting a free lunch. They are lending money and getting a guaranteed return,' said Basic.

The ECGD offers one of the few remaining ways the Government can pass taxpayer subsidies on to its favoured industries. 'It's only farmers and arms dealers who get this sort of special support these days,' said Ingram.

In the next two months the ECGD is likely to get a one-off cash boost of about £2bn as the Treasury seeks to take some of the £21bn in potential liabilities off the Government balance sheet. The ECGD will run as an independent trading fund from 2005, which will help ringfence about £9bn of bad debts - much of which bolstered British exports to what are now 'rogue states'.