MoD renationalises UK nuclear warhead manufacturing in blow to Serco

Outsourcing giant Serco has revealed the Ministry of Defence will renationalise management of the Atomic Weapons Establishment (AWE), responsible for manufacturing Britain’s nuclear warheads.

But bosses at Serco reassured investors that the removal of the contract was unlikely to hit future profits.

Instead, they expect to see profits rise 35% this year compared to last, with the firm benefiting from the huge increase in Government spending over the coronavirus pandemic.

Defence Secretary Ben Wallace confirmed the contract will end by June 2021 in a written statement to Parliament on Monday.

He said: “Under the revised arrangements, AWE plc will become an Arms-Length Body wholly owned by the MOD.

“It will continue to be managed by a world leading team and a new Board will be appointed by the MOD.

“The new business model will see AWE plc continue to draw on private sector specialist support to strengthen capability as well as playing a key role in managing capital projects and contracts.

“This approach is recognised as best practice in other major complex programmes.”

Serco held a 24.5% stake in the private contract for the warheads, which had been outsourced for the past 20 years. The other owners were Lockheed Martin with 51% and Jacobs with 24.5%.

The company said: “Serco is proud to have been involved with AWE for the last 20 years, and will work with the other shareholders and the Ministry of Defence to ensure a smooth transition to the new arrangements.”

AWE will add around £17 million in profits to Serco’s accounts for 2019 but the company reassured investors that expectations for profits in 2020 remain in line with expectations –  around 35% higher than 2019.

The contract had initially been expected to run for 25 years and had been used for researching and developing warheads used on the Vanguard nuclear submarines.

Last year AWE paid £82 million in dividends to shareholders.

Last month Serco revealed it is hopeful it can restart dividend payments to its own shareholders following a recent extension to a contract for its work over the NHS Test and Trace programme.