"The Government has been accused of reneging on pledges to control private security companies operating in Iraq because it wants to "privatise the war" as part of its exit strategy.
The Government has not only failed to bring in legislation promised four years ago, but has actively encouraged security firms in Iraq by giving them multimillion -pound contracts to take over duties which could have been performed by British forces, says the report published today by the charity War on Want.
Humanitarian groups, MPs and international lawyers have called for tighter controls on "mercenaries".
In Britain both the Foreign Office and the Ministry of Defence are believed to favour such a move. But, with the clamour for withdrawal from Iraq, Downing Street is said to view the private firms as a favoured option in expediting the pullout.
War on Want's campaigns director, John Hilary, said: "There are genuine worries that the Government is trying to privatise the Iraq conflict. The occupation of Iraq has allowed British mercenaries to reap huge profits. But the Government has failed to enact laws to punish their human rights abuses, including firing on Iraqi civilians.
"How can Tony Blair hope to restore peace and security in Iraq while allowing mercenary armies to operate completely outside the law?"
The study charts how the result has been boom times for security firms with the industry making $100bn a year (£53bn), mainly from Iraq and Afghanistan, with British firms among some of the top earners. Just one firm, Aegis Defence Services, run by Col Tim Spicer, who was formerly enmeshed in the controversy over supplying arms to Sierra Leone, has increased its turnover from £554,000 before the war began in 2003 to £62m last year.
While British troop levels in Iraq currently stand at 7,200 - with plans to halve this number in the next six months - there are almost 21,000 British private security guards, part of an international force of 48,000 described by US senators as the "largest private army in the world".
The report, Corporate Mercenaries: The threat of private military and security companies, comes on the same day the British security industry holds its first annual conference in London, and also on the deadline given by the US General George Casey to improve security in Iraq. On Friday a National Audit Office report is expected to warn that Britain's armed forces are failing to recruit and retain sufficient soldiers to deliver the " required military capability".
In Iraq, all non-Iraqi military personnel and private military contractors were made immune from prosecution under the Coalition Provisional Authority's Order 17 for acts performed within terms of their contract by Paul Bremer, the American head of the CPA in June 2004.
It is unclear whether that has changed since the inauguration of the new Iraqi government. But, while British and American soldiers have faced courts martial over alleged crimes carried out in Iraq, not one security contractor has been prosecuted at home or in Iraq despite a significant number of allegations of abuse."