My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I remind the House of my peripheral interest.

The Question was as follows:

To ask Her Majesty’s Government on whatbasis they compare United Kingdom defence expenditure with that of other developed countries.

My Lords,Her Majesty’s Government conduct no formal comparison of defence expenditure against that of other developed countries. The level of defence expenditure is a reflection of UK policy requirements and is therefore not related to the amount spent by any other country.

My Lords, I thank the Minister for that reply. I am a little surprised that he did not mention percentage of GDP as a useful comparator. On that basis, has UK defence expenditure effort gone up or down?

My Lords, as a percentage of GDP, UK defence expenditure has gone down. That is because the rate of GDP increase has accelerated. The important measure is the absolute amount in real terms spent on defence. We are at the end of a sustained period of increases in real-terms defence expenditure under this Government, matching that expenditure to the level of commitments that we face. That is the key measure.

My Lords, if this is a time of sustained increase in defence expenditure, it is also a time of sustained increase in defence commitments. Anybody who either heard or had a chance to read the Hansard report of your Lordships’ debate on defence will know that no fewer than three Chiefs of the Defence Staff pointed to the serious challenges that are now faced—the shortage of equipment and the challenges faced by our forces in two extremely dangerous undertakings to which the Government have committed them. It is not sufficient to say that there has been a sustained increase in defence expenditure, because clearly that is not enough. Will Ministers do all that they can to ensure that the Treasury sustains the Ministry of Defence rather better?

My Lords, I am grateful to the noble Lord for making my point for me. The key point is that defence expenditure matches the commitments that we have to meet. That does not relate specifically to a percentage of GDP. Like other departments, the MoD is fully engaged in the review of long-term policy and will robustly set out the case for defence expenditure to meet such commitments.

My Lords, the Minister keeps saying that the percentage of GDP is irrelevant. Does he not agree that the personnel costs of the Armed Forces increase at just about the same rate as GDP and that defence equipment costs increase at a greater rate? Therefore, a falling rate in percentage of GDP is bound to lead to front-line cuts over time, as it has done year after year. He says that he does not do comparisons of percentages of GDP, but will he update the Ministry of Defence website? It states:

“We spend about the same proportion as France”—

in GDP terms. Given that the 2006 military balance from the International Institute for Strategic Studies reports that the French are spending 2.6 per cent and rising and that we are spending 2.3 per cent and falling, that needs updating.

My Lords, I am explaining to the House the basis on which we set our defence expenditure. That is a bottom-up approach, reflecting our policy and commitments. It is not made on the basis of comparisons with any other country's expenditure. As for the tables, of course on its website the MoD notes what other countries are spending. I am clearly telling the House that the basis of our defence expenditure is the level of commitment that we must match.

My Lords, can my noble friend confirm my recollection that the first decline in the percentage of defence expenditure came in 1994—I welcomed it at the time—under the Government of those on the Benches opposite? Is it not also true that what you include in defence expenditure and what you do not is very much a matter of national income accounting? For example, if you include pensions, that will considerably enhance the percentage but not improve your defence commitments.

My Lords, I am grateful to my noble friend for his points. He is correct that, under the party opposite, there was a significant real-terms decrease in defence expenditure, which was a reflection of the changes that came about at the end of the Cold War. The track record of this Government shows that, since 1997, there has been a sustained increase in real terms defence expenditure. That is the number that we should focus on.

My Lords, ifthe requirements of our forces to which my noble friend Lord King of Bridgwater has referred are complied with, sourced and adequate, why is comparison with other developed states with a disparate series of requirements relevant in any sense?

My Lords, I am grateful to the noble Lord. I completely agree with him.

My Lords, does my noble friend agree that, with the exception of France, which has already been mentioned, if we are to be critical of defence expenditure, perhaps we should criticise not the United Kingdom but the performance of some of our NATO European allies? What steps are we taking to ensure that they, in the interests of collective security, play their part in meeting the obligations that we should all be sharing on a much more equal basis than at present?

My Lords, I am grateful to my noble friend for those points. Of course, we need to exhort our coalition partners to make their full contribution to the burden that we must all share in relation to the challenges that we face in the modern world, not least the challenges that we face in reconstruction in Iraq and Afghanistan.

My Lords, if the Government do not make comparisons about defence expenditure, do they make any comparison of the exports of defence materials and armaments? Is it not a surprise that Israel is now exporting more armaments to the rest of the world than the United Kingdom or China?

My Lords, in December last year, the Government set out a clear defence industrial strategy, which set as our number one priority making decisions based on putting our Armed Forces first. It takes into account the great importance of industrial issues, such as defence exports, but sets a clear priority of ensuring that decisions that we make on defence equipment—exports and procurement—put the needs of our Armed Forces first. That is what the Government are doing.