Fiscal Policy: Defence Spending

15:36:00

(Urgent Question): To ask the Secretary of State for Defence if he will make a statement on the impact of Government fiscal policy on defence.

The Government’s plan for change says that we will “set out the path to spending 2.5% of GDP on defence in the spring”. I am genuinely grateful to the hon. Gentleman for asking this urgent question. It gives me the opportunity to reiterate what the Prime Minister has said, what the Defence Secretary told the House on Wednesday last week, and what the Minister for Defence Procurement and Industry repeated in the House on Friday, which is that this Government have a cast-iron commitment to spending 2.5% of GDP on defence, and that we are already delivering for defence by increasing defence spending. At our first Budget, we announced an extra £3 billion on spending on defence in the next financial year.

Thank you for granting this urgent question, Mr Speaker. Before I turn to the specifics, I hope you will indulge me and allow me to say on behalf of His Majesty’s Opposition that we join all colleagues today in marking Holocaust Memorial Day. May we never forget or be complacent about the lessons. Last Wednesday, the Defence Secretary stood at the Dispatch Box and laid bare the extent of the Russian grey zone threat. This is not a distant threat, but one that has been lurking in our own waters, threatening the United Kingdom and our critical infrastructure. I heard what the Secretary of State said, and responded by confirming that he had our full support in standing up to the Russians. I said that this showed why we urgently needed to increase defence spending. But there is one big problem. The rest of us were listening, but the Chancellor of the Exchequer was not. Despite all the evidence before our eyes of the growing threat, we learned this weekend from multiple sources that spending 2.5% will be delayed beyond 2030. Can the Minister disown such talk, and specifically confirm that we will hit 2.5% during this Parliament? The Treasury is not just failing to back more defence spending; it is hitting our armed forces with higher taxes on death in service benefits and education. The Secretary of State confirmed on Friday that the application of inheritance tax to death in service benefits for the armed forces would go ahead. We understand that to be causing deep alarm throughout the forces community. As for the education tax, we knew that the continuity of education allowance would not be uprated to 100% of the VAT impact, leaving many service personnel thousands of pounds out of pocket, so since the summer I have called for a full exemption for children of armed forces families. However, in a written answer to me in November on the continuity of education allowance and schools VAT, the Minister for Veterans and People said that “the new VAT policy does not offer any exemptions”. Yet on Friday we learned that children of US armed forces families serving in this country and attending British independent schools are exempt from VAT on their UK school fees. I do not begrudge them that—US forces are based in our country to defend us—but we want the same treatment for our people. Finally, can the Minister confirm that the Secretary of State will bang on the door of No. 11 to demand, first, that the tax on death in service benefits be dropped and, secondly, that British forces families be treated the same as their American colleagues and granted a full exemption from education VAT? Is it not time that Labour backed our armed forces with action, rather than just words?

I agree with the hon. Gentleman’s words about Holocaust Memorial Day. His Majesty the King has been in Auschwitz for the 80th anniversary, and he spoke for the nation when he said that we will remember this evil long after the survivors of the Holocaust have passed. I have set out clearly that, in the spring, we will lay out a path to spending 2.5% of GDP on defence. We will also publish a strategic defence review, setting out what we will spend the money on and how we will respond to emerging threats. As the hon. Gentleman will know from the Defence Secretary’s statement last week, we will make it absolutely clear to those who threaten us that we will use the formidable capabilities available to us to defend the UK and our allies. We inherited a situation in which, during their entire time in power, not a single Conservative Government spent 2.5% of GDP on defence. The last time that 2.5% of GDP was spent on defence was under the last Labour Government. We have inherited falling morale; a retention and recruitment crisis; service personnel living in mouldy, broken homes; and a hollowed-out and underfunded military. That is what the SDR will seek to fix, and I hope that the hon. Gentleman will be able to give us his full support. Having listened to last week’s debate, the hon. Gentleman will know that those who die on active service are exempt from the inheritance tax provisions. He will also know that the Defence Secretary has uplifted CEA support to 90% for those who privately educate their children while serving in the military. We will continue to support our armed forces, renewing the contract between the nation and those who serve. We will publish the defence review in the spring, when we will also set out our path to spending 2.5%.

I call the Chair of the Defence Committee.

We live in an increasingly volatile world, so I thank the Minister for his clarification on defence spending. Surely the cost of fighting a war, notwithstanding the human cost, is significantly higher than that of having a credible deterrent force. The Prime Minister recently told me at the Liaison Committee that the strategic defence review has to be completed before the path to 2.5% can be plotted, so why have there been discussions about the timeline for that path before the SDR has been published?

We have said that we will publish the strategic defence review in the spring, and we will also set out a path to spending 2.5% of GDP on defence in the spring. I do not recognise the publication timeline suggested by my hon. Friend, but he is right that deterring a war is cheaper than fighting one. That is why we are continuing to support our allies in Ukraine, and making sure that we have a NATO-first defence policy—to deter aggression facing the United Kingdom and our allies, and, if necessary, to defeat it with formidable capabilities.

I call the Liberal Democrat spokesperson.

The Government’s commitment to spending 2.5% of GDP on defence has been shrouded in delay and uncertainty. At a time when Europe faces its gravest security crisis in decades, this is unacceptable. Promises without a clear path are hollow, and the Government should commit to setting out by Easter a detailed and credible plan for reaching 2.5%. We must also make the right spending decisions, and the House of Lords International Relations and Defence Committee has raised concerns about the capability of the British Army. What plans does the Minister have to reverse the previous Conservative Government’s cuts to the Army? He mentioned retention, which is another critical issue. Improving the living conditions of our armed forces must be a priority if we are to attract and keep the talent we need. Finally, the ongoing problems of inefficient defence procurement undermine our readiness, so what is the Minister doing to tackle those long-standing problems? The Government must stop dragging their heels, set out the pathway to 2.5% and end the uncertainty.

I have a lot of time for the hon. Lady, but we have been very clear and consistent that we will set out a path to spending 2.5% of GDP on defence in the spring. I remind her that when her party was in government, instead of increasing defence spending by £3 billion, as Labour did, the Liberal Democrats’ and the Conservatives’ first Budget cut defence spending by £2 billion, and cut it by 20% across the Parliament in which her party was in power. I support the hon. Lady in wanting a better deal for our forces, but I remind her to look in the rear-view mirror occasionally.

Order. While we are talking about mirrors, can the hon. Gentleman look at me occasionally, so he is not just staring one way?

It is interesting that Members on the Opposition Front Bench seem to have forgotten that when they left office, they left us with the smallest Army since Napoleonic times, a lack of ships and aeroplanes, some of the poorest equipment and many problems with procurement. It is important that we keep to the timetable on the SDR, but given the rumours we are hearing and the stories in the press, will the Minister provide an assurance that he will keep this House fully informed on progress on the SDR, not provide that information through the press?

My hon. Friend is absolutely right that our armed forces were hollowed out and underfunded over the past 14 years of Conservative Government, but the Defence Secretary will come to the House to report the strategic defence review and announcements will be made by Government about the path to 2.5% of GDP. I understand the enthusiasm, especially that of Conservative Members, to listen to anonymous briefings, but we have been clear that this Government will treat the House with respect. We will be in the House to make announcements on the SDR and on the path to 2.5% of GDP to be spent on defence.

I have a simple question: would it be compatible with the military covenant to make compensation payments to former members of the IRA?

That is not a matter for the Ministry of Defence and it is not within my portfolio, but if the hon. Gentleman writes to me, I will ensure Northern Ireland Office officials respond to him. However, I do not think there will be strong support for such action from much of the House.

On our journey to increasing defence spending, it is crucial that we keep the public on side, especially given our dire financial inheritance from the Conservative party and the hollowed-out state of our armed forces, as Conservative Members have acknowledged. That is why I welcome the Government’s break from tradition in informing this House and the British people about their steps to deploy a nuclear submarine to respond to Yantar, the Russian spy boat, along with the Plymouth-based RFA Proteus. What steps will the Government take in the future, over the coming weeks and months, to keep the British public informed, so that they stay on side as we increase defence spending to respond to the threat from Russia?

I thank my hon. Friend and constituency neighbour for his question. He is right that last week we declassified information about the activities of the Russian spy ship Yantar, including revealing details of the surfacing of a Royal Navy submarine to deter the Yantar’s activities loitering above our critical national infrastructure. It is absolutely right that this Government make the case that warfare has changed, especially when it comes to the protection of our critical underwater infrastructure. Making the case that we have formidable abilities, but also being clear in the SDR about how we will invest in those capabilities alongside our allies, is essential. The SDR will be published in the spring, when I am sure he will be able to see more about that.

I am going to surprise the Minister and say that I think he is right that the armed forces were not big enough when we left Government, and that every Chancellor since the end of the cold war slashed spending because it was the easy thing to do. Once the Ukraine war started, because of Russia’s illegal invasion, we put tens of billions of pounds into the response, so my question to the Minister is simple: if the strategic defence review suggests that we have to spend more money, are we going to spend that money or will it be directed to ensure that the amount does not rise above 2.5%?

The right hon. Gentleman is certainly right that the forces were hollowed out and underfunded, which we are seeking to address by increasing defence spending. We have provided £3 billion in the Budget and the path to moving from 2.3% to 2.5% will be laid out in the spring. The SDR will set out what capabilities we need to have to meet the threat environment, against that pathway to spending 2.5% of GDP on defence.

The last Conservative Government did not spend 2.5 % of GDP on defence at any point during their 14 years of power. Unfortunately, the increase that will come will have to address a lot of the damage that that Government did to our Army, our Navy and our Air Force. Does the Minister agree that it takes a Labour Government to deliver those spending commitments?

It is certainly true that the last time this country spent 2.5% of GDP on defence was under a Labour Government. The Tories cut defence spending as a percentage of GDP over their time in power. It is important that the strategic defence review wins cross-party support when published. I hope that the shadow Defence Secretary will be able to offer the Government a common position, so that what is published will be not just Labour’s defence strategy but Britain’s defence strategy, and we can be strong at home as well as secure abroad.

If Labour colleagues are going to insist on reiterating that the last time 2.5% of GDP was spent on defence it was by a Labour Government, I suppose I have to point out that the last time 3% was spent by any Government it was by a Conservative Government, and the last time 4% was spent by any Government it was by a Conservative Government. Both those figures were some time after the fall of the Berlin wall. When the Berlin wall was still up, under the present accounting system we were spending up to 5.5% on defence, so please can everyone stop obsessing about 2.5% and when it will come in, because we need a lot more?

I have a lot of time for the right hon. Gentleman. He did not plug his “Shifting the goalposts?” Defence Committee report, which clearly set out changes in GDP spend on defence. I believe that he used the report to argue for more defence spending when his party was in power. Now that we are in power, we are doing it: we increased defence spending by £3 billion in the Budget and will lay out a path to 2.5% in the spring.

Today is Holocaust Memorial Day. Does the Minister agree that this solemn day is a reminder of what we are fighting to defend, and the need to always protect our values and freedoms?

Today is a day when we remember not just all those who were killed in the Holocaust, but those killed in genocides since. It is a day when there is unity and cross-party support for tackling hate, in whatever form and wherever it comes from. It underlines why we must stand with our friends in these difficult times, why we need strong defence, and why we need to root out hate wherever it rears its ugly head.

Let me reiterate what the Minister is not quite saying: we are looking forward to a defence review that will set out what we need. It will not then be circumscribed as a percentage of GDP by some artificial ceiling; the Government will spend whatever is necessary arising from the defence review, and his Department will send a defence review to the Treasury untrammelled by any spending constraint. We need to address the desperate threat situation that the country is in.

Lord Robertson is conducting the externally led strategic defence review based on the terms of reference that were agreed with the Secretary of State for Defence and the Prime Minister. Lord Robertson will publish it in the spring. I hope that the hon. Gentleman is looking forward to it as much as I am.

Under the last Government, only two out of 49 major defence projects were being delivered on time and on budget. Will the Minister set out what the Government are doing to get to grips with the financial mismanagement and failed procurement system that we inherited in defence?

It is certainly true that we inherited a broken defence procurement system; I think broken was the word that the shadow defence procurement Minister, the right hon. Member for Rayleigh and Wickford (Mr Francois), used when he was on the Defence Committee. It must make for awkward team meetings, given that the man responsible for the broken procurement system, the hon. Member for South Suffolk (James Cartlidge), is sitting in those meetings as his boss. We have set out clearly that, as part of our defence reform work, we will create a new national armaments director. The new defence industrial strategy will be published in due course, which will set out how we will spend more with British companies, supporting not just the primes but small and medium-sized enterprises in all parts of the United Kingdom.

Let me try to help the Minister understand where the Opposition’s concern is coming from: it is because of the realisation, or suspicion, that the arbiter of when and how 2.5% is realised is not the Secretary of State for Defence but the Chancellor. This is a Chancellor who scarcely understands the fundamentals of economics, much less the fundamentals of defence and the threat environment that these islands face. What will the path to 2.5% look like? Is there a date, or is it when certain criteria are met? Also, the Minister be clear on who the final arbiter will be? Is the Treasury saying, “2.5% when you need it,” or “2.5% when we decide it”?

The hon. Gentleman invites me to make the announcement that I am saying will come in the spring. To answer his concerns, I point him to the fact that the path to 2.5% will be set out in the spring.

During my recent visit to Britannia Royal Naval College with the armed forces parliamentary scheme, I saw the vital role that investment in defence plays in supporting our armed forces and creating skilled jobs. Does the Minister agree that unlike the Conservatives’ inconsistent defence strategy, this Labour Government’s £9 billion investment in Rolls-Royce shows a clear commitment to strengthening our national security and growing our economy?

The armed forces parliamentary scheme is a brilliant scheme that introduces Members across this House to the important work done by our armed forces. As a Navy brat myself and the proud MP for Devonport in Plymouth, I know the importance of a strong Royal Navy, Royal Marines and Royal Fleet Auxiliary. The £9 billion announcement last week is an important part of securing our nuclear future, backing jobs across the country and supporting jobs across the entire supply chain—it makes Britain stronger.

The armed forces covenant is a promise—a promise that together we acknowledge and understand that those who serve or have served in the armed forces and their families, including the bereaved, should be treated with fairness and respect. How is the imposition of inheritance tax on death in service payments of some families of deceased soldiers fair and consistent with that?

It is certainly true that we have a manifesto commitment to put the armed forces covenant fully into law. That will come forward in the armed forces Bill in due course. We set out from the Dispatch Box last week that the inheritance tax does not apply to those members of our armed forces who die on active service. The other areas are subject to a Treasury consultation, and the Treasury will make an announcement in due course.

Is it not the reality of the past 14 years that we have fewer soldiers and fewer Navy and Air Force personnel and that, in an uncertain world, we need to reverse that trend and grow our military forces to deal with those threats?

It is certainly true that this Government inherited an armed forces that, as world-class as they are, were struggling with falling morale, poor housing and capability gaps thanks to 14 years of underfunding and hollowing out. The strategic defence review will set out what capabilities we need to meet the threats, and the path to 2.5% will set out what will be spent on those capabilities. We also need to improve how we spend because the defence procurement system is broken— something that was well highlighted by the hon. Member for South Suffolk (James Cartlidge) and the right hon. Member for Rayleigh and Wickford (Mr Francois) when they were in government. That will be fixed, and we will ensure that we have a strong set of armed forces able to deter aggression and defeat it if necessary.

The Minister says the strategic defence review will be announced in the spring, but is that the astronomical spring, which he will note ends on 21 June, or the meteorological spring, which ends, from memory, on 31 May? He talks about a “pathway to 2.5%”. That is a carefully crafted phrase from the Dispatch Box. Is the pathway short or long? Can he not give an answer to a straight question: when will we hear about 2.5%? When will it be announced? What is the date and the year?

The strategic defence review will be published in spring this year, and the path to 2.5% will also be announced in spring this year.

I am grateful to the Minister and his Department for setting out the need for increased defence spending because, like so many here, I believe we are living through a change of era where the assumptions of globalisation and multilateralism are being refuted by reality, and it demands the renewal of our modern productive power in defence and the civil economy. The simple reality is to that build strong alliances, we must maintain and build our autonomy. Is it not the case that the one key fact about all this is that to maintain a good relationship with the United States, we will have to spend more on defence?

I agree with my hon. Friend that we have to spend more on defence. I think everyone in this House agrees with that, and that is why this Labour Government are spending more on defence: an extra £2.9 billion as announced in the Budget and a pathway to spending 2.5% of our GDP, which will be announced later in the spring.

It was the Minister’s assessment of costs that drove the decision to decommission Bulwark and Albion. But if the Brazilians are going to buy them, they cannot have been that bad, can they?

Let me say very clearly to the right hon. Gentleman that we inherited a position where it was not planned that Albion and Bulwark would go to sea for a single day before they were decommissioned—that was the plan we inherited from the Conservative Government. We are looking at new capabilities as part of the strategic defence review, and the Defence Secretary has also committed from this Dispatch Box to the multi-role supply ship project, to provide littoral and landing capabilities for our brilliant Royal Marines, who have a bright future in the strategic defence review.

I think both sides of the House can agree that our peace and security are founded on strong armed forces. Will the Minister therefore welcome the fact that we are spending £3 billion more on defence this year, as well as our firm commitment to get to 2.5% of GDP?

I agree that it is important that we spend more on defence. That is why the Chancellor laid out from this Dispatch Box that we will spend an additional £2.9 billion on defence in the next financial year. It is also why the Government have laid out our plan to renew the contract between the nation and those who serve. This is about not just kit and equipment but people. Addressing falling morale and poor-quality defence housing matter to our armed forces, and that is why this Labour Government are addressing those issues.

A trained and skilled workforce is central to a successful defence policy, and I saw that at first hand during my visit to RAF Valley, where I met Babcock apprentices who attend Grŵp Llandrillo Menai. The Babcock programme supports young people to develop skills, so can I ask the Secretary of State to ensure that any increase in defence spending includes significant investment in training and apprenticeships?

As someone who has a large Babcock premises in his own constituency in Devonport, I understand the importance of making sure that there is investment in skills. It is absolutely right that, just as we invest in the skills of our armed forces personnel, we also invest in the skills of the civilians who support them. That needs to happen not just in the primes but across the entire supply chain, and that is what is being set out in the defence review and the defence industrial strategy, which will be published in due course.

I am a strong supporter of making sure that we reach 2.5% of GDP on defence. However, may I remind Conservative Members that one of the first things this Government did was to scrap a £40 million contract with a helicopter company that transported Conservative Ministers around the country? Does the Minister agree that that will help to ensure that our defence spending goes on defending the nation, not on assuaging the egos of Conservative Members?

The shadow Defence Secretary was certainly a regular user of the helicopters, so he will be able to advise colleagues whether they were good value. It is true that the Government need to demonstrate our support for our armed forces. We are doing that by making sure that we invest more in defence, and we have also given our armed forces the largest pay rise in 20 years. Recruits’ pay is up 34% under this Labour Government, and we are creating a new direct entry to cyber to make sure that we can get the people we need in the future. It is not just the kit and capability but the people that this Government are investing in, and we will continue to do so. I expect to see more of that in the defence review published in the spring.

I would like to see slightly more humility from all political parties on the subject of defence spending. [Interruption.] Thank you. The Minister is right that defence spending was cut under the coalition, but we are in a different world now, with a great power attacking Europe. I would also like to inform him that one of my best friends, Captain David Hicks MC, was killed in Afghanistan in 2007, in part because of the atrocious level of military kit provided to our armed forces there. So I think all political parties need to reflect on their records.

I think that the whole House will want to pass on its condolences to the hon. Gentleman and the family of Captain Hicks. It is right that one of the Government’s objectives is to have a strategic defence review that is also the nation’s defence review—one that is not just Labour’s defence policy, but that can be supported cross-party. For that reason, I have laid out clearly the path and the timetable for our publication of the SDR and the 2.5% pathway in the spring. When that happens, I hope we can have a debate about how those capabilities match the threats and how we can support the SDR as a cross-party-backed defence review that gives our troops and our industry the direction and support they need to keep our nation safe.

On the Floor of the House today, the Minister has stated that he wishes to have more money for the armed forces, and he has been very critical of previous procurement exercises by the former Government. Can I therefore ask him whether he agrees that giving away the Chagos islands, and paying to do so, is a bad deal, and that that money would be better spent on investing in our armed forces?

The hon. Gentleman might have missed the debate in which it was set out clearly that the deal we have secured to ensure the long-term future of the Chagos islands began under his Conservative Government—11 rounds of negotiations under the Conservative party, I think it was. The UK-US base on Diego Garcia is strategically important, which is why it is absolutely vital to secure its long-term future free from any constitutional threat. That is what the deal does, and I hope that when it comes before the House the hon. Gentleman will be able to back it, just as I will.

Which comes first, the strategic and operational needs of our armed forces or fiscal parameters set by Treasury bureaucrats?

The strategic defence review will set out clearly what threats the nation is facing and what capabilities we need. I would expect to see renewal of our capabilities, because we have seen from the war in Ukraine that warfare has changed. Some of the assumptions about how we structure our armed forces and how we fight have been challenged by the experience of warfare in Ukraine, and that is one of the reasons why this SDR is so important. It will set out the evolving capabilities that we need and how we will deliver them to keep our nation safe.

Given that the vast majority of the Ministry of Defence supply chain is in the private sector—for example, BAE Systems in Fylde at Warton and at Samlesbury, with jobs across Lancashire—and that those private companies have seen significant increases in costs following the Chancellor’s Budget squeezing their payroll costs, as well as increasing regulation through the employment Bill and in other areas, we will be able to buy considerably less kit for 2.5% at the end of the defence review than at the start of it. As the Government go through the defence review process, are they cutting the shopping list or planning to go above 2.5%?

I thank the hon. Gentleman for his question, and I support the work of the private sector businesses that do so much to support our armed forces. The needs of our armed forces will change and are changing; that means changed capability, but it also means a change in how we buy our kit. Certainly, if we look at some of the absolute procurement disasters under the last Government—only two of 49 defence procurement projects are on time and on budget—we see that we need not only to buy the right kit, but to buy it better. That is something that the last Government clearly failed to do; the shadow defence procurement Minister himself, the right hon. Member for Rayleigh and Wickford, described the defence procurement system as “broken”. We need to take steps forward, and the SDR and the defence industrial strategy will set out how we will improve defence procurement.

I call the new Member for Kent, Jim Shannon.

Thank you very much, Mr Speaker. I am the new Member for many places. I thank the Minister very much for his answers. I ask him very respectfully whether he agrees that the story in the press this week about the proposed sale of Navy ships to Brazil, when our fleet already appears depleted, is worrying? There is a need to increase our defence spending, not simply to fulfil international obligations but to be in a position to defend ourselves in the frontier of the cyber-security world, and in the physical world as well. Will the Minister reassure this House that the decisions that are made have been future-proofed with our security in mind—the security of all of us in the United Kingdom of Great Britain and Northern Ireland—and prioritised as such?

That is precisely the reason why the Prime Minister commissioned the strategic defence review within two weeks of coming to office, to assess the changing context that we are facing but also the changing capabilities that we need, as a nation, to keep us safe. That includes retiring old capabilities, especially capabilities that were never planned to go to sea again—a decision made under the last Government. We have already increased defence spending in the Budget—it is up by £2.9 billion—and we will set out a path towards spending 2.5% of GDP on defence in the spring.