Defence Spending

Question for Short Debate

15:00:00

Asked by

To ask His Majesty’s Government what progress they have made in laying out the roadmap to spending 2.5 per cent of gross domestic product on defence.

My Lords, I must declare my interests as honorary air commodore of 600 (City of London) Squadron in the Royal Auxiliary Air Force, and as a consultant to Mitsubishi Heavy Industries Ltd. It is timely that we have a chance to debate defence spending today. Since the passage of the Defence of the Realm Act 1914, three days after the start of the First World War, it has rightly been maintained that the first duty of the Government is to protect and safeguard the lives of their citizens. The Armed Forces covenant, promulgated in 2011, starts with these two sentences: “The first duty of Government is the defence of the realm. Our Armed Forces fulfil that responsibility on behalf of the Government, sacrificing some civilian freedoms, facing danger and, sometimes, suffering serious injury or death as a result of their duty”. Churchill was fond of quoting the Latin adage, “If you want peace, prepare for war”. In 1943 and 1944, more than 40% of GDP was spent on defence. If this country should again become directly embroiled in a major military conflict, it is reasonable to assume that the Government would again have to spend a huge proportion of our national output on defence to fulfil their first duty. Surely it is absolutely necessary to spend enough on defence now to make it as unlikely as possible that we will again become embroiled in a major war. We all know that we are already involved, with our NATO allies, in Ukraine’s fight for survival against the Russian invader; it is a conflict that we cannot allow Ukraine to lose. Today’s debate is not the occasion to discuss yesterday’s Budget. It is deeply disingenuous of the Government to go on and on about the black hole against a background where tax revenues are £21 billion higher than the OBR had predicted. I expected that the Chancellor might take the opportunity provided by the Budget to set out the long-awaited road map to spending 2.5% of GDP on defence. I feared she might say that we would have to wait until the report of the strategic defence review by the noble Lord, Lord Robertson of Port Ellen—for whom I have the very highest regard—is published, but she did not even say that. She said that “we will set a path to spending 2.5% of GDP on defence at a future fiscal event”,—[Official Report, Commons, 30/10/24; col. 822.] but she has also said that there will be one Budget a year. Does this mean that we will not even know the pathway to spending 2.5% until the next Budget next autumn? In that case, how can the noble Lord, Lord Robertson, produce a coherent defence review next spring? However, we surely know that we must anyway spend at least 2.5% of GDP on defence now. It is quite possible that the SDR will find that the military capabilities we need now will cost a lot more than can be afforded even by spending 2.5% of GDP on defence. In the debate introduced by the noble Lord, Lord Robertson, on the SDR on 9 October, the noble and gallant Lord, Lord Stirrup, referred to NATO’s recent assessment that if its members are “to contribute military capabilities adequate to the challenges that the alliance now faces, they will need to spend around 3.7% of GDP on defence”.—[Official Report, 9/10/24; col. GC 224.] If NATO is correct, investment in defence needs to be above 3% of GDP, not the 2.5% that the Government say they aspire to but for which, even now, they have not so far set out a firm plan. As the Committee is well aware, the world is in a more turbulent and unpredictable state than it has ever been since the end of the Second World War. The noble Lord, Lord Robertson, has described China, Russia, Iran and North Korea as the deadly quartet. As I pointed out in the debate on the SDR, the previous Government’s paper, Defending Britain: Leading in a More Dangerous World, published in April this year, explained that any delay in setting out a pathway to reaching 2.5% was likely to lead to front-line cuts at the worst possible time for our Armed Forces. Spending more will not in itself be enough. Reform of the Ministry of Defence to build a less risk-averse department and improve its procurement process is also essential. Can the Minister confirm that the fact that the SDR was to be reported to not only the Prime Minister and the Secretary of State for Defence but the Chancellor of the Exchequer was not significant? On that occasion, the Minister said: “The Government have an absolute commitment to 2.5%. I know that that is not what some people want to hear and that there is no timeline given to it, but there is an absolute commitment to 2.5%. It is not an aspiration”.—[Official Report, 9/10/24; col. GC 262.] We now know what that means: merely setting a path at a future fiscal event. The noble Lord, Lord Robertson, will assess what threats we face and what capabilities we need to address them, but his task has been made all the more difficult by the Chancellor’s signal that the uplift in defence spending is not the Government’s urgent priority, which it should be. It is at least welcome that the AUKUS programme is protected. The UK has been one of the few NATO countries to meet the 2% spending target, and our response to the Russian invasion of Ukraine was much appreciated by our allies and by the Ukrainians. However, we are now placing our ability to provide leadership in military operations at risk, because we have in recent years been increasing our defence expenditure at a much slower rate than other nations. Germany, which in 2014 was spending only 1.2% of its GDP on defence, has committed to spend $97.7 billion on defence this year, which is an increase of 29.45% over 2023. France has increased its defence budget by 6.05%, and the United States by 7.21%. Against that, we have managed to provide an uplift of only 1.73% after adjustment for the implementation of the new accounting standard, IFRS 16. That is one of the smallest increases among NATO members. It means that Germany will be spending nearly 40% more than we are. The Chancellor announced an increase of £2.9 billion for next year, but that is not nearly enough given the serious threats we face and the current underfunded state of the Armed Forces. Recruiting is badly affected by inadequate, poorly maintained accommodation and facilities. It is shocking to hear that there are now more civil servants in the MoD than the total strength of the Royal Navy and Royal Air Force. As a precondition of deploying our aircraft carriers, or indeed any major maritime or land-based assets, to any conflict zone in partnership with our allies, it is absolutely necessary to control the air environment. That is why we need the Global Combat Air Programme —GCAP. Its advantage over alternatives includes its greater range. It will bring a contribution to NATO that nobody else can bring. If we do not fulfil our commitment to our partners Italy and Japan to deliver this project by 2035, it will be disastrous for our international relations and will signal the end of our ability to bring in partners to major defence projects. Some 70% to 85% of our defence exports in the last five years have been combat air in nature, so to fail to honour our commitments to this project would have huge implications for our defence industrial base. Will the Minister now give a much-needed commitment, or at least say more than the Government’s position on GCAP, which is that “we continue to progress on that”?—[Official Report, 25/7/24; col. 723.] That is not quite the firm commitment that our Japanese and Italian friends are seeking. Having heard the Chancellor’s disappointing words yesterday, their concerns and those of all our allies will be seriously heightened. I thank all noble Lords who are to speak in this debate, and I look forward to their contributions and to hearing what the Minister has to say.

15:11:00

My Lords, in defence expenditure as a share of GDP, Poland is at 4.12%, Estonia at 3.43%, the United States of America at 3.38%, and we come ninth at 2.33%. With 2.33% we are nowhere near 2.5%, which is supposedly the target pledged by both the Labour Government and the previous Conservative Government, and NATO’s baseline is of course 2%. If we go up to 2.5%, we will be higher than Finland and Denmark but we still below Greece, the USA, Latvia, Estonia and Poland. I say again: the Labour Government have committed to reach the 2.5% target but have not specified a completion date. The Conservative Government had a date as far away as 2030. Can the Minister give us a commitment to that? Additional funding of £5 billion was allocated post the invasion of Ukraine, with planned annual increases through 2027-28. The Ministry of Defence faces budget gaps, including a £3 billion deficit in equipment planned for 2024-25, and a £3.9 billion gap for 2025-26. Of course, in the Budget we have had this announcement of £2.9 billion. That is good news but it is nowhere near enough. The UK’s increased defence spending aligns with NATO’s collective defence strategy, reinforcing our commitment to alliance-readiness. I am like a stuck record: in 2019, in our debate in the Chamber on the 70th anniversary of NATO, I first said that we should be spending 3% of our GDP on defence—not 2.5% but 3%. That was five years ago. Five years ago, there was no sign of Putin invading Ukraine, or of 7 October and the tragic situation in the Middle East since. Since the end of the Cold War and the fall of the Berlin Wall in 1989, we are closer to global conflict than ever before, and then 3% will be nowhere near enough. As a country we have provided £12.8 billion in support to Ukraine, including £7.8 billion of military support and £5 billion of non-military support. One of the proudest parts of my career was being president of the Confederation of British Industry and, within that, there is my pride at helping British industry help Ukraine, from literally days after the war started, with medical kits, ration kits, food supplies and so on. Our support for Ukraine has been amazing. As the noble Viscount, Lord Trenchard, said, we cannot let Ukraine lose. But the defence of Ukraine is possible only if the United States continues its support. It has provided over $100 billion of support; if it pulls out its support, that war is over. The election in America is next week; the repercussions will be very serious indeed and we must be prepared for that. I am a proud honorary group captain in 601 Squadron of the Royal Air Force, and I thank the noble Viscount, Lord Trenchard, for leading this debate. He is an honorary air commodore, so I have to salute him. We heard in the defence debate earlier today about the outsourcing of recruitment in our Armed Forces. It is appalling. How can you outsource the esprit de corps of our finest Armed Forces? The recruitment should be done by the Armed Forces and services themselves. Please will the Minister confirm that he will stop this? The UK should join the Quad—the Indo-Pacific alliance between the USA, Japan, Australia and India, to make it Quad Plus. We are at the top table of the world. We have a permanent seat on the UN Security Council, we are the second-biggest power in NATO, and a member of AUKUS, Five Eyes, the G7 and the G8, though sadly not the EU any more. We have the finest, most respected Armed Forces in the world, which we should all be proud of. The “but”, as I have said before, is that, in real terms, we were spending £57 billion in 2010 and today we are spending £54 billion. Our Armed Forces are too small, at 192,760. The SDR, chaired by the noble Lord, Lord Robertson, is wonderful news, and it is crucial that we get it absolutely right. To conclude, as I have said, the noble and gallant Lord, Lord Stirrup, has said that we have a “shrinking and hollowing out of our Armed Forces”.—[Official Report, 9/10/24; col. GC 226.] and the noble Lord, Lord West, has said that “money is the elephant in the room”.—[Official Report, 9/10/24; col. GC 227.] The price of freedom is not free. We need to spend at least 3% of GDP on defence.

15:16:00

My Lords, I am pleased to have this brief opportunity to speak of the road map to spending 2.5% of our GDP on defence, particularly given that I was unwell and therefore unable to contribute to the recent SDR debate. I will focus on the need to apply a substantial proportion of the £2.9 billion increase announced yesterday to reinvesting in our Armed Forces personnel. Taxpayers’ money is there but the priorities for government expenditure are just wrong. A cursory comparison with our welfare spending alone makes the moral case. In April this year, the Government’s forecast for our total defence budget in 2024-25 was £55.6 billion. At the Department for Work and Pensions, figures for the same period forecast a spend of £315.8 billion on our social security system. Working-age benefits go to 9.3 million people, a huge proportion of whom are capable of working. There are principles involved here. To give just one small but significant example, in contrast with our brilliant Armed Forces, benefit claimants receive a Christmas bonus for doing nothing. In addition, the reliance on Armed Forces charities to purchase the most basic items for wardrooms and messes, such as televisions, is scandalous, given our current expenditure on fully serviced hotels and weekly cash payments given to illegal migrants. If we are to confront the many challenges referred to by noble Lords in the SDR debate, we must seriously invest in our Armed Forces personnel. As the noble and gallant Lord, Lord Stirrup, said in that debate, we must “make good the shrinking and hollowing out of our Armed Forces that has been the handiwork of successive, delinquent Governments”.—[Official Report, 9/10/24; col. GC 226.] Having listened to a brilliant ex-Army officer in January this year—I emphasise “ex”—telling me that some of his fellow officers were being asked if they would continue to serve unpaid, the picture is clear: it is dire. My plea to the noble Lord, Lord Robertson of Port Ellen, who I am pleased to see in his place, is to visit some bases and barracks unannounced. We all know that the military is adept at putting on a good show. I experienced this myself as Minister for Armed Forces Veterans at the Department for Work and Pensions. Just turn up to an RAF or Fleet Air Arm base and listen out for a plane in the air, and you will be lucky to hear or see anything. Go into the empty wardrooms and look around the desolate acres. Visit Army barracks and more desolate acres. Check out the equipment—what equipment is there, where is it and does it actually work? I said in your Lordships’ House on 20 May this year that Armed Forces personnel in the Navy would be better off being subject to the process of court martial from the Navy than being discharged on medical grounds, given the outdated and inhumane processes in place. Following correspondence with the Navy this summer, I am sad to say that I hold firmly to that position. In addition, the system of what is known as holdovers, leading in some cases to training taking more than seven years instead of three because we have not invested in the right equipment for training, is, frankly, shocking. Careers are blighted before they have begun, at enormous wasted expense to the taxpayer. Furthermore, equality of opportunity, which I believe is sacrosanct, is very different from the equality, diversity and inclusion now in vogue. EDI entrenches difference. It is an expensive and divisive diversion from what needs to be done and does nothing for morale. For many, VAT on private school fees will be the last straw. It is not enough to stamp a letterhead with the words, “Global, Modern, Ready”. If we are to confront the many challenges referenced by noble Lords in this month’s SDR debate, we must prioritise and invest in a complete review and overhaul of how we recruit, train, properly incentivise and thereby support and retain our Armed Forces. Given all the petty regulations that just grow, and the satisfaction expressed in some quarters for the status quo, that review must be independent of the MoD. I gather that serious consideration is being given to creating an integrated force. That would of course be a radical move, but it might present the best opportunity for a total reset and renewal for the future. It would require serious investment in the short term, but I predict that the investment would prove well spent and invaluable to our future defence force.

15:21:00

My Lords, I congratulate the noble Viscount, Lord Trenchard, on securing this important and timely debate. The Chancellor’s announcement yesterday in the Budget of an additional £2.9 billion for the Armed Forces, for all that it is most welcome, does not represent an adequate investment in our forces, their people and their equipment. The additional payments that seem to have become a feature of recent defence financing represent sticking plasters rather than a serious attempt to bring the forces to the level that is required in the current international and geopolitical condition. Of course we all realise and welcome that the much respected noble Lord, Lord Robertson of Port Ellen, is currently leading the strategic defence review, but my concern is that cost will be the key decider of how much money and resource is allocated, like small boys laying out their pocket money on the shop counter to see what sweets they can afford. Money is tight at this time, but the nation and especially the Government need to rethink priorities. With a changing world order and greatly increased threats, we desperately need to reprioritise. Defence is a long-term issue, particularly in the fast-changing world that we inhabit. It is simply not possible to make up lost ground over a short period. We are seeing that now, following— I regret to say—the neglect of the Armed Forces and our defences since the so-called peace dividend following the end of the Cold War. We and the democracies in general took our eye off the ball. We now have seriously and rapidly to address our weaknesses. Most other NATO countries are doing this. I strongly recommend an increase to 3% of national income to be allocated to defence, as proposed by the noble Lord, Lord Bilimoria, and the famous Chief of the Defence Staff from the RAF. The vast majority of our countrymen wish to be a force for good, to be able to defend the nation and to play our full part in NATO as well as, on occasion, further afield. But the Secretary of State recently admitted on a Politico podcast that the Armed Forces are not ready to fight in a war and must do more to act as a deterrent against future aggression. He added that the forces would need to become more effective if the UK had to go to war. It is not just for our Armed Forces to try harder and work smarter. There is a chronic need for resourcing adequately. For example, the defence-industrial base needs consistent government policy and time, due to the fact that the base has been allowed to shrink so profoundly over recent decades. It requires time for the base to be expanded, and then outputs will be swifter and more lethal. Noble Lords will be aware of the questions around American support for NATO, especially if the Republican candidate were to succeed in the US presidential election next week. More generally, it has to be faced that attention in the United States is turning towards the Indo-Pacific. Europe will be expected to take greater responsibility for its own defence. More widely, if the US is to continue to regard the UK as a key ally, we must maintain the fabric and capabilities of our Armed Forces. If not, they will regard us differently, as having less value as an ally. Having left the EU, Britain has to reinvent itself and find a new role. The alternative is that we be regarded as a small country facing many challenges. It is important that we remain a strong contributor to the rules-based order and world peace. Strong and effective Armed Forces are an arm of foreign policy and an asset to the UK as we shape our new role in the world post Brexit. The success of the Joint Expeditionary Force is an excellent example of where our Armed Forces can play a highly positive role. The JEF can be regarded as essentially a British initiative. The Swedes and the Finns found that they work well with other JEF participants—all NATO members, of course. The equipment was compatible, and the people liked and trusted each other. A good chemistry had been established so that, when Putin commenced his illegal war on Ukraine, generating great alarm in the Baltic, it felt natural for these two highly respected nations, Sweden and Finland, to join NATO. The UK is also of course a key participant in the AUKUS deal. UK defence has played a role in strengthening peace prospects in the Indo-Pacific. I believe we can be very hopeful that this important co-operation project will give courage to south-east Asian and other Indo-Pacific nations that they can be part of a response to a bullying China. The GCAP agreement is similarly a positive development in alerting those facing challenge that we recognise their situation. Some 40% of Russian state expenditure is now on the military. Should Russia be successful in Ukraine, many analysts feel that Putin will be emboldened to embark on further military action in Europe. As noted by the noble Lord, Lord Bilimoria, it is significant that prominent among NATO states with the highest proportion of national income spent on defence are Baltic countries bordering on Russia. If Britain continues to respond to the risks and challenges inadequately, it would all come back to haunt us. There is never enough money for welfare payments. Would the Minister like to comment?

15:26:00

My Lords, I am grateful to my noble friend Lord Trenchard for introducing this debate. The noble Lord, Lord Bilimoria, said that our Armed Forces were the finest in the world. I have to say that I am not absolutely convinced about that, and my noble friend Lady Buscombe outlined some of the problems. My noble friend Lord Trenchard talked about the problems that the noble Lord, Lord Robertson, may have in producing a defence review when he does not know how much money he has to spend, but he does know how much he can spend—it is about 2.5% of GDP. If a defence analyst was to analyse both me and the Minister, he would find it very difficult to get a fag paper between us. I think we both think that we want to spend at least 3% of GDP on defence, but no more than 5%. The problem is that we live in a democracy, and political parties tend to use focus groups—and they ask the focus groups what their priorities are. We know what the priorities are for focus groups: it will always be the health service at the top, and the welfare state—all the lovely things that we want to be able to do. It is understandable why the electorate want that. If you ask them about defence, the focus group will attach a very low priority. But we do not explain to the focus groups or the general public the consequences of insufficient defence expenditure; we talked about that in the last debate on the failure of deterrence and its consequences. If you asked a focus group, “Are you happy for your daughter, son, sister or brother to be compulsorily conscripted for an overseas military operation that is not doing very well?”, just as we experienced in the 1940s, I suspect you might get a rather different answer.

15:28:00

My Lords, I congratulate my noble friend Lord Trenchard on securing this debate and his powerful opening remarks. I completely agree with other noble Lords that making rapid progress in laying out the road map to spending at least 2.5% of GDP could not be more important. The Budget states that the Government “will set a path to spending 2.5% of GDP on defence at a future fiscal event”.—[Official Report, Commons, 30/10/2024; col. 822.] I think this misses the point. The point is Putin. He has to be the starting point because, ultimately, it is not a future fiscal event that is going to determine UK defence spending—it is a future military event, orchestrated by Putin and his allies. So the question is: how committed are we to ensuring that that military event is not a third world war? As noble Lords have said, it surely depends on the extent to which we are prepared to invest now in defence and deterrence as a means of averting war. I do not question the sincerity of the Minister here and the Secretary of State in the other place, John Healey, but I fear that yesterday’s Budget will be interpreted by Putin as confirmation that we intend to continue living in a never-never land. That is reinforced by this sentence in the policy paper on the Budget: “This underlines the government’s commitment to strengthening the Armed Forces and protecting national security during a period of geopolitical instability”. I must say, I sense the hidden hand of Sir Humphrey in such an understated, anodyne turn of phrase. I am not sure that it quite captures the urgency of the situations in Ukraine, Lebanon, Gaza, Yemen, Iran—the terrorist puppet master—Georgia, Taiwan and North Korea. The list is long, and it is red hot. As the excellent report from the International Relations and Defence Committee of your Lordships’ House, Ukraine: A Wake-up Call, makes clear, any increase in defence spending “should be seen in the context of decades-long defence cuts and recent inflationary pressures on the defence budget”. However, one thing is clear: it would be unfair to accuse the Chancellor of producing a Budget for defence—including, as my noble friend Lord Attlee alluded to, the defence of items of expenditure such as the NHS, which focus groups say are so important to them, bearing in mind Putin’s fondness for targeting maternity hospitals and other crucial civilian infrastructure. Sadly, yesterday’s Budget was a vital missed opportunity, because it was in no way a wake-up call for Vladimir Putin. In fact, I suspect that he is laughing at us—laughing at our increased indebtedness and our reduced readiness for war. I conclude with one question for the Minister, who will know that the economic and financial dialogue between the UK and China was paused after the imposition of the national security law in Hong Kong. Since more than 60% of the components used to prosecute Putin’s illegal war in Ukraine come from China, can the Minister assure the Committee that the UK will not seek to deepen trade relations with China, which is making not only the continuation of conflict in Ukraine possible but a third world war far more likely?

15:34:00

My Lords, like other noble Lords, I thank the noble Viscount, Lord Trenchard, for giving us the opportunity to discuss defence expenditure. I fear that already, after not yet four months in office, the Minister may be getting a little tired of the record that says, “All the main parties committed to 2.5%, but when on earth are this Government going to deliver?”, because it is clear that whether the Government deliver the 2.5% of GDP is in the hands not so much of the Secretary of State for Defence or the Minister of State for Defence as of the Treasury. The noble Baroness, Lady Goldie, keeps suggesting that the Minister—or the noble Lord, Lord Robertson of Port Ellen, when doing his review, where he is capped at 2.5%—should go to the Treasury and say, “Give us more money”. Yes, we need to be spending at least 2.5% of GDP, but I want to raise something that we have not really talked about: how we are spending that money. The aspiration is important, but when looking at defence procurement matters, we need to think about more than just what pennies we have in the sweetshop. I thought that was quite a good analogy, because you do not get many sweets for pennies now; you need pound coins and so on. Similarly, if we are looking at pennies for defence, we are not in the right quantum. It is already clear that if we are going to backfill what we have given to Ukraine then we are looking at costs that are in billions rather than millions of pounds. There are real questions about how we are going to procure the kit that we need, for which there are already black holes, and to backfill the equipment which we have rightly given to Ukraine. So how we spend matters, how we procure matters and moving beyond the exquisite is important. There are two or three other economic factors that matter. The Prime Minister and the Chancellor of the Exchequer have talked a lot about growth. In a growing economy, 2.3% of GDP being spent on defence, which is roughly what we have at the moment, would be of far greater interest than in an economy that is stagnant —and at the moment we appear to be in a stagnant economy. So the 2.5% matters, but so does the economic growth that would mean that we could increase defence in real terms. Inflation is currently low, but traditionally defence inflation runs much higher than RPI. The exchange rate also matters, and at the moment the dollar exchange rate is relatively good. All those factors are outside the influence of the MoD, but they all make a real difference to what we can deliver. Although I join other noble Lords in saying we need that timeline to understand when defence expenditure will increase in terms of GDP, it is vital that we see economic growth to be able to expand our defence budget. I very much agree with the suggestion by the noble Baroness, Lady Buscombe, that we should be putting a lot of the additional £2.9 billion into personnel, but one of the headlines in the Budget was how much is going on employers’ national insurance. Of the £2.9 billion, how much is the additional wage bill for the MoD arising from the increase in the employer’s national insurance contribution? It is sort of a cost on the Armed Forces but certainly not one that will benefit our service personnel—and we need that. We need to find a pathway, but we also need to think about how best to deploy our limited resources to make sure that we are as capable as we desire to be. We have had the best Armed Forces in the world, and we should ensure that we continue to. I pay tribute to all our service personnel and veterans and their families.

15:39:00

My Lords, it is clear from the contributions today how informed about and engaged in the defence of our nation your Lordships are. That knowledge was manifest in my noble friend Lord Trenchard’s contribution, and I am grateful to him for bringing this debate before us. I am not going to patronise noble Lords with a preamble about why defence is the most important obligation of any Government; it is, and we know why. I am going to examine how the current Government are discharging that responsibility. It all flows from budget—the money—because, quite simply, that is what shapes the capability. Yesterday, after all the repeated rhetoric and reassurances over many months from the Prime Minister downwards that the Government believe in defence, are committed to 2.5% of GDP and will lay out the trajectory to that point, we held our breath and waited. Notably, the Minister for the Armed Forces, Luke Pollard, addressing air and space chiefs at a London conference in July this year, said: “How we get to 2.5% will be laid out by the Chancellor, Rachel Reeves, at a fiscal event, which is government code for a budget, or an autumn statement. So looking at that, she will be setting up the path to that”. We are still holding our breath. What did we get? Clarity? No. Leadership? No. Instead, we got a deafening and supine silence. We got a sticking plaster of £2.9 billion for 2025-26. In defence budget terms, we know that that is sticking a finger in the dam and hoping for the best. There is nothing strategic about it, no trajectory to anywhere. While this response says a lot about the Government, and I do not expect the noble Lord, Lord Coaker, to comment on that, I am much more concerned about what it says to our allies, friends and global partners. We are a respected global power, a perception underwritten by our defence capability. As a Minister, regularly visiting south-east Asia, I saw at first hand how many of these countries value their relationship with the United Kingdom; how carrier strike group 21 had a massive impact in the region and on the stature of the UK in that area; how the legacy of the permanent deployment of HMS “Tamar” and HMS “Spey” through the region had a tangible effect; and how so many of these countries wanted to pursue a closer engagement with the United Kingdom. I know that the Minister has diligently and effectively prosecuted these relationships. How is the Government’s ambivalence on defence spend likely to play out to our European friends, our NATO allies, our partners and friends across the globe? Well, 2.5%, as my noble friend Lord Trenchard indicated, is the minimum we need to spend to keep up with allies and competitors. The current NATO estimates for 2024 spending put the UK as the third highest spender in NATO, now overtaken by Germany, and we stand at 2.33% of GDP. The difference between 2.33% and 2.5% is significant but not massive, and the previous Government committed to that by 2030. Just to clarify for the benefit of the noble Baroness, Lady Smith, that is the position I supported then and it is the position I support now. The present Government have been talking about this for months—they have now been in Government for nearly four months—and that is why the failure by the Chancellor yesterday to bring clarity is so serious. The Government are saying to our allies, “We cannot tell you anything about our strategic defence spend and we do not know when we will be able to”. What a message. What about our adversaries? They must be rubbing their hands in glee: this chaos is music to their ears. The only message any onlooker can infer from this mess is that neither the Prime Minister nor his Chancellor get defence. I know that the noble Lord, Lord Coaker, does get defence, and I have sympathy with him. He will put up a stout and loyal response to this debate, but his position is unenviable. Let me mention the Government’s imposition of VAT on school fees having an immediate and deeply damaging impact on defence families. Approximately 4,000 children of service personnel get the continuity of education allowance, which is to mitigate the disruption to education of regular postings. It does not cover the full fees, and many parents, despite that CEA, will struggle to meet the additional cost created by VAT. All that has been offered is a proportionate increase in the CEA, but it is the balance over and above that that many service families will find unaffordable. I am at a loss to understand how the Chancellor does not get that. It seems an extraordinary insult to our Armed Forces personnel. The Government need to exempt the children of all military personnel from VAT on school fees with immediate effect. I have the highest regard for the Minister, and I know that defence has a doughty advocate in him, so I exhort him to relay the pungent message that he has heard this afternoon to his colleagues in government.

15:44:00

I start by thanking the noble Baroness, Lady Goldie, for that ringing endorsement. My colleagues always read your Lordships’ debates with intense interest and scrutiny, so they will no doubt look at that. I thank the noble Baroness, Lady Goldie, for the way in which she puts her remarks strongly but also in a proper and challenging way—I appreciate that. I will come on to some of the specifics about the 2.5% but before I forget, I want to take on the point the noble Baroness, Lady Smith, made, and I will put my head above the parapet on this one. My understanding of employer national insurance is that the public sector does not pay it. I think that answers her question. I have given that answer out of my own knowledge and professional experience of these matters, plus the fact that I heard Kate McCann on Times Radio yesterday. The question was asked about the impact of employer national insurance on the National Health Service, to which the reply was that the National Health Service does not pay employer national insurance because it is a public sector body. If I am wrong, I will write to the noble Baroness and to every other member of the Committee, but I think I am right. If I am not, I will correct the record, because it is an important question, but I do not think that the Armed Forces pay it. I will answer the specific questions of noble Lords, but the position of the Government is as was laid out in the Budget, and it is on the various pages in the Autumn Budget report, which noble Lords will have read. There is not a scintilla of difference between any of us about the desire to protect our nation, to have the Armed Forces that we need and to meet all those threats. There is a discussion and a debate about how we get to 2.5% and when we should do that. Indeed, as the noble Lord, Lord Bilimoria, raised, as well as the noble Lord, whose name escapes me—

Lord Mountevans.

Yes. They talked about 3% and beyond. I have even heard people then start to talk about 3.5% or 4% or whatever. So, there will be a debate on what one considers to be right, but the Government have said that we have seen what the policy is and 2.5% will be at a future fiscal event. That will be laid out, and the additional £2.9 billion for next year will be laid out with that. Of course, alongside that, the defence review is looking at various issues. A number of your Lordships —the noble Earl, Lord Attlee, the noble Baroness, Lady Smith, and others—talked about the fact that how we actually spend that money is as important as the actual amount. What are the threats that we need to face in the future? With those few introductory remarks, that is the position of the Government, and that is where we are, so let me turn to some of the specifics raised in the debate. I know that the noble Baroness, Lady Goldie, will be disappointed, but that is the position of the Government, which I am reiterating to the Committee. I thank the noble Viscount, Lord Trenchard, very much for ensuring that we have this debate. He was very fortunate that it came the day after the Budget—I might have preferred it the day before the Budget, but there we go. The serious point is that he has brought forward an important debate, he made the points about the Budget and I responded in the way I have by laying out the Government’s position. I want to go through some of the questions that were raised, alongside the whole issue of the Budget. The noble Viscount is absolutely right about AUKUS and the importance of that within the defence review, and it is protected within that. There will be a debate and a discussion about the best way of delivering that. It was started under the last Government—the noble Baroness, Lady Goldie, was involved. That is protected within the overall strategy of the defence review, although there will be a discussion about the best way of delivering it, and the noble Viscount would expect nothing else. The noble Viscount is a firm and stout defender of the Indo-Pacific. He will know that, notwithstanding the Government’s NATO-first policy, we also understand the importance of the Indo-Pacific. He will know that when I have been there, I have talked about the indivisibility of conflict: that what happens in the Indo-Pacific impacts on Europe, and what happens in Europe impacts on the Indo-Pacific, on the south of our globe and on the High North. All those things are interrelated. The challenge of the future and of funding for the future, not just for our country but for others, is how we establish that global alliance of free, democratic nations in response to the threat from Russia, China, North Korea and Iran. There will be debate and discussion about how we do that, but it is very important. The noble Viscount, Lord Trenchard, talked about the sixth-generation global combat aircraft. Last week I was at the Italian embassy, and the week before at the Japanese embassy. He will know that, time and again, I go and discuss with them the sixth-generation fighter and its importance within the defence review, which will come to its own conclusions. He will also know that we have just signed the treaty allowing the governance of that project, and we continue to make progress. I know the noble Lord, Lord Bilimoria, will be disappointed by my remarks about the Government’s position, but that is our position and it is an absolute commitment. Our Treasury Minister is here, who will also have heard it. The 2.5% commitment will absolutely be delivered. At present, we cannot give a timeline, but we are determined to deliver it and will do so when we are able. We all know how much the noble Lord has helped Ukraine, not just with military support but with the medical and other support that he has given. He is to be much congratulated on that work. I cannot predict the outcome of the American presidential election. It is not for me to discuss that or say who we would want to win, but I will say that the importance of the US-Europe relationship is crucial to the defence of democracy and the free world. We will have to ensure that, whatever the outcome, we work with our American colleagues and friends, and the American system, to deliver that. I believe that the American system, founded on one of the greatest declarations of independence and the establishment of freedom, will not forget its roots. The noble Lord and the noble Baronesses, Lady Buscombe and Lady Smith, mentioned the problem of recruitment and retention. A review is ongoing on that; it has not yet reported but it will look at many of the matters that noble Lords have mentioned, including the inability to recruit the numbers that we need, skilled labour shortages, retention and the important point about accommodation and welfare. All of those will be looked at as a package. We are starting to try to invest the money in housing, some of which is not acceptable.

I am sorry to interrupt, but is that review independent of the MoD?

No; it is being conducted within the MoD. I am pleased that the review is taking place, and it is being done without fear or favour. We want it to come forward with proposals on those very real problems, and I have great confidence in that being done. The noble Lord, Lord Mountevans, mentioned the crucial question of the defence industrial base. There is no doubt that we and our allies have not looked at how we ensure that we have the defence industry capability that we need to prosecute a war of some length. That has caused all of us to reflect on what we do about it. Our response has been to appoint a National Armaments Director—I believe we have already done so but, if not, we will—who will look at how we ensure that we have the armaments we need. One of the most distressing things about Ukraine—the noble Baroness, Lady Goldie, would have witnessed it; it might have happened when she was the Minister—was to read about Ukrainian troops having to retreat because they did not have sufficient ammunition or shells. That is not acceptable to us. Everyone is looking at what we do there. The noble Baroness, Lady Smith, made a point about procurement. We absolutely need to look at that. She heard what I had to say about the National Armaments Director. She was right to make the point about economic growth: of course, 2.5% of a growing economy is more than 2.5% of a declining one. One of the arguments that might be made about the Government’s economic strategy is that, in the short term, they are making difficult choices to allow the economy to grow in a way it might not otherwise do; that will be of benefit, notwithstanding the short-term discomfort it may cause some of us. I have, I think, dealt with most of the major points made. I finish on something said by the noble Lord, Lord Shinkwin, because it is a really important point that I want to make sure is heard by our allies and friends. It is important for us in these debates—in this Committee, in the Chamber and in the Commons—to have the confidence to let our allies know that, notwithstanding our debates and discussions on the right configuration of our Armed Forces and the right amount to spend on them, we as a country are determined, alongside our allies, to defend freedom and democracy wherever they are threatened across the world. That is the message Putin should hear and understand. We will not relent or step back in the face of Russia’s illegal invasion of Ukraine. This country has never stepped back when it has faced an adversary in this way; that is the message we should take forward. The fact that we can discuss what we are debating today in a democracy, without fear or favour—even if our opinions are unpopular—is something that we have fought for long and hard. Whatever our disagreements about the Budget, that is the message that Putin, China, as one noble Lord mentioned, Russia, Iran and North Korea should hear. This country has always stood up for democracy and always will.

15:57:00

Sitting suspended.