The defence secretary's Commons statement on the new chapter of the strategic defence review.

"Mr Speaker.Following the appalling events in New York and Washington on 11 September last year, I launched work on a New Chapter to the 1998 Strategic Defence Review, designed to ensure that our defence policies, capabilities and force structures matched the new challenges that were so vividly and tragically illustrated on that day.

The SDR recognised the potential threat from new forms of terrorism. It recognised such asymmetric attacks as one of a range of tactics that an adversary might use. But the attacks on the United States showed that such attacks could have strategic effect.

We have consulted as openly and widely as possible on the New Chapter. In February, we published a discussion paper outlining some of our emerging thinking. Last month, we published a further discussion document setting out proposals for enhancing the role of our Volunteer Reserves in home defence. Rarely has a defence White Paper had contributions from so many individuals and organisations. I am grateful to all those, especially in this House and The Other Place, who contributed.

Today we are publishing that groundbreaking White Paper, setting out further and more detailed conclusions, particularly in the area of capabilities to counter terrorism abroad.

The White Paper covers a wide range of defence issues, but central to them is the way we want to use our forces against a determined, mobile, often disparate, and elusive enemy.

We must be able to get the right forces quickly to where we need them, make better use of intelligence to identify the threat, decide how to deal with it, and then strike - decisively. This is known as 'Network-centric Capability', but it can be summarised more simply as 'Detect, Decide and Destroy'.

It means being able to strike hard and fast, cutting down the enemy's time to think, plan, and act. I will explain later how we intend to achieve this.

First, though, I would like to deal with the budget planning on which our ideas are based.

The Government has already made £359 million available to fund operations in and around Afghanistan, including the cost of the new equipment our forces needed for these specific operations.

Further significant resources will be made available during the current financial year to enable us to manage the pressure arising from the high levels of activity in which we are currently engaged.

But the New Chapter is about planning for the longer term. International terrorism and other asymmetric threats are long-term challenges. To plan effectively, we need a solid foundation of resources. I am delighted to say that the results of the Spending Review, set out by my Rt Hon Friend the Chancellor of the Exchequer earlier this week, provide an excellent basis from which to take forward our commitment to strong defence. It represents the biggest sustained real increase in defence spending plans for 20 years.

The defence budget will rise by £3.5 billion by 2005/6 compared with this year. This means growth in real terms of 3.7% over 3 years - around 3% in 2003/04 alone.

Within this settlement, the Government is making available over £1 billion of new capital and a £0.5 billion increase in the resource budget for the equipment and capabilities the Armed Forces need to meet new challenges. It provides a mandate for accelerating the modernisation and evolution of the Armed Forces.

To ensure that we maximise the resources available to deal with new threats, we are taking further steps to improve the efficiency and effectiveness with which we deliver defence outputs. The 'Defence Change Programme' is focused on reforming the Department's business processes. It covers projects across Defence, particularly logistical and supply systems and information systems. Recent operations have underlined the crucial contribution of our logistical organisations in supporting operations over long distances. Our aim is to continue to drive down overheads in order to maximise our front-line, operational forces.

Mr Speaker.

Since the events of 11 September, all areas of government have been involved in enhancing our arrangements for dealing with the threat from international terrorism. The Government has developed a broad-based strategy aimed at tackling international terrorist groups, ranging from cutting off their finance, through law enforcement, to military action. We recognise that a successful campaign will need to address the origins and causes, as well as the consequences, of international terrorism.

The Armed Forces have two principal roles in countering terrorism: home defence and action overseas. While assisting in the defence of the UK is a key element of this campaign, long experience indicates that a wholly defensive posture will not be enough. Terrorism thrives on the element of surprise, and one of the key ways to defeat it is to take the fight to the terrorist.

We must be able to deal with threats at distance: hit the enemy hard in his own backyard - not in ours - and at a time of our choosing, not his - acting always in accordance with international law.

As well as helping to deal with the long-term causes of terrorism, we have identified a number of ways in which our Armed Forces, in partnership with other areas of Government, can contribute towards a long-term campaign:

• first, to help prevent terrorism emerging;

• second, to deter terrorist groups, and states that might harbour or support them, or to coerce states to stop harbouring them;

• third, to disrupt terrorist groups and, in the last resort, to destroy them.

Our ability to operate alongside the US (and also with other allies, particularly in Europe) will be essential to our future success.

In the United Kingdom we have certain capabilities which many of our allies do not possess. Others, equally, can bring their own skills and equipment to the table. This role specialisation is crucial if we are to provide the overall military capability that future operations require. For example, at Bagram airbase in Afghanistan, Spain provided an excellent hospital facility, whilst the Jordanians and the Danes provided crucial mine-clearance specialists. Other nations provided other specific capabilities. The overall effect was to quickly create a base on a scale that no single nation could have matched.Mr Speaker.

To be able to make these sorts of contributions, Armed Forces need to be ready to undertake three types of military tasks.

First, stabilisation operations, for example the kind of operation undertaken by ISAF in Kabul this year or in Macedonia in 2001;

Second, deterrence and coercion. If an established state is harbouring or supporting a terrorist group, it may be necessary to threaten the use of force. Potential aggressors should know that we will use all our resources, military and non-military, to deal with their activities, reduce their chances of success, and make sure that the UK can act to defend itself and its interests. Aggression against us will not secure political or military advantage, but will invite a proportionately serious response.

Thirdly, find-and-strike operations, such as those undertaken by the US-led coalition in Afghanistan. If terrorist groups continue to operate and pose a threat it will ultimately be necessary to disrupt and destroy them. Operations can range from interception at sea (requiring specialist boarding capabilities), through to engagement by combat troops or with precision weapons.

We recognise that, in future, we may have only fleeting opportunities to strike at the enemy. This is where Network-centric capabilities come in. Terrorist groups show themselves as little as possible. It is vital - as Afghanistan has shown - to have the best available intelligence and communications to allow a rapid decision about when and where to attack.

We need to be able to identify the enemy fast, and then bring the necessary weaponry to bear in the shortest possible time. We need the 'sensor' and the 'shooter' to be better linked by a real-time network - we want to be able to 'Detect, Decide and Destroy'. This requires extra investment in airborne and other sensors - here we will be upgrading the E3D AWACS aircraft. It also requires extra investment in networks to pass information quickly to allow strikes by sea- or air-launched missiles, by artillery, or by troops on the ground. This will give us more control of the battlespace, hunting down the enemy, identifying targets, and then hitting them hard.

Unmanned air vehicles will play an important part in this system. US forces in Afghanistan demonstrated how effective they can be in providing persistent surveillance of the battlefield or theatre of operations, without putting the lives of aircrew at risk. Some of the American UAVs also provide an attack capability.

I am announcing today that we are accelerating our own UAV development programme - known as 'Watchkeeper' - and will invest in state-of-the-art technology in this area in the coming months.

We have learned a great deal from the use of our Phoenix UAV in the Balkans, a system which was designed as an artillery spotter, but which quickly took on a far wider intelligence-gathering role. But advances in data-link technology now mean that modern UAVs offer greater potential for improving operational effectiveness.

There are issues of commercial sensitivity surrounding Watchkeeper, but we expect shortly to select the two consortia to work with us on the next phase of the project. And I can announce that we are setting up a new joint Service trials unit to begin testing prototypes of the Watchkeeper system early next year.

We will evaluate additional enhancements to our target acquisition and strike capabilities to operate 24 hours a day, in all weathers, and to enable rapid retargetting.

The work on the New Chapter has also confirmed the increasing utility of Special Forces. It is not our policy to comment in detail on these forces, and I do not intend to do so today. However, I can say that we will be enhancing the capabilities of our Special Forces, and particularly their key enablers, maximising their utility and flexibility.

The SDR said that the size and shape of our Armed Forces should be determined principally by the requirements of operations in Europe, the Gulf and the Mediterranean. But terrorist groups such as Al Qaeda can operate worldwide. They will tend to hide in remote, ungoverned areas. Some small-scale operations may need to be conducted both further away and in areas with little or no local infrastructure.

I can tell the House today that we are looking at the use of more rapidly deployable and sustainable light forces and ways of improving their mobility and firepower. Operations in Afghanistan have again shown the importance of support helicopters, and we are examining possible enhancements in this area. We are also pursuing the concept of a family of air transportable medium-weight armoured vehicles (the Future Rapid Effect System). In addition, we will be accelerating the introduction of additional temporary deployed accommodation for our troops, and further improving its hot weather capability.

We will also need to deal with a greater risk that terrorists will acquire chemical, biological, radiological (and potentially even nuclear) devices. We need specific capabilities to deal with such devices safely and to ensure the protection of our own deployed forces - and, indeed, of wider UK interests. Detailed techniques will have to remain secret, but I can say that we will acquire appropriate technology to meet the threats from CBRN weapons that we may face in the future.

There has already been some speculation about what this work might mean for the structure of our Armed Forces. Let me stress that this work is focused on ensuring that we have the capabilities that we require. This will probably require some adjustment to slightly rebalance the force structure, but certainly there have been no decisions about any specific changes.

Mr Speaker.

In the United Kingdom and our Overseas Territories, domestic security is the responsibility of the civil authorities, in particular the police. When the Armed Forces are used it is at the specific request of the civil authorities.

We are strengthening arrangements for liaison with the civil authorities at national and regional levels of government, by creating Joint Regional Liaison Officers to act as a single point of liaison on emergency planning matters. And we will be establishing Reaction Forces of around 500 reservists from Volunteer Reserve units of all three Services in each of 11 areas of the country (some 5-6,000 reservists in all). These will aid the Civil Authorities in handling major incidents, with individuals committing themselves to turn out at short notice for a range of duties, including site search and clearance, transport and communications, control and co-ordination.

We have already taken steps to improve the ability of the UK's air defences to respond to threats from rogue aircraft. Further enhancements to our radar systems are in hand. We are also investing in airfields across the UK (RAF Marham in Norfolk, RAF St Mawgan in Cornwall, and RNAS Yeovilton in Somerset) so that they can support Quick Reaction Alert aircraft when needed. These are in addition to the bases already able to operate such aircraft and will give us greater flexibility in our air defence arrangements. We are also considering seaborne threats - the Armed Forces supported the civil authorities in intercepting a suspect vessel in the Channel approaches in December last year.

In this New Chapter work, we have also wanted to avoid placing unmanageable demands on our people. We recognise that many of our Servicemen and women have been working at or near, and in some cases beyond, the boundaries of what was planned in the SDR for some considerable time.

They have borne these challenges with their customary professionalism and determination. So have their families. I would like to take this opportunity to pay tribute to them for the way they have shouldered these burdens. The needs of our people are a top priority for us. We will continue to work hard to deliver the real and sustainable improvements that they and their families deserve. Simultaneous operations place a particularly heavy burden on our enabling forces - crew for strategic aircraft and ships, logisticians, signallers, engineers, and so on. We will be working to ensure that we do not ask more of them than is reasonable.

Mr Speaker, this New Chapter to the Strategic Defence Review provides a firm foundation for responding to the threats demonstrated on 11 September. Together with this week's Spending Review, which has provided the largest, sustained, real-terms increase in the defence budget for 20 years, this Government is ensuring that the United Kingdom's Armed Forces have the investment they need to deliver.

• Investment to deliver new equipment.

• Investment to deliver enhanced capabilities.

• Investment to be a force for good in the changing strategic environment.

I commend the New Chapter and the Defence spending settlement to the House.