With annual sales of about £17bn, the industry likes to see itself as a key plank of the UK economy.

The industry's biggest customer is the British government, which last year placed orders worth about £13bn.

But the UK is also the world's second biggest arms exporter, behind the United States, with a market share of about 20%.

It claims to directly employ 350,000, spread over 11,000 firms, with as many as 1.2 million people relying on it for a living.

But the industry's opponents, such as the Campaign Against the Arms Trade, take a different view.

They say its economic significance has been overplayed for political reasons, and it actually employs about 120,000.

They also point to the fact that the defence industry only accounts for about 3% of UK manufacturing exports.

Export drive

There is no question that the UK defence sector has shrunk significantly since the end of the Cold War, as the government, in line with other developed nations, cut back on budgets.

In 1994, defence spending accounted for 3.4% of UK GDP, but by 1999 this had fallen to 2.6%.

As a result, the UK industry now employs roughly half the number of people it did 10 years ago.

It has attempted to plug the gap in domestic sales by stepping up exports, mostly to the Middle East.

The mammoth Al-Yamamah deal with Saudi Arabia has been worth up to £15bn since the first phase was signed by then trade secretary Michael Heseltine in 1986.

The agreement - to supply Tornado, Hawk and other aircraft and support systems - was the UK's biggest ever export agreement.

Despite controversy over "sweeteners" allegedly paid to middlemen, it remains a major revenue stream for principal contractor BAE Systems, which employs more than 2,500 people in Saudi Arabia.

Controversy

In fact, the UK arms trade has been mired in controversy since the 1980s, when British firms joined the scramble to supply Saddam Hussein's regime in Iraq.

In the early 1990s, Coventry-based engineering firm Matrix Churchill hit the headlines when it breached an arms export ban by providing Iraq with equipment used by the military to build a "supergun" capable of striking Israel.

Following the arrest of Matrix Churchill's directors, it emerged that Conservative ministers had signed the export certificates.

They had also signed Public Interest Immunity (PII) certificates to try to stop the disclosure of documents which showed that the defendants had been working for British secret services.

The judge in the case refused to accept the certificates and the prosecution collapsed in 1992.

New controls

The Scott Report published in the aftermath of the arms-to-Iraq affair called for a shake-up in the way defence exports are handled.

But it has taken until this year for new legislation to come into force, and its scope - beyond clamping down on arms traffickers and brokers - is limited, critics say.

In the meantime, Labour's pledge to bring an "ethical content to foreign policy" has, critics say, taken on an increasingly hollow ring.

The party came to power in 1997 promising to "make Britain once again a force for good in the world".

Then Foreign Secretary Robin Cook announced new arms export guidelines banning the sale of weapons that could be used for internal repression, or to fuel regional instability.

But, for some, the policy fell at the first hurdle, when Mr Cook's failed to prevent the supply of Scorpion tanks, water cannon and Hawk jets to Indonesia in 1997.

Mr Cook said he was acting on legal advice that contracts signed by the Conservatives could not be broken.

But despite assurances from Indonesia, the UK exports were used in a bloody campaign to crush separatists in the Aceh province.

Labour has also faced criticism for the sale of military equipment to trouble spots including Colombia, Sri Lanka, Algeria and Zimbabwe, when it intervened in a conflict in the Democratic Republic of Congo.

The industry's increasing attempts to target the Asian market - which last month saw it sign a £1bn deal to supply Hawk jets to India - has also led to accusations it is fuelling regional tensions.

US business

Less controversially, the UK arms industry also has America in its sights.

According to the UK Defence Manufacturers Association (DMA), only about 2% of the Pentagon's defence spending goes abroad, with about 1% of that going to British firms.

DMA director general Alan Sharman says: "The industry and the government are making a particularly strong effort to get a slice of the US market.

"The Americans are incredibly protectionist.

"We are working very hard to gain another percent or two of their business. That would be a big step forward."

BAE Systems - the UK's largest defence contractor and its biggest manufacturing employer - has been seeking a merger with a US company for some time.

The company's strategy has been to have its finger in as many pies as possible - from warships to fighter jets, military vehicles to small arms.

But defence is an increasingly globalised business and BAE has been forced to forge partnerships with other European contractors to compete.

In fact, the last remaining military jet to be built entirely in Britain is BAE's Hawk, the source of so much controversy over the years.