What does the UK spend it defence budget on

A quick calculation after looking at a Daily Telegraph article on the internet has shown me that even after an 8% budget cut the UK still has the 4th largest defence budget in the world after the US, China and France.
My question is why are our forces been reduced so dramatically and the number of personnel, aircraft, ships etc. we operate are so small in comparison with other nations?
Is our equipment that good, do we pay to much for what we purchase or those who procure the equipment just bad at the job they do etc?