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early 1980s, and stabilising at that and oil prices then being at the
low relative prices of 1970. At the other extreme one might see
North Sea oil production continuing to increase, building up to,
say, 220m tons by 1985, and relative prices being those of 1974. In
the pessimistic case the average contribution to the growth rate
over the decade would be very small - say, 6%. In the optimistic
case there would on average be 20m tons extra each year 1981-85,
and all oil output would be valued at 1974 relative prices; in that
event the growth rate might be 1% higher. In either case one is
still a long way below the growth rate for France and Germany quoted
earlier.
36. The balance of payments effect of present defence expenditure
is set out in Annex E. It shows a net annual deficit of about £250. (1)
Our annual stationing costs in Germany, now equivalent to about £300m
more than account for this net figure; the other items show a small
surplus. It is of course true that resources would have to be found
for these troops wherever stationed but, given our balance of payments
difficulties, it is particularly onerous to have to shift the additional
resources into exports to earn the necessary foreign exchange.
37. We have attempted to assess the economic and budgetary benefits
of reducing defence expenditure in line with the options under
consideration, to complement the appraisal of the military and political
disadvantages of doing so. The 1974 Defence Long Term Costings (LTC)
are shown in graph form in Annex F, together with an indication of
each of the levels of expenditure which Ministers have asked should
be examined; and in tabular fom in Annex G. The LTC's measure the
cost of maintaining and re-equipping UK forces of broadly the present
size and structure, and show an increase in expenditure at constant
prices from the Annual Estimates figure of £3612m in 1974-75 to about
Note 1. This figure sets out the present position and provides no direct guide to the relief to the balance of payments which might be achieved by reductions in defence expenditure to particular levels.
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