SECRET
SECRET
LTC
about the same magnitude (ie about £1300m). The benefits
of the savings would be slowed down but the transitional problem
would be correspondingly reduced. Since World War II there has
been an effective redeployment of resources from war production
on a much bigger scale than any now at issue, and historically there
have been even more massive shifts from one peace-time industry to
The development areas which account for about 10 of
another.
defence procurement, including a substantial part of defence
shipbuilding may require special consideration, as may the possible
consequences on arms exports of changes in defence equipment purchases.
But the problems of absorption arising from the option of 4% of GNP
by 1983-84 should be manageable.
40. The least severe option (ie a reduction to 41% of GNP by
1983-84), would present all the less difficulty from this point of
view. (This course would yield savings of £900m by 1983-84 and
£700m by 1978-79 as compared with the LTC figure, but would not
require any reduction below the 1974-75 expenditure level.) Conversely
the economic and budgetary benefit would be roughly halved; neverthe-
less even this lower level of saving would have beneficial effects,
similar in kind to those outlined above, and sizeable enough to make
a significant contribution to the easing of our economic difficulties:
it would, for example, go far towards meeting the annual interest
payment on our accumulated overseas debt; alternatively if the whole
of this amount were diverted to investment, the latter could be
increased by about 5 per cent. Over a period of years an addition
of this size to the stock of capital equipment could make a noticeable
difference to the national income.
41.
Finally, the gain to be secured from cuts in defence expenditure
cannot be judged in isolation, since these savings will have a part
to play in making more acceptable the inevitable stringency in both
20
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