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MINUTES OF EVIDENCE TAKEN BEFORE THE EXPENDITURE COMMITTEE
21 January, 1975.]
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to maintain the four HM Dockyards, and concentrate all refitting in them, has come in for heavy criticism. Some of this is ill-considered. For one thing 'type specialization has made the question much more than a matter of economies of scale. Moreover the capacity of the civil yards which stand to lose naval business may be among the more readily transferable resources as sea-bed exploitation gathers momentum.
17. The intelligible line on priorities and resource management holds for budgetary adjustment of the scale proposed. By setting its sights on halting growth and settling for a 1 per cent. reduction in the proportion over a decade the Government has contrived to avoid the really tough questions about defence priorities. The Sub-Committee may not wish to look beyond the present proposals at this stage. But I think it worth noting that we are probably at the point where, if the adjustment should appear to be inadequate, there will arise questions like:
--Which is more important, a balanced' surface fleet including several 'ships of higher quality' or a premier league combat air force with nearly 400 MRCAs?
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-Do we pay the price which the existing concept of operations on the
Central Front, and the NATO stance at Vienna, may exact?
-Are there no alternatives to existing practices in managing the UK Air
Defence Region or anti-submarine warfare in the SACLANT area? There are echos of 'Carrier v TSR2' and the like here.
The December Proposals: Economic Effects
18. Will the revised programme and budget prove adequate? Assuming the Government is determined to maintain the aim, will it produce the desired reduc- tion in the proportion? The crucial matter is the likelihood of the economy attaining the 3 per cent. growth rate on which the reduction is based. Any pre- diction on that would be a shot in the gloom. Suffice it to say that the annual average growth for the last decade fell short of this cultural number which the Treasury insists is the appropriate long-term working assumption.12 Moreover for the first four years of the review period the rate will almost certainly be lower than this. So a transformation of fortunes in the early 1980s is assumed. It could happen. More plausibly we might have to learn to live with another "con- tinuing defence review".
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19. Will the "savings" in defence not enhance growth prospects by, as is claimed, releasing resources for investment and growth and improving the balance of pay- ments? On this it is desirable, first, to be clear about what the revised programme means. In one sense it does not release resources at all. It is based on seeing that defence's claims do not rise as previously planned; or that the benefits of whatever growth is achieved accrue elsewhere in the economy. Yet there is a reduced requirement for (real) resources of manpower and productive capacity. In effect this is just another way of looking at "the benefits of whatever growth is achieved accruing elsewhere in the economy ". It is not releasing resources to enable other uses to expand even further than underlying productivity trends would allow- and on this account is regarded by some observers as phoney". (It is a conun- drum. When is releasing resources not releasing resources: when men and
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machines become available for other things but the value of the inputs allotted to defence is held constant.) Happily, whichever way one looks at it, the contribution of the revision of the programme to solving present economic difficulties can be considered in more direct practical terms. Briefly, one can say,
(a) the balance of payments
In relation to the size of the current deficit and the scale of the United Kingdom's international indebtedness the benefit to the balance of payments from reductions in overseas defence expenditure on stationing is likely to be trivial (see Annex). On overseas procurement there is insufficient data to make an assessment but the sums involved are not likely to exert much leverage.