(DEFENCE AND EXTERNAL AFFAIRS SUB-COMMITTEE)
February, 1975.] Mr. A. P. HOCKADAY, C.B., C.M.G.,
[Continued.
Rear Admiral A. S. MORTON, Mr. T. CULLEN, Mr. D. M. EVANS, Mr. G. C. B. Dodds, Mr. A. R. M. JAFFRAY, Mr. J. D. BRYARS and Mr. T. C. G. JAMES, C.M.G.
long term costing 74 row in paragraph 46? Is this purely because the 1973 White Paper was written at 1973 prices and this one, of course, is at 1974 survey prices, or were there any other altera- tions? If so, when were these an- nounced? (Mr. Evans.) There are two main changes between the two Papers. One, of course, is the up pricing. The other is due to the fact that in the 1973 White Paper a number of items were noted as being subject to a further allowance on the costings figure. For example, the cost of Northern Ireland was to be allowed as an adjustment, variations in recruiting were to be pro- vided for by an adjustment, and the con- version to cash flow which was the allowance for the abolition of the Pur- chasing Repayment Services Vote again was to be provided for by a further allowance. So there are two sorts of differences between the figures, one a price increase and the other an allowance for various costs that had not been pro- vided for in the White Paper figures.
215. One of the difficulties we have is to compare the figures that we have on page 17 of the White Paper and the figures we have in paragraph 46, because whereas in Table 2.1 there is a break- down of the changes from Cmnd. 5519, one line revalued, we do not have the same explanation for the alterations in para. 46. It would be helpful to know for the figures 4,000, 4,070, 4,150, 4,300, 4,450, how much of that increase was due to the policy changes, how much to re- valuation and how much to other changes? Perhaps we could have a note on that comparable to the figures in the Public Expenditure White Paper? (Mr. Hockaday.) We are providing a note on this. We can certainly do so.
216. In the Public Expenditure White Paper there is a good deal of discussion about what the technicians call the rela- tive price effect, which is the fact that the prices of things that you buy for education and defence, and other forms of public expenditure, tend to rise faster than the prices of the gross national pro- duct overall. Therefore to get the same amount for education or defence you tend to have to allocate a larger share
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of the GNP to it. If this is the case does this mean that to prevent an in- crease in the proportion of GNP being spent on defence there will have to be further defence cuts?-(Mr. Evans.) We have had to allow for this. The run of figures given in paragraph 46 of the paper is in volume terms, it does not allow for the relative price effect. But in doing our calculations which show that over ten years we should be reduc- ing the proportion that defence expendi- ture bears to the gross national product, reducing it from 5 per cent. to 4 per cent., we did allow for this relative price effect. That is taken account of in the 41 per cent.
217. So the cut from 5 to 4 per cent. is a cut of 1 per cent., but in fact it is rather more than 1 per cent. in volume terms given that to get 54 per cent. at the end of the review period in volume terms you would have had to spend rather more than 5 per cent. of your GNP?-
GNP?The cut in volume terms is a cut which we show here. What we are saying is that having allowed for the relative price effect on the final figure, for example the 3,790 which we show here as the average figure over that period, and having allowed for that effect which has the effect of increasing its size in demand terms by something between 9 and 10 per cent. by the end of the period, the proportional sum in relation to GNP works out at 4 per cent. for that given volume of goods.
218. Can I try to rephrase my question? I would like to be clear, it is important. What would appear to me to be the case is given the relative price effect if we had stuck at 5 per cent. of our GNP going to defence, by 1983-84 we would be getting less in volume terms than we are now, ignoring the question of increase of the GNP, assuming the GNP stayed the same. The relative price effect would mean that 5 per cent. of the GNP in 1983-84 gave you less volume than it does in 1974-75? -It is difficult to express in quite those terms.
219. The point I am trying to make is that as the things that you are buying for the defence budget rise in price more than the GNP on average, a cut of