TNAG-0476-FCO40-541-Strength-of-garrison-in-Hong-Kong-1974 — Page 27

SECRET

If we

34 The future rate of growth of GNP at present assumed in our

public expenditure planning generally is roughly 3% ie some

improvement on past performance. However, we now have a balance of

payments deficit of about £4,000 million, equal to around 6% of

our GNP for 1974. For the time being, we must aim to borrow to

meet this deficit but, on the assumption that we cannot expect to go

on borrowing amounts as huge as this every year until North Sea oil

strengthens our current balance of payments, we must plan to move

resources into exports progressively to help to reduce the gap.

succeeded in closing it by 1979, we should still face the prospect

of accumulated debt and annual interest payments on a massive scale

by the end of the present decade. To the extent that we move

resources into the balance of payments this reduces the annual

increment in resources available for domestic use, ie industrial

investment, private consumption and public expenditure. If spending

on social programmes is to increase at a higher rate than the average

for public expenditure as a whole, in accordance with the Government's

declared priorities, other programmes must be reduced or the rate of

increase of private consumption or industrial investment must be

depressed to an unacceptably low level.

35. The main effect of North Sea oil in raising the potential growth

rate of our GNP occurs while the output from the North Sea is building

up. When output stabilises, at whatever level, the flow of oil

continues to contribute to the current, higher, level of our GNP but

not to the growth of GNP. The extent of the contribution to the

growth rate depends on the speed and duration of the build-up of

North Sea oil output and on the price of oil in world markets compared

to other goods and services. At one end of the range one might

envisage North Sea oil building up only to, say, 120m tons by the

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SPORTRET