TNAG-0476-FCO40-541-Strength-of-garrison-in-Hong-Kong-1974 — Page 28

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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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