TNAG-0477-FCO40-542-Strength-of-garrison-in-Hong-Kong-1974 — Page 127

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The consequences for our foros levels and capabilities of applying the four levels of reduction quoted above are examined in paragraphs 40-47 below,

6.

We believe, however, that an assessment of what, in military terms, should be the minimum (or critical) level of our NATO contribution must be fundamental to deoisions on our defence policy and we have taken this as our starting point. This C ritical Devel is discussed in paragraphs 19-23 below. The case for retaining some commitments outside NATO is considered separately in paragraphs 24-39. The results of these studies are then compared with the force reductions which would be required at the four given levels of GNP.

7.

▲ graph anû a number of tables are annexed as follows

Annex A

Annex D.

Comparisons of our military offort with that of some of our allies expressed in terms of percentage of GNP, actual expenditures, and broad force levels,

A graph showing the levels of defence expenditure corresponding to the four given GNP levels, assuming a CNP growth rate of about 3 per cent a year from 1973 and comparing these with the cost of adopting the Critioal Level (with and without an additional provision for non-MATO commitments) and with the LTC 74 over the next ten years,

Annex C

Annex D E and F

A table containing the same information as Annex 3.

Tables showing the consequences in terms of Force Levels

of the Critical Devel and the First Devel.

Resources for Defence

8. We have taken as a baseline for the Defence Review the 1974 Defence Long Term Costings (LTC). These measure the cost of maintaining and progressively re-equipping forces of broadly the present size and structure. They show an increase in expenditure at constant prices from 23612 million in 1974/752 after allowing for outs of £260 million, (ie about 54 per cent of CNP) to about £4300 million in 1978/79 (about 6 per cent of GNP), and £4500 million in 1983/84 (about 5.6 per cent of GAP). The increase is due to the growth in real costs of successive generations of equipment to match the greater sophistication of the threat.

9. Our GNP is now below France's and significantly below Germany's. Throughout the late 1950s and the 1960's France and Germany achieved a growt*.- rate of at least 5 per cent a year, while ours was under 3 per cent. Preliminary studies of the effects of the oil crisis suggest that this

divergence in growth rates will continue, Over time such a difference in the annual increment to output makes a considerable cumulative difference to the resources available. On this basis, from the mid-50's to the mid-80's we shall have moved from a position of comparative affluence to relative

poverty.

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