(DEFENCE AND EXTERNAL AFFAIRS SUB-COMMITTEE)
21 January, 1975.]
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13. My format shows, first, that the review involves halting the growth of defence spending not a reduction of the defence effort in real terms. Moreover, even against the benchmark programme, the emphasis is on 'butter tomorrow'. Secondly, the revisions appear to make room' for a higher share of the defence budget to be allotted to equipment; notwithstanding cancellations and reduced purchases there remains a heavy incidence of procurement spending in the late 1970s and early 1980s. The check on a rising personnel expenditures share which was applied three or four years ago is to be maintained, but the programme becomes more and more vulnerable to the consequences of cost escalation. Arranging the material in this fashion also shows how the defence budget is to be brought under control and according to what priorities.
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14. I interpret the Government's thinking, as revealed in the review, in the following way. Manpower costs account for almost half the budget: so man- power reductions must make a major contribution to savings if the budget structure is not to be distorted. This means looking first at the size of the Army. The proposals envisage a reduction in Army strength of c. 12,000 achieved by a phased rundown outside Europe and a cut in forces held in the UK for reinforce- ment and redeployment, together with some pruning of the 'tail'. This reflects the guideline' priorities (paragraphs 5 and 6 above). Indeed the withdrawals are by and large those originally scheduled for the 1970s back in 1968. The forces to be disbanded are precisely those whose place in the defence programme was put in doubt in January 1968 but which were found a NATO role in May of that year." Reducing the Army further would mean cutting force levels in the AFCENT area, which has been ruled out until there are signs of progress in Vienna; or at home, which would involve having no UK mobile reserve for European or other contingencies. However, deciding to have virtually no stationed forces outside Europe and a minimal mobile forces capability opens up the option of major surgery on the Royal Air Force, principally the transport forces. Hence the bulk of the manpower savings here. Furthermore de facto withdrawal from East of Suez and the Mediterranean area makes the amphibious forces an expen- sive (AFNORTH) luxury. It also allows a general reduction in the size of the Fleet and its afloat support. Manpower savings, therefore, in the Royal Navy and Royal Marines too: not substantial ones however, because of the steady flow of new ships to be manned. The line on priorities is thus pretty consistent on the manpower side.
15. It carries through to the procurement area. The posture evolving, if this appreciation is right, permits any new items geared wholly or even mainly to the amphibious warfare and mobile forces roles to be struck from the programme. Reduction in the Fleet as a whole is better achieved by 'stretching' the new ship construction programme and, perhaps, paying-off older escorts, minesweepers and diesel submarines earlier. The proportionate fall for these types in the review seems to go further than can be explained by fewer distant commitments and (eventually) freedom from the obligation to protect an amphibious warfare force. From this I draw two conclusions: a need to contain equipment spending per se and that the Navy is prepared to make sacrifices to get its cruisers. Treatment of the MRCA is based on similar reasoning. The project dominates the aerospace procurement programme and savings' could hardly be made there without affecting it. What Ministers have in mind is stretching', though they have phrased their statements carefully so as not to offer too many hostages to fortune. Here too, then, it all hangs together-at least for the time being.
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16. The contribution to savings expected from R & D and other expenditure' is undefined at this stage. This is inevitable and 10 per cent. off' and 'pruning overheads' are as much as one should expect. Fortunately the shift to an almost exclusively European posture should provide opportunities for some quite radical change in support arrangements, not least in several areas of welfare support. It may also prompt more wholehearted participation in European collaborative development ventures. On the other hand there are some apparent options that are less attractive than they appear at first sight. For example, the explicit pledge
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