(DEFENCE AND EXTERNAL AFFAIRS SUB-COMMITTEE)
21 January, 1975.]
Mr. DAVID GREENWOOD.
setting of growth assumptions. Then on top of that it is clear that after the Feb- ruary election the new administration felt also that it wished to revise priorities within the context of public expenditure as a whole. So that the Defence Review, as I see it, is two exercises. It is, first,
one which would have had to take place anyway regardless of changes in the administration in February 1974, and second, the element of shifting priorities which was overlaid on top of that.
Chairman.
4. The Government said the other day, on the 9th December in a written answer, that their new expenditure projections to defence are based on an average GNP growth rate of 3 per cent. per annum over the next 10 years. On the economy side do you think this is a realistic assumption? No, not 3 per cent. growth for that period. I think it is very hard to say exactly what the average rate of growth would be, but the im- portance of the 3 per cent. growth rate, as I see it, is in relation to Government's expressions of the new proportion which it envisages defence taking of gross national product. In other words, setting a target of bringing defence down to a particular proportion of GNP is where the GNP projection becomes important. That is another reason why I think that the formal expression of the percentage of GNP is an inappropriate guideline because there is uncertainty about the likely rate of growth. The present pro- posals I would prefer to regard as an attempt to stabilise the actual levels of defence expenditure in real terms, so that the benefits of any growth which does occur accrue elsewhere in the economy, and defence does not make claims on any growth which does take place, and that the Government's use of the expression "intending to reduce defence as a pro- portion of GNP" is in fact simply a guideline, a presentational device. I think this is where the importance of the growth assumption enters.
Mr. Sandelson.
5. May I ask Mr. Greenwood whether he thinks that the criteria applied by the Government in regard to what he calls "holding steady expendi- ture on defence are correct in his view as an economist, not taking a political view of the matter; and whether he
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thinks it is likely that another Defence Review of expenditure will become necessary in rather a short space of time, again applying the Government's criteria to these matters rather than those that perhaps other members of this Commit- tee might themselves apply?—I think the answer to that is this: if, as I think likely, we get less than 3 per cent. growth, then the Government will stick to its aspiration to bring defence's claims on resources below their present propor- tion. And if so it seems to me we are likely to see a repetition of the experi- ence after 1964 of a particular guideline being set and then it emerging that economic circumstances really are rather more difficult, and once again the assumptions upon which the original design was based are not fulfilled and another look has to be taken. Therefore, I think that if Government wishes to stick to its aspirations it may well have to look for more savings than in fact are planned for at the moment on the basis of the provisional conclusions of the Review.
6. Let us assume, and it would not seem a very inaccurate or a very unlikely assumption on our part that the annual growth rate is going to fall below the hoped for 3 per cent., as it has done for many years past. Applying that position to the defence expenditure posi- tion as we now see it being in the Gov- ernment's eyes and what we expect their final conclusion to be, how soon would it be in that event before you would expect a Second Defence Review, or is that trying to tie you down to an im- possible view? -Can I take the academic's escape route in history-- which is to say that it would not surprise me if the revisions of view about the resources likely to be available for all purposes, which is taken during the course of 1975, causes the public ex- penditure survey machine to decide that whatever lines for public expenditure have been framed for 1975-76 onwards will have to be looked at again for 1976 onwards. And in that sense a downward revision of the figure for 1976-77 and years thereafter seems to be not at all unlikely. I would regard 1975-76 as something which is now passed and which the Ministry of Defence is in the middle of planning for and organising and not amenable to change. Could I extend that last point? This is precisely the kind
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