jections of the rate of growth of potential GNP should be less uncertain than forecasts of year-to-year rates of change in actual GNP, since the former are not concerned with cyclical and irregular changes.
6. The Committee further commented that unqualified comparison of Britain's defence expenditure with that of our NATO Allies by referring to proportion of GNP could be misleading (Conclusion 4).
7. In the Government's view the use of this kind of comparison need not be misleading, provided the basis of the calculation and the purpose for which it is made are properly understood. In context in the Defence Review, the use of the defence percentage of GNP met these conditions, in that it:-
a. was employed throughout for a clear and specific purpose, i.e. the measurement of the burden of defence expenditure on national resources;
b. was not taken as the sole determinant of the size of our forces.
8. As to a. above, the defence percentage of GNP is designed to indicate the burden of defence expenditure, and is the best single readily available measure for this purpose. It has the advantage of relating defence expenditure with the totality of resources in national currency, and therefore avoids exchange-rate distortions. It is not (paragraph 8 of the Report) designed to measure the military value of national defence efforts, and it was not used for this purpose.
9. It is accepted, however, that the figures available from international sources are not a precise guide as between the burden of a country with conscript forces, and that of a country with all-regular forces, because in the former case the defence expenditure element of the calculation does not measure the full economic cost of the conscript. Nor are the figures any guide to what the comparison would be if countries with conscripts turned to all regular forces, but this is a hypothetical situation for which no comparison was sought. However, as indicated in the evidence given to the Committee, an attempt was made to form a broad assessment of the additional burden on the economies of, for example, Germany and France resulting from the fact that they have conscription, and this was taken into account in the Review.
10. As to b., the Government's purpose was to retain a modern and effective defence system, while reducing its cost as a proportion of our resources, in order to facilitate the release of resources for investment and improving the balance of payments. The closer alignment of our burdens with those of our major European Allies was taken as a guideline; but the "equating of the burden" (paragraph 8 of the Report) was only one factor, and the military as well as the various economic considerations were given full weight in determining the post-Review force structure.
Conduct and Results of the Review
11. The Government notes the Committee's view that the Review has generally been well conducted (Conclusion 5) and welcomes the Committee's endorsement of its overall strategy of concentrating resources in NATO whilst withdrawing, where possible, from other areas (Conclusion 6). The Government also accepts
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