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THE DEFENCE SECRETARY said that he agreed that the German offset situation was our major difficulty: the budgetary savings at which the current defence expenditure studies were aimed would in any event require
reductions in our force levels in Germany. It was however relevant to
bear in mind that the total of our governmental oversea expenditure accounted for only 8 per cent of our import bill; defence expenditure being 42 per cent within that total. Against the gross expenditure of £288 million on
defence overseas should be set the various gains in foreign exchange which
flowed directly or indirectly from our military presence. If allowance were made for the sales of arms, which we were able to make because of
that presence and because we were producing particular items for our own
forces, for the foreign exchange that we earned from the United States and
Canadian forces stationed here, and for the fact that if our own forces
were stationed at home rather than abroad substantial additional imports
would be required, the net cost of defence in oversea expenditure terms
was reduced to about £100 million. Even this did not take account of
payments by Hong Kong or for any offset payments that we might receive
from Germany, or for savings that would result from reducing the level of
our forces stationed there. The net cost of our oversea expenditure on
defence might well be not more than about £50 million. Moreover our
military presence overseas could not only lead to increased United Kingdom
exports to the countries where our forces were stationed but might, by
conducing to stability, also be of substantial indirect benefit in certain
areas to our broader interests.
Although it was clearly right that we should seek the largest saving
in oversea defence expenditure consistent with out interests the balance
of advantage in each case, and overall, had to be carefully weighed before
we incurred large capital costs in the United Kingdom to enable our forces
to be withdrawn. If all the relevant facts were not considered we would
run the risk of taking decisions damaging to the economy. There was also
a discrepancy between the judgment of the damage caused to our economy by
defence expenditure in the sterling area where it was equated with expenditure in
in foreign currency and the absence of control on the amount which our
tourists could spend in that area.
In discussion it was generally agreed that when the Cabinet discussed
governmental oversea expenditure it would be important that these wider
considerations and facts should be fully elucidated. In particular the budgetary implications of the capital works programme that would be needed
to accommodate forces withdrawn from overseas where accommodation was already
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