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SECRET

Is DOCUMENT IS T H E P R O P E R T Y O F H E R B R I T A N N I C

MAJESTY'S GOVERNMENT COPY NO

80

P ^' •clulions CABINET

C O N C L U S I O N S of a M e e t i n g of the C a b i n e t h e l d a t 10 Downing Street o n T H U R S D A Y 31 J A N U A R Y 1980 at 10. 00 a m PRESENT The R t Hon Margaret Thatcher M P P r i m e Minister •e Rt Hon W i l l i a m W M t e l a w M P •cretary of State f o r the H o m e D e p a r t m e n t

The Rt Hon L o r d H a i l sham L o r d Chancellor

L RtJHon L o r d C a r r i n g t o n •cretary of State f o r F o r e i g n and Immqnwealth A f f a i r s

T h e R t H o n S i r G e o f f r e y Howe Q C M P C h a n c e l l o r o f the E x c h e q u e r

l e RtHon Sir Keith J o s e p h M P •cretary of State f o r Industry

T h e Rt Hon F r a n c i s P y m M P S e c r e t a r y o f State for Defence

lie RtHon James P r i o r M P •cretary of State f o r E m p l o y m e n t

T h e R t H o n S i r Ian G i l m o u r M P L o r d P r i v y Seal

|e RtHon Peter W a l k e r M P •nister of A g r i c u l t u r e , F i s h e r i e s and F o o d

T h e Rt Hon Michael Heseltin* M P S e c r e t a r y of State f o r the E n v i r o n m e n t

lie Rt Hon George Younger M P Jcretary of State for Scotland

The Rt Hon Nicholas Edwards M P S e c r e t a r y of State f o r W a l e s

F

ilon Humphrey A t k i n s M P

ry of State f o r N o r t h e r n Ireland

Hon Norman St J o h n - S t e v a s M P

T h e R t H o n P a t r i c k Jenkin M P

S e c r e t a r y of State f o r S o c i a l S e r v i c e s

SECRET T h e R t H o n D a v i d H o w e l l M P

lor of the Duchy of L a n c a s t e r S e c r e t a r y of State f o r E n e r g y ry HonofMark State Cfaorrl iEsdl e u cP Q Taah tC y ieom M nR aand P ts tHe o rSncGA i eenn ngceuersa lMaude T Ch e i e fRM tS eP Hcorne tJohn a r y , BTi frfeen asM urP y

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THE FOLLOWING WERE ALSO PRESENT oa Norman F o w l e r M P \ of Transport Chdnnon M P i of State, C i v i l S e r v i c e 6 and 7)

The R t Hon Michael Jopling M P Parliamentary Secretary, T r e a s u r y Earl Ferrers M i n i s t e r of State, M i n i s t r y of A g r i c u l t u r e , F i s h e r i e s and F o o d

Department

SECRETARIAT Sir Robert A r m s t r o n g Mr Mr Mr Mr Mr Mr Mr Mr

M P P R P R W G

D M Franklin L e Cheminant J Harrop L Wade-Gery Mountfield M Has tie-Smith N Hyde D Miles

(Items 2-4) (Items 5 and 7) (Item 1) (Items 2 - 4 and 6) (Item 7) (Item 6) (Item 1) (Item 5)

C O N T E N T S Subject PARLIAMENTARY

AFFAIRS

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FOREIGN A F F A I R S Rhodesia

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Afghanistan

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COMMUNITY

AFFAIRS

C o m m u n i t y Budget

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Common F i s h e r i e s P o l i c y

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Steel

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NORTHERN I R E L A N D INDUSTRIAL

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AFFAIRS

Steel Strike

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Water Industry

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P o r t of L o n d o n

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Ambulancemen

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S T A T E M E N T O N T H E D E F E N C E E S T I M A T E S 1980

6

PUBLIC E X P E N D I T U R E

8 ii

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IMENTARY

»ia ous lice:

[3rd

I

rd Ins.

1. T h e C a b i n e t w e r e i n f o r m e d o f the b u s i n e s s to be t a k e n i n the H o u s e o f C o m m o n s d u r i n g the f o l l o w i n g w e e k .

2. T H E F O R E I G N A N D C O M M O N W E A L T H S E C R E T A R Y said that i n spite o f the S o u t h A f r i c a n w i t h d r a w a l f r o m B e i t h r i d g e , w h i c h h a d n o w b e e n a n n o u n c e d , a debate w a s b e i n g h e l d i n the United Nations Security Council at A f r i c a n insistence. T h e upshot was l i k e l y to be a resolution unacceptable to B r i t a i n , which w o u l d h a v e t o b e v e t o e d i f (as s e e m e d p o s s i b l e ) i t s e c u r e d t h e r e q u i s i t e nine votes* T h e m a t t e r w o u l d p r o b a b l y then be r a i s e d u n d e r t h e U n i t i n g f o r P e a c e p r o c e d u r e i n the G e n e r a l A s s e m b l y , w h e r e o v e r 100 v o t e s m i g h t be c a s t a g a i n s t B r i t a i n . President N y e r e r e o f T a n z a n i a , w h o h a d n e v e r w a n t e d the s e t t l e m e n t a t L a n c a s t e r H o u s e , a p p e a r e d to b e the p r i m e m o v e r o n the A f r i c a n s i d e ; a n d the R u s s i a n s w e r e o f c o u r s e a c t i v e i n supports One u n f o r t u n a t e e f f e c t o f these d e v e l o p m e n t s m i g h t b e to d e c r e a s e the p r o s p e c t s f o r g e n e r a l a c c e p t a n c e of the r e s u l t s o f the f o r t h c o m i n g Rhodesian elections. It w a s i r o n i c a l that t h i s d i s r u p t i v e , dishonest and dishonourable c o u r s e w a s being followed at a time w h e n the s i t u a t i o n w a s d e v e l o p i n g r e a s o n a b l y s a t i s f a c t o r i l y i n s i d e R h o d e s i a , w h e r e the w a r h a d b e e n e n d e d and the e l e c t i o n c a m p a i g n begun. The only serious irregularities were being committed by the p a r t i s a n s o f M r M u g a b e , who w o u l d c e r t a i n l y e s c a p e c e n s u r e a t the U n i t e d N a t i o n s . T h e G o v e r n o r ' s estimate was that M r N k o m o m i g h t w i n 2 5 - 3 0 o f the 80 n o n - w h i t e s e a t s , a n d that M r M u g a b e m i g h t s e c u r e r a t h e r m o r e o f the r e m a i n d e r than Bishop Muzorewa. M r I a n S m i t h ' s r e c e n t s p e e c h i n s u p p o r t of M r N k o m o s e e m e d t o h a v e b e e n d e s i g n e d to d a m a g e t h e M u z o r e w a f a c t i o n and w a s u n l i k e l y to b e n e f i t the N k o m o f a c t i o n .

T H E F O R E I G N A N D C O M M O N W E A L T H S E C R E T A R Y s a i d that P r e s i d e n t G i s c a r d d ' E s t a i n g ' s v i s i t t o India h a d p r o d u c e d a c o m m u n i q u e w h i c h w a s a m b i v a l e n t o n the s u b j e c t o f A f g h a n i s t a n , B u t the I s l a m i c C o n f e r e n c e i n I s l a m a b a d h a d p a s s e d r e s o l u t i o n s s a t i s f a c t o r i l y c o n d e m n i n g the R u s s i a n s o v e r A f g h a n i s t a n a n d a l s o c a l l i n g o n t h e m to w i t h d r a w f r o m the H o r n o f A f r i c a . International s u p p o r t f o r the A m e r i c a n attitude to the O l y m p i c G a m e s a p p e a r e d to b e g r o w i n g . The Germans disliked President C a r t e r ' s approach but w o u l d p r o b a b l y c o m e i n t o l i n e ; a n d e v e n the F r e n c h w e r e showing signs of m o v e m e n t . T h e p o s i t i o n o f the I n t e r n a t i o n a l O l y m p i c C o m m i t t e e w a s l i k e l y to be c l e a r e r a f t e r t h e i r m e e t i n g o n 1 0 - 1 2 February. The Cabinet T o o k note.

CONFIDENTIAL

CONFIDENTIAL

3. T H E P R I M E M I N I S T E R s a i d that m o s t o f the t i m e d u r i n g the A n g l o - I t a l i a n M i n i s t e r i a l talks o n 2 9 - 3 0 J a n u a r y had been taken up with the U n i t e d K i n g d o m ' s budget p r o b l e m . Signor C o s s i g a had shown a s t r o n g * d e s i r e t o r e a c h a s o l u t i o n t c the p r o b l e m a n d , w h i l e i t w o u l d n o t be h e l p f u l to h i m i n h i s f o r t h c o m i n g d i s c u s s i o n s w i t h o t h e r H e a d s o f G o v e r n m e n t f o r u s to s a y s o p u b l i c l y , h e w a s a n x i o u s to be a s h e l p f u l to u s a s p o s s i b l e . P a r t o f the I t a l i a n d e s i r e to b e h e l p f u l s t e m m e d f r o m t h e i r d i s l i k e o f the F r a n c o - G e r m a n a x i s w i t h i n the C o m m u n i t y . A l t h o u g h p r o g r e s s t o w a r d s a s o l u t i o n w a s not a s far o r a s f a s t a s she w o u l d h a v e l i k e d , the e f f o r t s o f the F o r e i g n and C o m m o n w e a l t h S e c r e t a r y and d i e L o r d P r i v y S e a l a p p e a r e d to h a v e produced some movement. N e v e r t h e l e s s a s u b s t a n t i a l gap s t i l l r e m a i n e d , a n d i t w a s e s s e n t i a l to s t i c k f i r m l y to o u r p o s i t i o n that the p r o s p e c t i v e U n i t e d K i n g d o m n e t c o n t r i b u t i o n w a s i n t o l e r a b l y h i g h . T h e r e w o u l d be n o p o i n t i n h a v i n g a n e a r l y m e e t i n g o f the E u r o p e a n C o u n c i l u n l e s s t h e r e w e r e good p r o s p e c t s o f a s e t t l e m e n t , and i t now s e e m e d l i k e l y that the m a t t e r w o u l d c o m e u p at the m e e t i n g s c h e d u l e d f o r the e n d o f M a r c h , What action should then follow i f a satisfactory agreement could not be r e a c h e d w a s s t i l l under c o n s i d e r a t i o n . There w o u l d b e a t t e m p t s t o l i n k w i t h the B u d g e t o t h e r m a t t e r s , s u c h a s a g r e e m e n t o n a s h e e p m e a t r e g i m e : but i t w o u l d n o t be p o s s i b l e f o r the U n i t e d K i n g d o m to a c c e p t a s h e e p m e a t r e g i m e o n the b a s i s n o w b e i n g p r o p o s e d b y the F r e n c h G o v e r n m e n t ,

T H E M I N I S T E R O F A G R I C U L T U R E , F I S H E R I E S A N D F O O D s a i d that the C o u n c i l o f M i n i s t e r s ( F i s h e r i e s ) h a d b e e n a b l e to r e a c h a g r e e m e n t on the l e v e l s o f T o t a l A l l o w a b l e C a t c h e s ( T A C s ) f o r 1980 and a s y s t e m of c a t c h r e p o r t i n g . T h e s u c c e s s o f the m e e t i n g o w e d m u c h to the f a c t that h e h a d r e a c h e d a p r i o r u n d e r s t a n d i n g w i t h the F r e n c h Minister of F i s h e r i e s . T h i s good A n g l o - F r e n c h c o l l a b o r a t i o n w o u l d he m o r e s e v e r e l y t e s t e d w h e n the C o u n c i l m o v e d o n i n M a r c h to tho difficult questions o f quotas and a c c e s s . It w a s p l a n n e d to h o l d a f i s h e r i e s debate i n the H o u a e o f C o m m o n s s h o r t l y , a n d i t w o u l d b e n e c e s s a r y to e x p l a i n w h y w e h a d a l l o w e d a d e c i s i o n o n T A C s to b e taken i n the C o u n c i l b e f o r e the m a t t e r h a d b e e n d e b a t e d i n the H o u s e . T h e f i s h i n g i n d u s t r y h a d b e e n c o n t e n t w i t h w h a t h a d h a p p e n e d i n the Council, T h e i r p r e s e n t a n x i e t i e s w e r e not w i t h the C o m m o n F i s h e r i e s P o l i c y but w i t h t h e i r c u r r e n t f i n a n c i a l d i f f i c u l t i e s . Increased imports, in themselves perfectly legitimate, had d e p r e s s e d m a r k e t p r i c e s . At the s a m e t i m e , f i s h e r m e n w e r e f a c i n g h i g h e r c o s t s a n d h i g h e r interest charges on their borrowing. THE SECRETARY O F STATE F O R S C O T L A N D a d d e d that the l e a d e r s o f the S c o t t i s h f i s h i n g i n d u s t r y would c o m e u n d e r s t r o n g p r e s s u r e f r o m the r a n k and f i l e a t a m a s s m e e t i n g t o b e h e l d o n the f o l l o w i n g S a t u r d a y i n P e t e r h e a d , The poor state o f the f i s h i n g i n d u s t r y w a s s t i r r i n g u p N a t i o n a l i s t f e e l i n g i n Scotland, 2

CONFIDENTIAL

CONFIDENTIAL

T H E S E C R E T A R Y O F S T A T E F O R E M P L O Y M E N T s a i d that C o m m i s s i o n e r V r e d e l i n g h a d m a d e m i s l e a d i n g s t a t e m e n t s about the f a i l u r e o f the G o v e r n m e n t and the B r i t i s h S t e e l C o r p o r a t i o n to c l a i m m o n e y f r o m the E u r o p e a n C o m m u n i t y to h e l p f i n a n c e r e d u n d a n c i e s i n the s t e e l i n d u s t r y . A s the P r i m e M i n i s t e r h a d p o i n t e d out i n the H o u s e , the C o m m i s s i o n ' s a g r e e m e n t t o p r o v i d e £ 7 . 7 m i l l i o n t o w a r d s the c o s t o f r e d u n d a n c i e s a t Shotton h a d b e e n a p p r o v e d b y C o m m i s s i o n e r Vredeling himself. In a b r i e f d i s c u s s i o n , i t w a s p o i n t e d out that C o m m i s s i o n e r V r e d e l i n g s e e m e d to be t r y i n g to s c o r e p o i n t s b e c a u s e o f h i s d i s a p p o i n t m e n t that not o n l y the U n i t e d K i n g d o m but m o s t o t h e r m e m b e r s o f the C o u n c i l had not s u p p o r t e d h i s p r o p o s a l f o r a w o r k s h a r i n g s c h e m e i n s t e e l plants threatened with c l o s u r e . T h e r e had been previous cases where C o m m i s s i o n e r V r e d e l i n g had made accusations against u s which had b e e n p r o v e d to be u n f o u n d e d . A l t h o u g h the situa-tior. o v e r C o m m u n i t y finance f o r s t e e l c l o s u r e s w a s a c o m p l i c a t e d one, i t would be i m p o r t a n t to r e b u t f i r m l y the C o m m i s s i o n ' s u n w a r r a n t e d c r i t i c i s m s . The Cabinet T o o k note.

ERN D s : 3?d s, c e

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4. T H E S E C R E T A R Y O F S T A T E F O R N O R T H E R N I R E L A N D said that the C o n f e r e n c e o n the f u t u r e g o v e r n m e n t o f N o i t h e r n I r e l a n d h a d now s t a r t e d to c o n s i d e r the c e n t r a l q u e s t i o n o f how a d e v o l v e d s y s t e m f o r the P r o v i n c e w o u l d a c t u a l l y f u n c t i o n . T h eSocial Democratic L a b o u r P a r t y w e r e a t t h i s stage p a r t i c i p a t i n g a c t i v e l y . The positions o f the p a r t i e s r e p r e s e n t e d a t the C o n f e r e n c e w e r e o f c o u r s e f a r a p a r t , and n o r a p i d p r o g r e s s c o u l d b e e x p e c t e d . C o n t r a r y to P r e s s r e p o r t s , h o w e v e r , the C o n f e r e n c e d i d not a p p e a r to be o n the v e r g e o f b r e a k d o w n ; and the m e r e f a c t o f i t s e x i s t e n c e w a s h a v i n g a b e n e f i c i a l e f f e c t o n the p a r t i e s , who w e r e n o w o n the whole t r e a t i n g e a c h o t h e r w i t h l e s s r a n c o u r than m i g h t h a v e b e e n e x p e c t e d . The Cabinet T o o k note.

3

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CONFIDENTIAL

TRIAL

Strike pus pnce:

i 3rd asions, 5

5. T H E S E C R E T A R Y O F S T A T E F O R I N D U S T R Y s a i d that t h e r e w e r e now s i g n s that the I r o n and Steel T r a d e s C o n f e d e r a t i o n ( I S T C ) m i g h t be w i l l i n g to r e s u m e n e g o t i a t i o n s . E v e n i f the w i l l to r e a c h a s e t t l e m e n t e x i s t e d , i t would take t i m e to convene the I S T C delegates to a p p r o v e a n y s e t t l e m e n t w h i c h m i g h t be r e a c h e d w i t h the l e a d e r s h i p . A l t h o u g h the d m a * l e r u n i o n s would h a v e been w i l l i n g to settle l a s t week, they h a d h e l d off, i n the hope of a c h i e v i n g a united front with the I S T C . T h e effect o f the s t r i k e o n i n d u s t r y w a s s t i l l r e l a t i v e l y small. A few c o m p a n i e s would r u n s h o r t of s t o c k s w i t h i n 2 to 3 w e e k s , but the m a j o r i t y c o u l d l a s t f o r a f u r t h e r 3 to 4 w e e k s . In d i s c u s s i o n i t w a s noted that the H o u s e o f L o r d s w a s c o n s i d e r i n g that m o r n i n g whether to allow an a p p e a l a g a i n s t the r u l i n g i n the C o u r t o f A p p e a l a g a i n s t a n e x t e n s i o n o f the s t e e l s t r i k e into the private sector. If the H o u s e of L o r d s d i d a l l o w the a p p e a l to p r o c e e d , they would c o n s i d e r the c a s e on F r i d a y 1 F e b r u a r y . It w a s suggested that the r u l i n g f r o m the C o u r t of A p p e a l h a d p r o v i d e d a r a l l y i n g point a r o u n d w h i c h b o t h m o d e r a t e s and m i l i t a n t s w i t h i n the t r a d e s u n i o n m o v e m e n t c o u l d c o m b i n e i n o p p o s i t i o n to the G o v e r n m e n t * Whatever the o u t c o m e o f the H o u s e o f L o r d s judgment, i t would be d e s i r a b l e to handle a l l r e l a t i o n s w i t h the t r a d e u n i o n s w i t h e s p e c i a l d e l i c a c y i n the coming weeks. The Cabinet 1.

Industry ious rence:

I) 3 f d I lusions, Ite 5.

T o o k note.

T H E S E C R E T A R Y O F S T A T E F O R T H E E N V I R O N M E N T s a i d that, although no a g r e e m e n t had been r e a c h e d a t M o n d a y ' s m e e t i n g between m a n a g e m e n t and unions on the p a y of w a t e r i n d u s t r y m a n u a l w o r k e r s , i t had been a g r e e d that n e g o t i a t i o n s should r e s u m e on F r i d a y , 1 February. T h e m a n a g e m e n t h a d m a d e a f i r m offer i n v o l v i n g a c o m p a r a b i l i t y e l e m e n t , a j w e l l a s an-annual u p r a t i n g of p a y , and i n these c i r c u m s t a n c e s i t w a s u n l i k e l y that the unions would contemplate any p r e c i p i t a t e i n d u s t r i a l a c t i o n . The Cabinet 2,

T o o k note.

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ancemen

T H E M I N I S T E R O F T R A N S P O R T s a i d that the P o r t e i L o n d o n A u t h o r i t y ( P L A ) h a d t h i s w e e k w a r n e d the u n i o n s c o n c e r n e d m a t , unless agreements

o n i m p r o v e d w o r k i n g p r a c t i c e s c o u l d be

i m p l e m e n t e d i n f u l l b y J u n e , the f i n a n c i a l p o s i t i o n o f the P L A would r e q u i r e the c l o s u r e o f one o f the U p p e r D o c k s .

T h e r e h a d so f a r

been no a d v e r s e a n i o n r e a c t i o n , b u t i t s e e m e d l i k e l y that, i f s u c h a closure was eventually necessary, w i t h i n the P o r t o f L o n d o n ,

there would be some strike action

It w a s u n l i k e l y , h o w e v e r ,

that t h i s w o u l d

s p r e a d to o t h e r p o r t s . The Cabinet 3.

T o o k note.

T H E S E C R E T A R Y O F S T A T E F O R S O C I A L S E R V I C E S r e p o r t e d that there w a s a r i s k of i n d u s t r i a l action b y a m b u l a n c e m e n i n some a r e a s of E n g l a n d and W a l e c i n o p p o s i t i o n co a t t e m p t s b y the H e a l t h A u t h o r i t i e s to r e d u c e r e s t r i c t i v e p r a c t i c e s i n the A m b u l a n c e S e r v i c e , The Cabinet 4.

T o o k note.

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6. T h e C a b i n e t c o n s i d e r e d a m e m o r a n d u m b y the S e c r e t a r y o f State f o r D e f e n c e (C(80) 8) to w h i c h was attached a d r a f t of the 1980 Statement o n the Defence E s t i m a t e s . T H E S E C R E T A R Y O F S T A T E F O R D E F E N C E s a i d that t h i s y e a r ' s Defence W h i t e P a n e r sought to offer a m o r e c o h e r e n t b a s i c explanation o f p o l i c y and r o l e s than the statements o f the p r e v i o u s Administration. T h e D e f e n c e and O v e r s e a P o l i c y C o m m i t t e e h a d a l r e a d y c o n s i d e r e d a d r a f t of the White P a p e r , and the v e r s i o n b e f o r e the C a b i n e t i n c o r p o r a t e d c e r t a i n changes they h a d s u g g e s t e d . F o l l o w i n g d i s c u s s i o n w i t h the C h a n c e l l o r o f the E x c h e q u e r , he now p r o p o s e d to p u b l i s h the White P a p e r s h o r t l y after the p u b l i c a t i o n o f the P u b l i c E x p e n d i t u r e White P a p e r . In d i s c u s s i o n s o m e c o n c e r n w a s e x p r e s s e d about the contents of p a r a g r a p h s 628 - 643 w h i c h d e a l t with c i v i l i a n p e r s o n n e l . Their r o l e i n the defence f i e l d w a s a n i m p o r t a n t one; and i t was r i g h t to be c o n c e r n e d f o r t h e i r m o r a l e , w h i c h w a s not a s h i g h a s that of the uniformed s e r v i c e s . B u t t h e i r p o s i t i o n was c o m p a r a b l e to that o f their colleagues i n other Departments of c e n t r a l government, such a s the D e p a r t m e n t of the E n v i r o n m e n t , and i n l o c a l g o v e r n m e n t ; and there w a s a d a n g e r that statements about r e c r u i t m e n t l e v e l s o r p a y i n these p a r a g r a p h s m i g h t be u s e d to c a u s e d i f f i c u l t i e s i n o t h e r contexts. The following additional points were m a d e : a. P a r a g r a p h 634, w h i c h dealt with i m p r o v e m e n t s i n e f f i c i e n c y and the c u r t a i l m e n t o r e l i m i n a t i o n o f f u n c t i o n s , s h o u l d b e a m e n d e d to m a k e i t c l e a r that t h i s was a c o n t i n u i n g r e v i e w r a t h e r than one w h i c h h a d now been c o m p l e t e d w i t h i n the M i n i s t r y o f D e f e n c e . b. C o n s i d e r a t i o n should be g i v e n to s o m e e x p a n s i o n of the s e c t i o n of the White P a p e r d e a l i n g w i t h the T e r r i t o r i a l A r m y and o t h e r r e s e r v e f o r c e s , n o t l e a s t i n o r d e r to e n c o u r a g e r e c r u i t m e n t to t h e m . c. T h e f i g u r e s f o r the D e f e n c e Budget i n C h a p t e r 8 o f the White P a p e r and e l s e w h e r e would be f i l l e d i n when d e c i s i o n s had b e e n taken o n p u b l i c e x p e n d i t u r e , i n c o n s u l t a t i o n with the C h a n c e l l o r o f the E x c h e q u e r , who m i g h t a l s o w i s h to suggest f u r t h e r a m e n d m e n t to the r e f e r e n c e to e c o n o m i c s t r a t e g y and p u b l i c e x p e n d i t u r e i n p a r a g r a p h 8 0 3 . T H E P R I M E M I N I S T E R , s u m m i n g up the d i s c u s s i o n , s a i d that subject to the p o i n t s m a d e i n d i s c u s s i o n the C a b i n e t a p p r o v e d the draft Statement o n the Defence E s t i m a t e s 1980. A s the M i n i s t r y of Defence e m p l o y e d o n e - t h i r d of the C i v i l S e r v i c e i t w a s o b v i o u s l y i m p o r t a n t that no h o s t a g e s to fortune should be g i v e n b y the White P a p e r ' 8 r e f e r e n c e s to c i v i l i a n p e r s o n n e l ; the p a r a g r a p h s o n t h i s

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subject should t h e r e f o r e be r e v i s e d and s h o r t e n e d . The Secretary of State f o r D e f e n c e should then a r r a n g e f o r the White P a p e r to be p u b l i s h e d a f t e r the p u b l i c a t i o n of the P u b l i c E x p e n d i t u r e White P a p e The Cabinet Invited the S e c r e t a r y of State f o r D e f e n c e to a m e n d the d r a f t S t a t e m e n t i n a c c o r d a n c e w i t h the p o i n t s made i n d i s c u s s i o n , i n c o n s u l t a t i o n a s a p p r o p r i a t e with the C h a n c e l l o r o f the E x c h e q u e r , the S e c r e t a r y of State f o r the E n v i r o n m e n t , the S e c r e t a r y o f State f o r E m p l o y m e n t and the M i n i s t e r o f State, C i v i l S e r v i c e D e p a r t m e n t ; and to a r r a n g e f o r i t s p u b l i c a t i o n after the P u b l i c E x p e n d i t u r e White P a p e r .

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7» The Cabinet considered a joint memorandum by the Chancellor bf the Exchequer and the Chief Secretary, Treasury, (C(80) 9) reporting oh hi a further discussions with Ministers about reductions i n the planned level of public expenditure i n the years 1980-81 to 1983-84, and making further proposals for changes. The Cabinet 8 discussion i s recorded separately. 1

T H E P R I M E MINISTER, summing up the discussion, said that the Cabinet had now completed its examination of public expenditure i n 1980-81 and subsequent years, subject to some minor points raised in discussion which should be resolved before the end of the day and subject to an outstanding decision on the cash limits to be applied to C i v i l Service manpower. The Cabinet would consider this and any related issues at a meeting in- the following month. The Cabinet 1. Agreed to the reductions in public expenditure set out in C(80) 9, subject to the alterations, additions and exclusions agreed i n discussion. 2. Invited the Secretary of State for Employment, the Secretary of State for Industry, the Chancellor of the Duchy of Lancaster, the Secretary of State for the Environment and the Secretary of State for Education and Science, to consider again certain of the points made i n discussion and to inform the Chancellor of the Exchequer before the end of the day of any further reductions i n their programmes which might be possible. 3. Took note that the totals of public expenditure for 1980-81 and later years would be announced by the Chancellor of the Exchequer i n the course of the presentation of the Budget and«the White Paper on Public Expenditure, 4. Invited the Ministers concerned, in consultation with the Chancellor of the Exchequer and the P r i m e Minister, to consider further the timing of any announcements of specific decisions. 5. Invited the Chancellor of the Exchequer to circulate the text of a draft White Paper on public expenditure in due course. Cabinet Office 31 January 1980 8

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C C ( 8 0 ) 4th C o n c l u s i o n s , M i n u t e 7 T h u r s d a y 31 J a n u a r y 1980 a t 10.00 a m

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T h e C a b i n e t c o n s i d e r e d a j o i n t m e m o r a n d u m b y the C h a n c e l l o r of the E x c h e q u e r a n d the C h i e f S e c r e t a r y , T r e a s u r y , (C(80) 9), r e p o r t i n g on ti-eir f u r t h e r d i s c u s sions with M i n i s t e r s -abeut r e d u c t i o n s i n the p l a n n e d l e v e l o f p u b l i c e x p e n d i t u r e i n the y e a r s 1980-81 to 1983-84, a n d m a k i n g f u r t h e r p r o p o s a l s f o r c h a n g e s . T H E C H A N C E L L O R O F T H E E X C H E Q U E R s a i d that, a s a r e s u l t of h i s d i s c u s s i o n s , he had now i d e n t i f i e d p o t e n t i a l savings o f about £800 m i l l i o n i n 1 9 8 0 - 8 1 , and o f between £ 1 , 750 m i l l i o n a n d £2,200 m i l l i o n i n the subsequent y e a r s , c o m p a r e d with the C a b i n e t ' s a p p r o v e d t a r g e t o f r e d u c t i o n s of £ 1 , 000 m i l l i o n i n 1980-81 and of £2, 000 m i l l i o n i n e a c h of the l a t e r y e a r s . All these f i g u r e s - both the p o t e n t i a l savings and the t a r g e t s - w e r e e x c l u s i v e o f a n y r e d u c t i o n i n the U n i t e d K i n g d o m c o n t r i b u t i o n to the Budget of the E u r o p e a n C o m m u n i t y . Some of the p r o p o s e d changes h a d b e e n a g r e e d b y the M i n i s t e r s c o n c e r n e d subject to a p p r o v a l b y the C a b i n e t , Others were i n dispute. S o m e , both of those a g r e e d and of those not a g r e e d , w e r e p o l i t i c a l l y s e n s i t i v e . H e t h e r e f o r e sought the C a b i n e t ' s d e c i s i o n s o n a l l of the p r o p o s a l s made. T h e C a b i n e t then c o n s i d e r e d i n turn'the p o s s i b l e savings l i s t e d i n A n n e x A to C(80) 9 . T h e f o l l o w i n g m a i n p o i n t s w e r e made i n d i s c u s s i o n , and the f o l l o w i n g c o n c l u s i o n s r e a c h e d .

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T h e C a b i n e t w a s r e m i n d e d that the o r i g i n a l p r o p o s a l h a d been that s h o r t - t e r m benefits should be i n c r e a s e d b y ten p e r c e n t a g e p o i n t s l e s s than the m o v e m e n t i n p r i c e s a t the next a n n u a l u p - r a t i n g . T h i s had b e e n f e l t to be too d r a s t i c a c u r t a i l m e n t , and the p r o p o s a l now w a s that the abatement should be five p e r c e n t a g e p o i n t s . It was suggested i n d i s c u s s i o n that a n abatement of l\ p e r c e n t a g e points would p r o d u c e a l a r g e r c o n t r i b u t i o n to the C h a n c e l l o r ' s target, a n d would be c o n s i s t e n t w i t h the objective of i m p r o v i n g the i n c e n t i v e to w o r k ; b u t the C a b i n e t a g r e e d that the abatement should be l i m i t e d to

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five percentage points l e s s than the movement i n p r i c e s . That should be regarded as a temporary adjustment pending the taxation of these benefits. The Cabinet also agreed a l l the other proposals listed on page 1 of Table 1 of Annex C to C(80) 9. A s for Child Benefit, it was argued that, now that child tax allowances had been abolished, this was the only fiscal provision for families; i t went to families at a l l income levels; and a substantial increase was needed to maintain f i s c a l equity between families with children and those without. Child Benefit was also important i n helping to maintain the income differential between those in work and those out of work, because other benefits to those out of work were subject to abatement i n respect of C h i l d Benefit* Against this, i t was argued that this was the only major benefit not yet formally indexed to p r i c e s or earnings, and that it would be inconsistent with the Government's new policy on benefits to compensate fully for p r i c e movements. The Cabinet agreed to increase C h i l d Benefit by 75p f r o m November 1980, The Cabinet also agreed that there should be no p r e m i u m paid for fourth and subsequent children; that there should be no restriction on the lines proposed in the increases i n supplementary benefit child rates; and that a special supplement should be introduced for one-parent families at an annual cost of about £5 m i l l i o n . The Cabinet further agreed that the £10 pensioners' C h r i s t m a s bonus should be continued, but that the pensioner a' earning rule should be frozen at the present level of £52 instead of increasing i n line with earnings.

The Cabinet endorsed the savings already agreed by the Secretary of State, and approved the additional savings on public hector housebuilding, council house improvements and assistance to private sector housing proposed by the Chancellor of the Exchequer, as set out in paragraph 5 of C(80) 9. They noted that it would not be possible to make further savings by transferring part of the financing of the Housing Corporation to the private sector in view of past c r i t i c i s m from the P u b l i c Accounts Committee,

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The Cabinet approved the further savings agreed by the Secretary of State for the Environment as set out i n paragraph 6 of C(80) 3. The Cabinet also agreed to seek further savings of approximately 10 per cent a year in the expenditure of the P r o p e r t y Services Agency.

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T h e C a b i n e t a p p r o v e d the savings a l r e a d y a g r e e d with the S e c r e t a r y of State for. E d u c a t i o n and S c i e n c e , set out i n p a r a g r a p h 7 of C(80) 9. It was noted that f u r t h e r s a v i n g s m i g h t be p o s s i b l e i n the p r o v i s i o n f o r t e a c h i n g and n o n - t e a c h i n g staff i n the y e a r s i n q u e s t i o n , and the S e c r e t a r y of State for E d u c a t i o n and S c i e n c e was a s k e d to r e - e x a m i n e these p r o v i s i o n s .

A n i n c r e a s e of p r e s c r i p t i o n c h a r g e s to £1 w o u l d b e p o l i t i c a l l y t r o u b l e s o m e , c o m i n g o n top of the r e c e n t and p r o s p e c t i v e i n c r e a s e s a l r e a d y a g r e e d ; but l e s s t r o u b l e s o m e than r e m o v i n g a l l the e x e m p t i o n s ( p a r t i c u l a r l y for the e l d e r l y ) o r f u r t h e r c u t t i n g h e a l t h s e r v i c e expenditure. T h e C a b i n e t a g r e e d t h e r e f o r e to i n c r e a s e p r e s c r i p t i o n c h a r g e s to £1 f r o m D e c e m b e r 1980, and to i m p o s e c h a r g e s for p r e s c r i p t i o n s p r o v i d e d to outpatients at h o s p i t a l s , for dental t r e a t m e n t f o r young people between 16 and 21 no l o n g e r at s c h o o l and for o p h t h a l m i c sight t e s t i n g , but o t h e r w i s e to m a i n t a i n the p r e s e n t e x e m p t i o n s f r o m c h a r g e s .

It was noted that the M a n p o w e r S e r v i c e s C o m m i s s i o n had r e c e n t l y i n c r e a & e d i t s staff b y 300, and that t h e r e m i g h t be scope f o r savings on this a c c o u n t . In a d d i t i o n , the C a b i n e t noted with a p p r o v a l an u n d e r t a k i n g by the S e c r e t a r y of State for E m p l o y m e n t to s e c u r e s a v i n g s of about £40 m i l l i o n a y e a r f r o m 1981-1982 o n w a r d s , f r o m the t r a n s f e r of f i n a n c i a l r e s p o n s i b i l i t y f o r the I n d u s t r i a l T r a i n i n g B o a r d s to i n d u s t r y , subject to the p a s s a g e o f the n e c e s s a r y l e g i s l a t i o n . T h e C a b i n e t a p p r o v e d the r e m a i n i n g changes set out i n C(80) 9 .

The following further points were made i n d i s c u s s i o n : a. A f t e r a l l the s a v i n g s now a g r e e d , the total r e d u c t i o n s w e r e s t i l l s o m e way s h o r t of the t a r g e t s w h i c h the C a b i n e t had set t h e m s e l v e s . M i n i s t e r s i n c h a r g e of D e p a r t m e n t s should a s a m a t t e r of g r e a t u r g e n c y c o n s i d e r and r e p o r t to the C h a n c e l l o r of the E x c h e q u e r and the C h i e f S e c r e t a r y , T r e a s u r y , what f u r t h e r s a v i n g s they c o u l d o f f e r . There m i g h t be some s m a l l f u r t h e r s a v i n g s to c o m e f r o m the D e p a r t m e n t of I n d u s t r y ; and the p r o g r a m m e of the Office of A r t s and L i b r a r i e s should be f u r t h e r r e v i e w e d for p o s s i b l e savings.

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b. T h e c a s h l i m i t s a l r e a d y a p p r o v e d o r s h o r t l y to be a p p r o v e d b y C a b i n e t f o r 1980-81 m i g h t i m p o s e a f u r t h e r v o l u m e squeeze on expenditure i n m a t y e a r , the extent of w h i c h c o u l d not y e t be a c c u r a t e l y m e a s u r e d . B e c a u s e of these a n d other u n c e r t a i n t i e s , n o d e c i s i o n c o u l d be taken at t h i s stage about the s i z e of the C o n t i n g e n c y R e s e r v e f o r that y e a r * T h e t i m i n g of any announcement of the G o v e r n m e n t ' s d e c i s i o n s would r e q u i r e f u r t h e r c o n s i d e r a t i o n . W h e r e i t was n e c e s s a r y f o r a n i n d i v i d u a l M i n i s t e r to announce o r a c t u p o n a d e c i s i o n h e a r i n g o n h i s r e s p o n s i b i l i t i e s , he should c l e a r b e f o r e h a n d both the text and t i m i n g of a n y s u c h a n n o u n c e m e n t with the P r i m e M i n i s t e r a n d the C h a n c e l l o r of the E x c h e q u e r . c. T h a t a p a r t , the C a b i n e t ' s d e c i s i o n s m u s t r e m a i n s e c r e t In due c o u r s e steps would be n e e d e d to s e c u r e the c o m p l e t e s u p p o r t and u n d e r s t a n d i n g of M i n i s t e r s not i n the C a b i n e t and o f die P a r l i a m e n t a r y P a r t y f o r the d e c i s i o n s r e a c h e d . T H E P R I M E M I N I S T E R , s u m m i n g up the d i s c u s s i o n , s a i d that the C a b i n e t h a d now c o m p l e t e d i t s e x a m i n a t i o n of p u b l i c e x p e n d i t u r e i n 1980-81 and subsequent y e a r s , subject to s o m e m i n o r p o i n t s r a i s e d i n d i s c u s s i o n w h i c h should be r e s o l v e d b e f o r e the end of the d a y and subject to a n outstanding d e c i s i o n o n the c a s h l i m i t s to be a p p l i e d to C i v i l S e r v i c e m a n p o w e r . T h e C a b i n e t would c o n s i d e r t h i s a n d any r e l a t e d i s s u e s a t a m e e t i n g i n the f o l l o w i n g m o n t h . The Cabinet 1. A g r e e d to the r e d u c t i o n s i n p u b l i c e x p e n d i t u r e set out i n C(80) 9, subject to the a l t e r a t i o n s , a d d i t i o n s and e x c l u s i o n s a g r e e d i n d i s c u s s i o n . 2. Invited the S e c r e t a r y of State f o r E m p l o y m e n t , the S e c r e t a r y o f State f o r Industry, the C h a n c e l l o r o f the D u c h y of L a n c a s t e r , the S e c r e t a r y of State f o r die E n v i r o n m e n t and the S e c r e t a r y of State f o r E d u c a t i o n and S c i e n c e , to c o n s i d e r a g a i n c e r t a i n o f the p o i n t s m a d e i n d i s c u s s i o n and to i n f o r m the C h a n c e l l o r of the E x c h e q u e r before the end of the d a y o f a n y f u r t h e r r e d u c t i o n s i n t h e i r p r o g r a m m e s w h i c h m i g h t be p o s s i b l e . 3. T o o k note that the t o t a l s of p u b l i c e x p e n d i t u r e f o r 1980-81 and l a t e r y e a r s would be announced b y the C h a n c e l l o r of the E x c h e q u e r i n the c o u r s e o f the p r e s e n t a t i o n of die Budget and the White P a p e r o n P u b l i c Expenditure.

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4, I n v i t e d the M i n i s t e r s c o n c e r n e d , i n c o n s u l t a t i o n w i t h the C h a n c e l l o r of the E x c h e q u e r a n d the P r i m e M i n i s t e r , to c o n s i d e r f u r t h e r the t i m i n g of a n y a n n o u c e m e n t s of s p e c i f i c d e c i s i o n s . 5. I n v i t e d the C h a n c e l l o r of the E x c h e q u e r to c i r c u l a t e the text of a d r a f t W h i t e P a p e r o n p u h l i c e x p e n d i t u r e i n due c o u r s e .

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1 F e b r u a r y 1980

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