In Britain, Hopes Of `Peace Dividend' Are Proving Elusive

BRITISH experience is already beginning to suggest that European countries' hopes of a ``peace dividend'' - money saved through defense cutbacks made possible by reduced East-West tensions - are likely to fade fast. Those hopes are already being replaced in Britain by fears of painful defense industry restructuring as inflation and slow economic growth force planners to rethink their economic priorities and to rob them of many of the benefits they expected to result from military savings.

A clear indication that defense cuts will not automatically enable governments to free resources for other public services has come with an announcement last week by Tom King, the British defense secretary, to the House of Commons.

Outlining plans to make sharp reductions in the size of British land, sea and air forces, Mr. King admitted that overspending by his own Defense Ministry, coupled with an annual rate of inflation running at 9.8 percent, had already wiped out many of the expected benefits of the economies.

An emergency decision taken last month to save about $100 million by scrapping plans to buy new strike aircraft, Defense officials say, had already been ``canceled out'' by inflation and overspending. Even a further emergency cut of nearly $1 billion ordered by King will do little more than enable this year's $35 billion defense budget to break even.

King's message to Parliament and to his fellow government ministers was clear: Forget about the $2 billion to $3 billion net savings that some government economists had forecast as a result of defense cuts; hopes that money could be channeled instead into education, health care, and environmental protection can no longer be entertained.

Some days before King made his announcement, Britain's defense chiefs advised Prime Minister Margaret Thatcher that cuts in the defense budget should be relatively modest. They opposed suggestions made by Alan Clarke, King's deputy, that it would be possible to halve the defense budget over 10 years.

King's cuts include reducing uniformed manpower from 312,000 to 225,000. This would involve a 50 percent cut in British forces in Germany, where two air bases also will be closed.

The reductions, however, would be spread over five years and would be made in consultation with Britain's NATO allies. They would not be carried out until a treaty limiting conventional forces in Europe has been signed.

Thatcher government ministers, as they headed off for their summer vacations, received a warning that planned military spending cuts over the next decade might damage the prospects of many companies dependent until now on defense contracts.

The warning took the form of a report prepared for the Defense Ministry by the stockbrokers UBS Phillips and Drew. It said that defense cuts planned over the next 10 years would threaten present and future electronic weapons system projects, as well as orders for aircraft and tanks.

Stephen Parker, who wrote the report, says smaller companies, supplying components for large projects, are likely to be adversely affected, producing unemployment and other forms of economic hardship.

British expectations that the so-called peace dividend would equate with higher spending on civil programs were nourished by forecasts that inflation would steadily fall over the next year or two. Instead, John Major, the chancellor of the exchequer, said last week that prices were continuing to rise. His comment that inflation was ``likely to move a little higher yet, before it begins to turn down'' appeared to suggest that in coming months it would go through the 10-percent barrier.

Britain's Labour Party opposition, meanwhile, was quick to take advantage of the government's difficulties in turning the peace dividend into a reality. Frank Field, a senior opposition member of Parliament, warned last week that military spending cuts would mean layoffs for defense-industry workers.

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