PRIME MINISTER Meeting with the Chancellor

---

PRIME MINISTER

Meeting I u n d e r s t a n d

w i t h t h e C h a n c e l l o r - T h u r s d a y 18 O c t o b e r ,

0845



t h e C h a n c e l l o r may want t o d i s c u s s t h e f o l l o w i n g

i s s u e s w i t h you tomorrow morning:

RSG Cash L i m i t f o r 1980/81

i)

T h e r e i s a m i n u t e on t h i s a t F l a g ^A.

proposes

This

out the

c e r t a i n a s s u m p t i o n s on pay and p r i c e s f o r w o r k i n g cash

limit.

o f e s t i m a t e s o f what w i l l

be t h e e f f e c t o f t h e o u t s t a n d i n g

settlements

C l e g g a w a r d s , an a s s u m p t i o n o f 1 4 % i n o t h e r up

7) c o n s i s t

The p a y a s s u m p t i o n s ( i n p a r a g r a p h

t o end J u l y

1980,

and 12£% f o r s e t t l e m e n t s f o r t h e

f o l l o w i n g year.

On p r i c e s ,

rather

the Treasury's

l e s s than

price increases generally. some a d d i t i o n a l

the C h a n c e l l o r proposes 13% ­ for

forecast/assumption

The p u r p o s e o f t h i s i s t o p u t

s q u e e z e on t h e l o c a l

MISC 21

authorities.

i

have d e c i d e d

s h o u l d be 61%, This,

a s a g a i n s t 5 8 % p r o p o s e d by t h e T r e a s u r y .

i f e n d o r s e d by C a b i n e t , w i l l

rate increases; order

grant,

than t h e Treasury

mean more

were c o u n t i n g o n .

to soften the p u b l i c expenditure

i t w o u l d be w i s e

t o have a t i g h t

e f f e c t o f a 6 1 %

cash

l i m i t , and

t h e r e f o r e t h e C h a n c e l l o r ' s p r o p o s a l s on p a y / p r i c e seem r i g h t . will

for

reduce pressure

on t h e o t h e r hand, i t w i l l

public expenditure In

percentage

( s e e m i n u t e s a t F l a g B) t h a t t h e RSG

( I f t h e y a r e t o o tight, t h e l o c a l

assumptions

authorities

n o t b e l i e v e t h e p a y / p r i c e a s s u m p t i o n s on w h i c h

are based;

and w i l l

they

a g a i n p u t up t h e r a t e s by an e x c e s s i v e

amount. )

ii )

TV L i c e n c e s

C h a n c e l l o r has agreed

for

TV l i c e n c e i n c r e a s e s , w h i c h t h e Home S e c r e t a r y d i s c u s s e d

w i t h you.

These c a l l

t h e Home S e c r e t a r y ' s

proposals

The

f o r a £9 i n c r e a s e f o r c o l o u r s e t s

f r o m November and a £2 i n c r e a s e f o r monochrome s e t s ; they a r e t o l a s t

for 2 years.

You made v a r i o u s

and



suggestions

/ t o t h e Home S e c r e t a r y

- 2 ­ to

t h e Home S e c r e t a r y ( r e c o r d a t F l a g C) - s u c h a s t h a t

t h e r e s h o u l d be no i n c r e a s e f o r monochrome s e t s i f t h e

monochrome l i c e n c e f a l l s i t w o u l d be b e s t Secretary,

I think

l a r g e l y on p e n s i o n e r s .

t o w a i t f o r a m i n u t e f r o m t h e Home

no d o u b t c o v e r y o u r p o i n t s ,

i n w h i c h he w i l l

b e f o r e t a k i n g any f i n a l d e c i s i o n .

(iii) You

NEDC M e m b e r s h i p

discussed this

that S i r L e s l i e

l a s t t i m e , and s u g g e s t e d

Murphy s h o u l d n o t be r e - a p p o i n t e d

and s h o u l d be r e p l a c e d

by somebody f r o"m^sma 11 b u s i n e s s e s

and t h a t Mr. S h a n k s

s h o u l d be r e p l a c e d by D a i s y Hyams.

Gas P r i c e s

(iv ) The

Chancellor w i l l

show y o u f i g u r e s on t h e PSBR e f f e c t

of d e l a y i n g t h e g a s and e l e c t r i c i t y one

year - as suggested

(v)

Defence

i nE this

Expenditure

p r i c e i n c r e a s e s by

afternoon.



T h e r e i s a d i s p u t e between t h e T r e a s u r y

and MOD a b o u t t h e

i n t e r p r e t a t i o n o f t h e 3% NATO commitment. i s continuing to raige (as r e f l e c t e d are i n the Cabinet earlier At

folder).

The argument

i n three minutes which

You t o l d t h e C h a n c e l l o r

t h a t you would support

h i m a g a i n s t Mr. Pym.

l a s t week's m e e t i n g w i t h t h e C h a n c e l l o r y o u a s k e d

n o t e on a d d i t i o n a l demands f o r f i n a n c e c o m i n g f o r w a r d nationalised

industries,

H o n s R o y c e , B r i t i s h Leyland,

for a

from t h e

etc.

at

F l a g D.

I t shows t h a t t h e r e a r e some s u b s l i n t i a l p o t e n t i a l

in

1981/82

a s much a s £850 m i l l i o n - and t h i s

that the Chief Secretary's proposals t o Cabinet expenditure The

note

a r e agreed,

for "cutting"

increasei.

o f g e t t i n g a s much o f t h e

C h i e f S e c r e t a r y ' s p r o p o s a l s on p u b l i c e x p e n d i t u r e

through

as p o s s i b l e .

TV.

17 O c t o b e r 1979

demands

i s on t h e a s s u m p t i o n

i n c l u d i n g t h e energy p r i c e

simply r e i n f o r c e s the importance

T h i s i s

Cabinet