THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTVS GOVERNMENT I. S - S O The
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Copy No. 3 J i t
C . P . ( 5 0 ) 181
31ST J U L Y , 1950
CABINET
D E F E N C E R E Q U I R E M E N T S AND UNITED S T A T E S ASSISTANCE
M e m o r a n d u m b y t h e C h a n c e l l o r of t h e E x c h e q u e r
We h a v e b e e n a s k e d b y t h e A m e r i c a n s t o p r o v i d e t h i s w e e k
i n f o r m a t i o n " c o n c e r n i n g t h e n a t u r e a n d e x t e n t of t h e i n c r e a s e d e f f o r t ,
b o t h a s r e g a r d s i n c r e a s e s in f o r c e s a n d i n c r e a s e s in m i l i t a r y p r o d u c t i o n ,
which His Majesty's Government as a North Atlantic Treaty Power a r e
willing and a b l e to u n d e r t a k e , a s well a s information c o n c e r n i n g additional
m i l i t a r y p r o d u c t i o n p r o g r a m m e s which could be initiated with United S t a t e s '
assistance".
2i
We h a v e a l r e a d y a p p r o v e d a n i n c r e a s e d p r o g r a m m e for a c t i v e
d e f e n c e e x p e n d i t u r e of £ 0 0 m i l l i o n s , of w h i c h a p p r o x i m a t e l y £ 3 0 m i l l i o n s
w i l l f a l l i n 1 9 5 0 / 5 1 a n d £ 7 0 m i l l i o n s i n 1 9 5 1 / 5 2 . We h a v e f u r t h e r a p p r o v e d
i n p r i n c i p l e a c i v i l d e f e n c e p r o g r a m m e of £137 m i l l i o n s , w h i c h w o u l d
a p p r o x i m a t e l y c o s t £ 2 0 m i l l i o n s in 1 9 5 1 / 5 2 , £ 3 0 m i l l i o n s i n 1 9 5 2 / 5 3 a n d £ 4 0
m i l l i o n s i n 1 9 5 3 / 5 4 . F o r t h e p u r p o s e of r e c k o n i n g t h e a d d i t i o n a l e x p e n d i t u r e
w h i c h w e a r e l i k e l y t o b e c o m p e l l e d t o u n d e r t a k e in i m p r o v i n g t h e p a y a n d
i n c r e a s i n g t h e s i z e of t h e a r m e d f o r c e s d u r i n g t h e s e y e a r s I s u g g e s t
t h a t w e m a k e a n a l l o w a n c e , w i t h o u t p r e j u d i c e t o d e t a i l e d d i s c u s s i o n s , of a
f u r t h e r £ 1 0 0 m i l l i o n s , of w h i c h , s a y , £10 m i l l i o n s w o u l d f a l l i n 1 9 5 0 / 5 1 a n d
£ 3 0 m i l l i o n s i n e a c h of t h e t h r e e f o l l o w i n g y e a r s .
3.
The Supply D e p a r t m e n t s have been asked to consider what
a d d i t i o n a l e x p e n d i t u r e upon a r m a m e n t s would be p h y s i c a l l y p o s s i b l e o v e r and
a b o v e t h e s e a d d i t i o n s d u r i n g t h e r e m a i n d e r of t h i s y e a r a n d t h e n e x t t h r e e
y e a r s . Annex I s u m m a r i s e s the r e p l i e s that have been r e c e i v e d and further
d e t a i l s a r e g i v e n in A n n e x II. T h e s e p r o g r a m m e s h a v e b e e n c o m p i l e d u p o n
the following a s s u m p t i o n s : ­
(i)
n o d i r e c t i o n of l a b o u r ;
( i i ) n o r e q u i s i t i o n i n g of c a p a c i t y a n d v e r y l i t t l e n e w b u i l d i n g w o r k of
any kind;
( i i i ) t h a t w e c a n o b t a i n v e r y l a r g e s u p p l i e s of r a w m a t e r i a l s , m a c h i n e
t o o l s , c o m p o n e n t s and balancing i t e m s from the United States to
t h e v a l u e , a l l t o l d , of £ 2 0 0 m i l l i o n s . T h e b u l k of t h e m a c h i n e t o o l s
a n d s o m e of t h e m a t e r i a l s w i l l b e r e q u i r e d a t a v e r y e a r l y d a t e .
T h e s e p r o g r a m m e s w i l l , of c o u r s e , p l a c e a h e a v y b u r d e n u p o n t h e e c o n o m y ,
e s p e c i a l l y upon the engineering and c h e m i c a l i n d u s t r i e s . (The c o n ­
s t r u c t i o n a l w o r k s and textiles e l e m e n t s a r e relatively s m a l l ) . The total
m a n - p o w e r r e q u i r e m e n t i s l i k e l y t o m o u n t up to 250,000 a t m i d - 1 9 5 2
a n d w i l l r e m a i n at t h a t l e v e l o v e r t h e p e r i o d , b u t it is t h o u g h t t h a t t h i s c a n b e
m e t i n t h e c o n d i t i o n s a s s u m e d , p r o v i d e d t h a t t h e n e c e s s a r y f i s c a l m e a s u r e s
a r e t a k e n , a n d r e d u c t i o n s in i n v e s t m e n t m a d e .
4.
T h e i m p l i c a t i o n s of a n a d d i t i o n a l p r o g r a m m e of t h i s m a g n i t u d e to a g g r e g a t e defence expenditure over the next t h r e e y e a r s a r e s u m m a r i s e d in the following t a b l e : ­
£ millions
1950/51
1951/52
1952/53
1953/54
780
780
780
780
30
70
nil
nil
C u r r e n t r a t e of e x p e n d i t u r e
Additional expenditure from
- £100 m i l l i o n s p r o g r a m m e n e w l y approved. Civil defence p r o g r a m m e
a p p r o v e d in p r i n c i p l e
nil
20
30
40
10
30
30
30
820
900
840
850
4
.116
229
273
nil
59
64
69
TOTALS 824
1075
1133
1192
L i k e l y c o s t of i m p r o v e d p a y
a n d i n c r e a s e d p e r s o n n e l of
armed forces
TOTALS
Additional
programme:
(a)
M i n i s t r y of S u p p l y (b)
Admiralty
GRAND
In a d d i t i o n it i s e s t i m a t e d t h a t w e c o u l d , w i t h o u r e x i s t i n g c a p a c i t y a n d
t h e e x i s t i n g l a b o u r f o r c e i n c l u d i n g u n e m p l o y e d , p r o v i d e lj m i l l i o n ^ of
m e r c h a n t s h i p p i n g in t h e t h r e e y e a r s in q u e s t i o n .
Therefore I propose that
w e s h o u l d i n f o r m t h e U n i t e d S t a t e s G o v e r n m e n t t h a t if d e s i r e d w e s h o u l d
b e w i l l i n g t o add t h i s to t h e a d d i t i o n a l p r o g r a m m e , but no a c c o u n t h a s b e e n
t a k e n of it i n t h e r e m a i n d e r of t h i s p a p e r .
5.
C l e a r l y it w o u l d b e i m p o s s i b l e f o r u s t o m e e t a r i s e i n e x p e n d i t u r e
of t h i s m a g n i t u d e w i t h o u t a s s i s t a n c e a n d I p r o p o s e t h a t in a n s w e r i n g t h e
s e c o n d p a r t of t h e U n i t e d S t a t e s q u e s t i o n w e s h o u l d t a k e t h e f o l l o w i n g l i n e : ­
(i) We a r e c o m m i t t e d b y d e c i s i o n s a l r e a d y t a k e n o r a l m o s t c e r t a i n t o b e
t a k e n in t h e n e a r f u t u r e t o a d e f e n c e e x p e n d i t u r e of a b o u t £ 8 2 0 m i l l i o n s
i n 1 9 5 0 / 5 1 ( a n i n c r e a s e of £ 4 0 m i l l i o n s o v e r t h e 1 9 4 9 / 5 0 l e v e l )
a n d £ 9 0 0 m i l l i o n s in 1951/52.
(ii) O n g e n e r a l e c o n o m i c g r o u n d s w e c o n s i d e r £ 9 5 0 m i l l i o n s i s t h e
m a x i m u m d e f e n c e e x p e n d i t u r e we c a n a f f o r d in 1951/52
a n d i n t h e t w o f o l l o w i n g y e a r s . If w e a r e t o u n d e r t a k e t h e a d d i t i o n a l
p r o g r a m m e we should, t h e r e f o r e , a s k for a s s i s t a n c e to m e e t the
d i f f e r e n c e b e t w e e n t h e t o t a l c o s t of d e f e n c e in t h e s e t h r e e y e a r s of
£ 3 , 4 0 0 m i l l i o n s a n d £ 2 , 8 5 0 m i l l i o n s , i. e . £ 5 5 0 m i l l i o n s .
-2­
T h i s m e a n s t h a t o u t of t h e a d d i t i o n a l p r o g r a m m e of £ 8 1 0 m i l l i o n s w e s h a l l
a s k f o r a s s i s t a n c e t o t h e e x t e n t of £ 5 5 0 m i l l i o n s a n d s h a l l c o m m i t o u r s e l v e s t o
b e a r t h e r e m a i n d e r of £ 2 6 6 m i l l i o n s .
6.
In s u p p o r t of t h i s p r o p o s a l w e s h o u l d d e p l o y t h e f o l l o w i n g
arguments:­
main
(i) T h e U n i t e d S t a t e s G o v e r n m e n t t h e m s e l v e s r e c o g n i s e in t h e m e m o r a n d u m
t h e y h a v e a d d r e s s e d t o u s t h a t t h e c o n t i n u a n c e of o u r e c o n o m i c
r e c o v e r y is " e s s e n t i a l , though p o s s i b l y at a l e s s rapid r a t e " .
We s h o u l d e m p h a s i s e t h a t w e c a n o n l y b e a u s e f u l a l l y if w e m a i n t a i n ,
d e s p i t e t h e p r e o c c u p a t i o n s of d e f e n c e , t o t h e m a x i m u m p o s s i b l e
e x t e n t , o u r e x p o r t t r a d e a n d t h e r e - e q u i p m e n t of o u r o w n i n d u s t r y .
£ 9 5 0 m i l l i o n s a y e a r i s t h e m a x i m u m t h a t we feel t h a t we can s p e n d
o n d e f e n c e in t h e n e x t t h r e e y e a r s c o n s i s t e n t l y w i t h t h i s o b j e c t i v e .
( i i ) O u r e c o n o m y i s f u l l y e x t e n d e d n o w a n d r e c e n t r e v i e w s of t h e s i t u a t i o n
m a d e before the p r e s e n t c r i s i s suggested that foreseeable i n c r e a s e s
in p r o d u c t i v i t y w e r e not m o r e t h a n sufficient t o m e e t e x p o r t d e m a n d s
on a r i s i n g s c a l e , u r g e n t d e m a n d s for h o m e a n d o v e r s e a s i n v e s t m e n t
and i n c r e a s e d G o v e r n m e n t e x p e n d i t u r e to which we a r e to s o m e e x t e n t
c o m m i t t e d . C o n s e q u e n t l y , m i l i t a r y e x p e n d i t u r e a t t h e r a t e of £ 9 5 0
m i l l i o n s a y e a r , i. e. £ - ^ t j m i l l i o n s m o r e t h a n t h e l e v e l we h a d u n t i l
r e c e n t l y contemplated, will m e a n a v e r y considerable sacrifice.
7.
It i s v e r y i m p o r t a n t t h a t w e s h o u l d p e r s u a d e t h e A m e r i c a n s t h a t a i d
i n r e s p e c t of t h i s a d d i t i o n a l p r o g r a m m e s h o u l d b e i n f r e e d o l l a r s w h i c h w e
e i t h e r h o l d o r u s e t o m a k e p u r c h a s e s i n a n y p a r t of t h e w o r l d , a n d n o t a i d w h i c h
c a n o n l y be u s e d for p u r c h a s e s m a d e in d o l l a r s . T h i s is e s s e n t i a l b e c a u s e
this additional p r o g r a m m e will inevitably r e s t r i c t our engineering e x p o r t s ,
and i s , t h e r e f o r e , l i k e l y to i n c r e a s e our s t e r l i n g l i a b i l i t i e s . We n e e d to r e c e i v e
a i d in a f o r m w h i c h e n a b l e s u s to r a i s e o u r d o l l a r r e s e r v e s in o r d e r t o offset
these liabilities.
8.
W e m u s t , of c o u r s e , m a k e i t c l e a r t o t h e U n i t e d S t a t e s t h a t o u r
offer i s d e p e n d e n t on a p p r o v a l b y P a r l i a m e n t .
9.
I p r o p o s e that we should r e p r e s e n t our a d d i t i o n a l p r o d u c t i o n a s
i n t e n d e d t o m e e t t h e n e e d s of o t h e r N o r t h A t l a n t i c T r e a t y O r g a n i s a t i o n f o r c e s
a s ' w e l l a s o u r o w n f o r c e s , a n d t h a t in r e c o g n i t i o n of t h e n e w U n i t e d S t a t e s
a i d , t r a n s f e r s of e q u i p m e n t s h o u l d b e m a d e w i t h o u t p a y m e n t b e t w e e n t h e
N o r t h A t l a n t i c T r e a t y O r g a n i s a t i o n c o u n t r i e s . T h i s p r o p o s a l w o u l d of c o u r s e
apply to additional equipment produced by all North Atlantic T r e a t y Organisation
c o u n t r i e s , not only to e q u i p m e n t p r o d u c e d by the United Kingdom.
10.
A n a p p r o a c h o n t h e s e l i n e s t o t h e U n i t e d S t a t e s w i l l , if t h e a i d w e a s k
f o r i s g r a n t e d , c o m m i t u s t o a n e t d e f e n c e e x p e n d i t u r e a t t h e r a t e of
£ 9 5 0 m i l l i o n s a y e a r i n t h e t h r e e y e a r s i n q u e s t i o n s u b j e c t , of c o u r s e , t o
P a r l i a m e n t a r y a u t h o r i t y . I a s k m y c o l l e a g u e s to a g r e e t o t h i s p o t e n t i a l
commitment.
We m u s t , h o w e v e r , r e c o g n i s e t h a t w e w i l l n o t b e a b l e t o c a r r y
it out u n l e s s we a r e at the s a m e t i m e p r e p a r e d to t a k e t h e n e c e s s a r y
f i n a n c i a l a n d a d m i n i s t r a t i v e s t e p s t o m a k e p o s s i b l e t h e f r e e i n g of r e s o u r c e s .
T h i s will e n t a i l e i t h e r cuts in G o v e r n m e n t e x p e n d i t u r e , a d d i t i o n a l t a x a t i o n o r
r e d u c t i o n s in i n v e s t m e n t o r a c o m b i n a t i o n of a l l t h r e e .
11.
P r o p o s a l s w e r e m a d e by D e p a r t m e n t s t h a t we s h o u l d a s k t h e
A m e r i c a n s , in r e p l y t o t h e i r p r e s e n t o f f e r , to a s s i s t u s b y f i n a n c i n g t h e
s t o c k p i l i n g of a s i x m o n t h s s u p p l y of o i l , r a w m a t e r i a l s a n d s o m e
e s s e n t i a l foodstuffs.
T h e r a w m a t e r i a l s would not b e r e q u i r e d d i r e c t l y for
the additional production which can physically be achieved. I therefore
p r o p o s e that we do not i n c l u d e any r e f e r e n c e to this m a t t e r in o u r r e p l y but
t h a t w e s h o u l d r a i s e it w i t h t h e A m e r i c a n s a t a l a t e r s t a g e .
12.
If w e a g r e e t o r e p l y t o t h e A m e r i c a n s o n t h e s e l i n e s I s u g g e s t
t h a t t h e S e c r e t a r y of S t a t e f o r C o m m o n w e a l t h R e l a t i o n s s h o u l d i n f o r m
C o m m o n w e a l t h G o v e r n m e n t s of t h e A m e r i c a n p r o p o s a l t o u s a n d t h e b r o a d
c h a r a c t e r of o u r p r o p o s e d r e p l y .
R .S.C,
T r e a s u r y C h a m b e r s , S . W . 1. ,
31ST J U L Y , 1 9 5 0 .
ANNEX I
TABLE I - Total Programme
£ millions
19 5 0 / 5 1
1951/52
1952/55
1955/54
1.0
39.0
87.O
115.0
68.0
132.0
9.0
10.0
59.0
64.0
175.0
293.0
Ministry of Supply
Air and Naval Air
Military and Common
Service
Research and
Development
3.0
Admiralty
4.0 148.0
10.0
69.O
342.0
Total ( 4 years) £ 8 1 4 . 0 millions
TABLE II - Direct Dollar Content in Table 1
£ millions
1951/52
1952/55
1955/54
Air and Naval Air
26.0
19.0
14.0
Military and Common
Service
25.0
36.0
37.0
0.1
0.2
0.1
15.0
15.0
15.0
o 6.1
70.2
66.1
1950/51
Ministry of Sup-ply
Research and
Development
0.1
Admiralty
0.1
Total (4 years) £ 2 0 2 . 5 millions
ANNEX
II
DETAILS OF T H E PRODUCTION
PROGRAMME
R E F E R R E D T O I N P A R A G R J L P H ^3QF
THE PAPER
Aircraft (Naval and R.A.F.) It is estimated that, in addition to the extra aircraft
1..
provided for in the £100 millions programme it should be possible
to produce in the three years approximately 5,000 more aircraft
at a total cost, with spares, of £21+2 millions. Outstanding
export orders, but no further export orders would be met. Some
American equipment and machine tools would have to be made
available by the necessary 'dates.
2.
This programme would involve a diversion of labour from,
non-defence work of the order of 80,000 including sub-contractors.
It would require £10 millions worth of materials from hard
currency sources and would involve investment of the order of
£ l 4 i millions for works services and machine tools. On a
preliminary estimate one-half of the latter (£6 millions)
would have to come from the U.S.A. A further
millions worth
of airborne radio equipment would also be required from the
U.S.A. Dollar materials and equipment of all kinds for this
additional aircraft programme thus amount to about &ffir millions
out of the total cost of £21+2 millions.
Radio and Radar (excluding Military) 3.
Additional production of £10 millions could be achieved,
but this would require some £2-g- millions worth of dollar plant
and materials. One consequence of the adoption of this programme^
is that, in the view of the Air Ministry it will be necessary to
go over entirely to U.H..F, for technical reasons. This means
replacing equipment in existing aircraft with United States equip­
ment we could not make, which Is not properly part of an
expanded programme of United Kingdom production. It is estimated
that this would involve a straight bid for United States Radio,
and Radar equipment costing £75 millions, not included in these
programmes.
Army and Common Service Items 4.
We should be able to tackle an additional production
programme over the three years 1951/52 to 1953/54- of some
£325 millions. This would cover such items as weapons and
equipment, ammunition, radio and military radar, vehicles,
tanks, clothing, engineering and general stores. It would also
include some machine tools from the home industry, but the bulk
of these requirements would be met from the U.S.A..
5..
Besides this ext ra production in the United Kingdom,certain
essential imports would be required. These will include £64
millions for raw materi als without which the programme cannot be
carried out. This amou nt is included in the £325 millions produc­
tion programme. A furt her £43 millions covers machine tools,
spares, components and even complete items essential to balance
our own production, and obtainable except for clothing from
Germany (£7 millions) a nd sandbags from India (£2 millions),
only from the U.S.A. or Canada. This £43 millions - £34 millions
in dollars - is additio rial to the £325 millions..
Research and Development 6.
Existing programmes already envisage a fairly steep rise
over the next three years, accentuated by the recent decision to
speed up the development of guided weapons. Further measures
deemed practicable under an assisted programme would cost £ 2 7
millions over the three years. This would include equipments
and services from the U.S.A. costing only &z million, such as ram
jets, solid fuel, magnetrons and use of United States supersonic
wind tunnels.
Admiralty 7.
Major components of the Admiralty proposals over the three
years are New Construction ( £ 3 0 millions), Contract Conversions
( £ 1 0 . 5 millions), Armaments ( £ 1 9 . 5 millions) and armaments,
ammunition, machine tools, equipment and naval aircraft from the
United States which could not be made in this country (£1+6.9
millions), but which are required to balance our own production
or make it possible.