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THIS
DOCUMENT
IS
THE
P R O P E R T Y
Printed,
O F
HIS
BRITANNIC
for the Cabinet.
MAJESTY'S
June 1947
Copy N o .
SECRET
C M .
GOVERNMENT
(47)
54th Conclusions
C A B I N E T 54 (47) CONCLUSIONS
of a Meeting of the Cabinet held at 10, Downing
on Tuesday, 11th June, 1947, at 11 a.m.
Street,
S.W. 1,
Present:
T h e R i g h t H o n . C. R . A T T L E E . M . P . , P r i m e M i n i s t e r (in the
Chair).
The R i g h t H o n . HERBERT MORRISON,
M . P . , L o r d P r e s i d e n t of t h e Council.
The Right Hon. ERNEST BEVIN, M.P.,
S e c r e t a r y of S t a t e for
Foreign
Affairs.
The R i g h t H o n . A R T H U R GREENWOOD,
M.P., Minister without Portfolio.
T h e R i g h t H o n . S i r STAFFORD C R I P P S ,
K . C . , M . P . , P r e s i d e n t of t h e B o a r d
of T r a d e .
The Right Hon. VISCOUNT JOWITT,
L o r d Chancellor.
The
The Right Hon. VISCOUNT ADDISON,
Secretary of S t a t e for Dominion
Affairs.
The Right Hon. A . CREECH JONES,
M . P . , S e c r e t a r y of S t a t e f o r t h e
Colonies.
The Right Hon. J . WESTWOOD, M.P.,
The R i g h t Hon. G . A. ISAACS, M.P.,
The R i g h t
M i n i s t e r of L a b o u r a n d ^National
Service.
The Right Hon. T. W I L L I A M S ^ . ? . ,
Minister
of
Agriculture
and
Fisheries.
R i g h t Hon.
H U G H DALTON,
M.P.,
Chancellor of t h e E x c h e q u e r .
The R i g h t Hon. A . V . ALEXANDER,
M . P . , M i n i s t e r of Defence.
The Right Hon. J . CHUTER E D E , M.P.,
S e c r e t a r y of S t a t e for t h e H o m e
Department.
S e c r e t a r y of S t a t e for Scotland.
The
EARL
OF
L I S T O W E L , S e c r e t a r y of S t a t e
I n d i a a n d Secretary of S t a t e
Burma.
Right
Hon.
THE
for
for
Hon. E. SHINWELL,
M.P.,
M i n i s t e r of Fuel a n d P o w e r .
T h e R i g h t Hon. GEORGE TOMLINSON,
M . P . , M i n i s t e r of E d u c a t i o n .
T h e following w e r e also p r e s e n t :
?he R i g h t H o n . A L F R E D BARNES.. M . P . , j T h e R i g h t H o n . J O H N STRACHEY, M . P .
M i n i s t e r of T r a n s p o r t (Items 1-4).
j
M i n i s t e r of Food.
Sir E D W A R D B R I D G E S , P e r m a n e n t Secretary, T r e a s u r y .
Secretariat
Mr.
Mr.
[34108-5]
:
W. S. M U R R I E .
S. E . V . L U K E .
B
C A B I N E T 5? (17)
CONTENTS:
Minute
No.
1
Indonesia
....
Subject
....
....
....
....
....
....
Page
89
....
....
....
....
89
....
....
....
90
2
E c o n o m i c Recovery of E u r o p e
3
Commonwealth Conference at Canberra
4
Electricity Bill
90
C o m p e n s a t i o n of L o c a l
5
Film Remittances
Authorities.
....
....
....
....
91
Indonesia.
(Previous
Reference:
C M . (47)53rd
Conclusions,
Minute
3.)
1. The Foreign Secretary said t h a t t h e I n d o n e s i a n reply to the
latest proposals for a settlement p u t f o r w a r d by t h e N e t h e r l a n d s
G o v e r n m e n t h a d not, i n h i s view, been unreasonable, b u t t h a t there
w a s still a divergence of view on c e r t a i n points, notably t h e Dutch
scheme for j o i n t a c t i o n in r e s t o r i n g a n d m a i n t a i n i n g order t h r o u g h ­
out J a v a and Sumatra.
T h e N e t h e r l a n d s Government took a
pessimistic view of t h e s i t u a t i o n a n d seemed disposed to resort to
force. T h e o u t b r e a k of w a r in I n d o n e s i a would provoke political
trouble in o t h e r p a r t s of t h e F a r E a s t a n d involve very serious losses
of food a n d r a w m a t e r i a l s ; a n d he h a d felt t h a t t h e N e t h e r l a n d s
G o v e r n m e n t should be left in n o doubt a b o u t the a t t i t u d e of H i s
M a j e s t y ' s Government. H e h a d therefore told t h e m t h a t , in our
view, t h e e x t e n t of t h e divergence between t h e D u t c h proposals a n d
t h e I n d o n e s i a n r e p l y w a s n o t so g r e a t a s to p r e c l u d e all possibilities
of a n agreed solution; t h a t a f u r t h e r a t t e m p t should be m a d e to find
a solution by n e g o t i a t i o n ; a n d t h a t resort to force would alienate
w o r l d opinion. H e h a d also m a d e i t clear that, should hostilities
b r e a k out in the D u t c h E a s t I n d i e s , i t m i g h t be impossible for the
B r i t i s h G o v e r n m e n t to c o n t i n u e the provision of e q u i p m e n t and
t r a i n i n g facilities for t h e D u t c h Forces. H e h a d a t the same t i m e
i n s t r u c t e d H i s M a j e s t y ' s A m b a s s a d o r in W a s h i n g t o n to a s c e r t a i n
from t h e U n i t e d S t a t e s S e c r e t a r y of S t a t e w h e t h e r 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 would be p r e p a r e d to t a k e t h e i n i t i a t i v e w i t h
H i s M a j e s t y ' s G o v e r n m e n t in m a k i n g a j o i n t offer of good-offices
p r i v a t e l y to t h e N e t h e r l a n d s G o v e r n m e n t a n d t h e I n d o n e s i a n
Republic in a n endeavour to p e r s u a d e t h e m to seek a peaceful
solution by n e g o t i a t i o n .
The Secretary of State for the Colonies said t h a t the GovernorG e n e r a l of M a l a y a b a d expressed g r e a t a n x i e t y about t h e effect
w h i c h hostilities in I n d o n e s i a would have on the i n t e r n a l s i t u a t i o n
in M a l a y a .
The Minister
of Food said t h a t , in t h e event of w a r , t h e
R e p u b l i c a n forces w o u l d u n d o u b t e d l y resort to scorched e a r t h
tactics. T h i s would gravely affect I n d o n e s i a ^ c a p a c i t y to e x p o r t
food for m a n y years.
The C a b i n e t ­
.$jEt
h
E n d o r s e d t h e action t a k e n by t h e F o r e i g n Secretary t o
p e r s u a d e t h e N e t h e r l a n d s Government to seek a peaceful
solution of t h e I n d o n e s i a n s i t u a t i o n .
2.
The Foreign
Secretary
i n f o r m e d the C a b i n e t t h a t h e
i n t e n d e d t o go t o P a r i s l a t e r in t h e d a y for e x p l o r a t o r y t a l k s w i t h
t h F r e n c h G o v e r n m e n t a b o u t t h e proposed E u r o p e a n reconstruc­
t i o n p l a n . M e a n w h i l e h e h a d sent a message to t h e Soviet Govern­
m e n t e x p l a i n i n g t h a t we w e r e concerned only w i t h economic
r e h a b i l i t a t i o n a n d n o t w i t h a n y political objects, a n d a s k i n g f o r
t h e i r views. Since t h i s message h a d been sent a n a r t i c l e h a d
a p p e a r e d i n Pravda c r i t i c i s i n g the U n i t e d States offer. H e felt,
however, t h a t we m u s t press on u r g e n t l y w i t h t h e p r e p a r a t i o n of
a p l a n , w h e t h e r or n o t the Soviet Government were w i l l i n g t o
co-operate. J o i n t p r o p o s a l s w e r e a l r e a d y being d r a w n u p by t h e
Governments of Belgium, t h e N e t h e r l a n d s a n d L u x e m b o u r g , a n d
these Governments should be b r o u g h t i n t o t h e discussions a t an early
date. H e h a d also i n d i c a t e d to t h e I t a l i a n Government t h a t h e
would be p r e p a r e d to consider b r i n g i n g t h e m in a s soon as they
ratified t h e P e a c e T r e a t y . I t would n o doubt be necessary in d u e
course to associate the Economic Commission for E u r o p e w i t h t h e
work, b u t w e could not afford to e n t r u s t full responsibility for t h e
p l a n to t h e Commission, since they w e r e as yet w i t h o u t a d e q u a t e
staff a n d t h e i r activities w e r e liable to be delayed by obstruction
on the p a r t of t h e Soviet Government. T h e proposals w h i c h he h a d
i n m i n d would cover G e r m a n y , a n d h e hoped t h a t one result of t h e m
would be to r e d u c e t h e financial b u r d e n f a l l i n g on the U n i t e d
K i n g d o m Government.
[34108-5]
B 2
Economic
R e c o v e r y of
Europe.
e
mi
ine
/-N
i
'
.
oaDinet—
Took n o t e w i t h a p p r o v a l of t h e a c t i o n w h i c h t h e F o r e i g n
S e c r e t a r y w a s t a k i n g to i n i t i a t e t h e p r e p a r a t i o n of a
European reconstruction plan.
Commonwealth
Conference
at
Canberra.
(Previous
Reference:
C M . (47) 49th Conclusions, Minute
4.)
3. The Foreign Secretary
s a i d t h a t the p u b l i c i t y w h i c h the
A u s t r a l i a n G o v e r n m e n t h a d given t o t h e f o r t h c o m i n g Common­
w e a l t h Conference^ a t C a n b e r r a h a d created a n u n f a v o u r a b l e
impression in t h e U n i t e d S t a t e s a n d aroused t h e suspicion t h a t its
object w a s t o e n s u r e t h a t t h e members of t h e B r i t i s h C o m m o n w e a l t h
should c o n s t i t u t e a u n i t e d bloc a t t h e proposed discussions about the
P e a c e T r e a t y w i t h J a p a n . I t w o u l d n o t be easy to dispel t h i s
suspicion but, on h i s r e t u r n from P a r i s , h e proposed to discuss t h e
m a t t e r w i t h the U n i t e d S t a t e s A m b a s s a d o r in London. I n h i s view,
a m e e t i n g of D o m i n i o n P r i m e M i n i s t e r s in London would n o t h a v e
a r o u s e d t h e same d i s q u i e t a s t h e decision to hold a Conference i n
C a n b e r r a , a n d h e t h o u g h t t h a t , a s p a r t of the s t u d y of f u t u r e
C o m m o n w e a l t h r e l a t i o n s w h i c h w a s being u n d e r t a k e n , t h e r e should
be a n e x a m i n a t i o n of t h e effect o n foreign G o v e r n m e n t s of t h e
v a r i o u s p r o c e d u r e s a d o p t e d for c o n s u l t a t i o n between m e m b e r s of
t h e Commonwealth.
The C a b i n e t Took note t h a t t h e F o r e i g n S e c r e t a r y w o u l d discuss w i t h
t h e U n i t e d S t a t e s A m b a s s a d o r in L o n d o n t h e p u r p o s e of
t h e p r o p o s e d C o m m o n w e a l t h Conference a t C a n b e r r a .
Electricity Bill. Compensation
of
Local Authorities. (Previous
Reference:
C M . (47)27th Conclusions, Minute
4.)
4. T h e C a b i n e t considered a m e m o r a n d u m by t h e M i n i s t e r
of F u e l a n d P o w e r ( C P . (47) 181) p r o p o s i n g t h a t a n a d d i t i o n a l s u m
of £ 5 million should be allocated to local a u t h o r i t i e s whose
electricitv u n d e r t a k i n g s were a c a u i r e d u n d e r t h e E l e c t r i c i t v Bill,
a s compensation for t h e a d d i t i o n a l b u r d e n imposed on the r a t e s
benefit a r i s i n g o u t of income t a x set-off.
t h r o u g h t h e loss of
The Minister
of Fuel and Power said t h a t , in accordance w i t h
t h e C a b i n e t ' s decision of 11th M a r c h , he h a d a n n o u n c e d d u r i n g t h e
C o m m i t t e e S t a g e of t h e E l e c t r i c i t y Bill t h a t a sum of £ 5 million
w o u l d be m a d e a v a i l a b l e as c o m p e n s a t i o n for t h e r e d u c t i o n of t h e
field over w h i c h o v e r h e a d expenses could be s p r e a d by reason of t h e
severance of the electricity u n d e r t a k i n g from the r e m a i n d e r of t h e
local a u t h o r i t y o r g a n i s a t i o n . T h i s concession h a d been challenged
as i n a d e q u a t e by t h e associations r e p r e s e n t i n g local a u t h o r i t i e s ,
who h a d m a i n t a i n e d t h a t t h e sum offered was not sufficient com­
p e n s a t i o n for t h e losses due to severance a n d t h a t i t m a d e no
provision for other items, such a s income t a x set-off a n d debt
m a n a g e m e n t c h a r g e s , i n respect of w h i c h local a u t h o r i t i e s would
suffer loss. T h o u g h it w a s difficult to o b t a i n precise e s t i m a t e s of
t h e i n c r e a s e in r a t e s w h i c h would h a v e to be m a d e if local a u t h o r i ­
ties w e r e no longer able to a p p l y profits from t h e i r electricity
u n d e r t a k i n g s in r e d u c t i o n of i n t e r e s t charges on loans for o t h e r
purposes a n d so o b t a i n t h e benefit of income t a x set-off, t h e e s t i m a t e s
given in p a r a g r a p h 4 of C P . (47) 181 showed t h a t , in c e r t a i n a r e a s
a t least, t h e b u r d e n on t h e r a t e p a y e r s would be s u b s t a n t i a l l y
increased.
T h e A s s o c i a t i o n of M u n i c i p a l C o r p o r a t i o n s h a d
o r i g i n a l l y suggested t h a t the sum of £ 5 million a g r e e d to by the
C a b i n e t should be increased to £ 1 5 million, but h e h a d good reason
to believe t h a t a t o t a l p a y m e n t of £ 1 0 million w o u l d be acceptable.
T h i s p a y m e n t w o u l d n o t fall on t h e E x c h e q u e r a n d it w o u l d r e p r e ­
sent no more t h a n a relatively trifling increase of £125,000 a y e a r
i n t h e i n t e r e s t c h a r g e s p a y a b l e by t h e B r i t i s h E l e c t r i c i t y A u t h o r i t y .
The Minister
of Transport
s a i d t h a t , in view of t h e C a b i n e t ' s
decision of 11th M a r c h to p r o v i d e compensation to local a u t h o r i t i e s
i n respect of severance, he h a d d r a w n u p a scheme u n d e r w h i c h a
sum of a b o u t £ 2 J m i l l i o n would be given for losses due t o severance
on t h e t r a n s f e r of t r a n s p o r t u n d e r t a k i n g s , together w i t h a n
a d d i t i o n a l sum of £200,000 in respect of docks a n d h a r b o u r s . I f
t h e concession now proposed by t h e M i n i s t e r of F u e l a n d P o w e r
w e r e m a d e i t would be necessary to m a k e a f u r t h e r £ 1 - 2 million
available u n d e r t h e T r a n s p o r t Bill to compensate local a u t h o r i t i e s
for t h e loss of relief d u e to income-tax set-off on the t r a n s f e r of
transport undertakings.
The Lord President
recalled t h a t i t h a d been a g r e e d in p r i n ­
ciple t h a t w h e n u n d e r t a k i n g s w e r e t r a n s f e r r e d from one public
a u t h o r i t y to a n o t h e r t h e basis of compensation s h o u l d be r e p a y m e n t
of t h e n e t debt. T h e new concession proposed by the M i n i s t e r of
F u e l a n d P o w e r could n o t be justified on m e r i t s a n d w o u l d t e n d to
favour those local a u t h o r i t i e s who, in o r d e r to relieve t h e rates,
h a d k e p t t h e c h a r g e s for electricity a t a h i g h level. T h e increases
in r a t e s d u e to t h e loss of t h e benefit of income t a x set-off would
be lost s i g h t of i n t h e g e n e r a l r e d u c t i o n in r a t e s a s a result of t h e
new Block G r a n t proposals. A f u r t h e r objection w a s t h a t t h e
c o r r e s p o n d i n g concession to local a u t h o r i t i e s w h i c h would have to
be m a d e in t h e T r a n s p o r t B i l l would be most e m b a r r a s s i n g in view
of t h e p r e s s u r e from t h e O p p o s i t i o n for improved compensation
t e r m s for r a i l w a y shareholders.
The Chancellor of the Exchequer
said t h a t , t h o u g h the g r a n t
of a f u r t h e r £ 5 million would not impose a d i r e c t b u r d e n on t h e
E x c h e q u e r , i t would m i l i t a t e a g a i n s t his general policy of keeping­
down t h e i n t e r e s t charges on new socialised u n d e r t a k i n g s . H e w a s
w i l l i n g to a g r e e t o t h e t r a n s f e r of l i a b i l i t y for d e b t m a n a g e m e n t
charges, b u t he felt t h a t a n y f u r t h e r concession should be resisted.
I n f u r t h e r discussion it w a s a r g u e d in favour of t h e pi*oposed
concession t h a t t h e benefit of income t a x set-off h a d accrued even to
those local a u t h o r i t i e s who h a d p u r s u e d a policy of p r o v i d i n g
electricity a t the lowest economic r a t e . On the other h a n d , it w a s
p o i n t e d o u t t h a t it would be impossible to devise a scheme of
d i s t r i b u t i o n w h i c h would confine t h e a d d i t i o n a l compensation
suggested to those local a u t h o r i t i e s who h a d p u r s u e d an enlightened
policy.
The Cabinet—
(1) A g r e e d t h a t n o compensation should be p a i d for the loss
of t h e relief to r a t e s a r i s i n g from income t a x set-off
w h i c h local a u t h o r i t i e s would s u s t a i n on t h e t r a n s f e r
of t h e i r electricity u n d e r t a k i n g s to t h e B r i t i s h Elec­
tricity Authority.
(2) A g r e e d t h a t t h e B r i t i s h E l e c t r i c i t y A u t h o r i t y should t a k e
over t h e l i a b i l i t y for debt m a n a g e m e n t charges a l o n g
w i t h t h e net debt on electricity u n d e r t a k i n g s .
5. T h e C a b i n e t h a d before t h e m a m e m o r a n d u m by the P r e s i ­
dent of the B o a r d of T r a d e ( C P . (47) 174) o u t l i n i n g a proposal for
r e d u c i n g dollar e x p e n d i t u r e on films.
The President
of the Board of Trade said t h a t in the year to
M a r c h , 1947, dollar r e m i t t a n c e s for films h a d a m o u n t e d to over
£ 1 7 million. T h i s w a s a n excessive d r a i n on our dollar resources,
a n d public opinion clearly expected t h a t the Government should
t a k e action to reduce it. H e h a d discussed w i t h t h e Chancellor of
t h e E x c h e q u e r possible ways of e n f o r c i n g a s u b s t a n t i a l economy i n
dollar e x p e n d i t u r e on films a n d they b a d reached t h e conclusion t h a t
there w a s no a l t e r n a t i v e to t h e imposition of a n ad valorem duty. It­
w a s suggested t h a t the d u t y should be sufficiently h i g h t o halve t h e
remittances, a n d i t would have to a p p l y to films from all sources,
t h o u g h n e w films a n d c e r t a i n o t h e r special classes would be
exempted. I n order to ensure t h a t the d u t y w a s not passed on to
t h e public, the B o a r d of T r a d e would, if necessary, use their price
r e g u l a t i o n p o w e r s to control film r e n t a l s . T h e proposal, which
would be extremely unwelcome to t h e A m e r i c a n film interests, w a s
p u t f o r w a r d o n t h e a s s u m p t i o n t h a t i t w o u l d form p a r t of the
g e n e r a l scheme for m e e t i n g o u r balance of p a y m e n t difficulties and
h e w o u l d n o t w i s h i t t o be a d o p t e d unless t h e o t h e r p a r t s of t h a t
scheme w e r e to be i m p l e m e n t e d .
The Chancellor- of the Exchequer
p o i n t e d o u t t h a t , if provision
for t h e i m p o s i t i o n of a d u t y o n the lines p r o p o s e d w a s to be included
i n t h e F i n a n c e Bill, i t w o u l d be necessary t o give notice of the
necessary resolution a t a very early date.
The Foreign Secretary
said t h a t i t would be e m b a r r a s s i n g for
t h e G o v e r n m e n t to c o m m i t themselves t o t h e i m p o s i t i o n of a duty
on i m p o r t e d films i n a d v a n c e of a n y s t a t e m e n t a b o u t t h e other
m e a s u r e s designed t o r e m e d y o u r balance of p a y m e n t difficulties.
H e s u g g e s t e d t h a t t h i s difficulty m i g h t be m e t by t a k i n g p o w e r in
t h e F i n a n c e B i l l to impose t h e proposed customs d u t y on i m p o r t e d
films by order.
1
The C a b i n e t A p p r o v e d t h e a d d i t i o n t o t h e F i n a n c e B i l l of a Clause
e n a b l i n g a customs d u t y t o be imposed on i m p o r t e d films
by o r d e r .
Cabinet Office, S.W. 1,
11th June, 1947.