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In view of the serious political and military consequences of reducing the defence production programme, I think that we should consider the nature of these possibilities.
21. (a) Importing less.-The import programme which has been included in this assessment is already very austere.. It is difficult to reduce imports of raw materials if we are to keep our people employed; and a programme of food imports which, even after allowing for a substantial improvement on home agricul- tural output, still leaves total food consumption somewhat below the level of last year clearly provides little room for substantial cuts. If, nevertheless, we come to the conclusion that we must make further savings in this field, we must give a clear indication of what further reductions in imports we think would be tolerable, and decide on the measures needed to bring these reductions about.
22. (b) Exporting more.-Here there is one thing we ought to do on its own merits, namely, to make more coal available for export. A substantial increase in coal exports would materially improve our bargaining position and have an im- portant psychological effect as well as bringing in extra revenue. But even if we
could increase exports in this period by about 10 million tons per annum, we should still only have about £50 million extra exports per annum. As to exports other than the products of the metal-using industries and coal, with the exception of some raw materials which we are having to import to meet our own requirements (e.g., steel), the problem is more one of selling than of making them available for export. The present troubles of many of our exporting industries, e.g., textiles, indicate how unsafe it is to rely on selling more consumer goods; some increase in such exports over expected levels in 1952 has already been assumed.
23. (c) External Assistance.—We may receive some United States aid after 1953, but the last two years have shown the extreme dangers of undertaking commitments which drive us to rely on external aid, which in the event is always too little and too late. Our reserves are far too low to carry the risk any further.
24. (d) External Conditions.-Much of the analysis in this paper is based on assumptions, e.g., that the terms of trade remain as now. It is possible that the terms of trade will go in our favour and thereby reduce the export task. But it seems to me, if anything, more likely that they will go against us. When it is remembered that a swing of 5 per cent. in the terms of trade against us is equivalent to £160 million on the balance of payments, it will be seen how quickly the reserves could run away if things went wrong. I do not consider, therefore, that we would be justified in assuming the problem away by hoping that events will be kind to us.
25. (e) Reducing our External Payments on Capital Account. In order to reduce the burden of our external payments on capital account, it would be necessary to make major changes in our external financial arrangements both with other sterling area countries of the Commonwealth and with foreign countries. It would not be easy or quick to do this by agreement. Furthermore, in certain cases a slowing down of our payments might imply a reduced rate of economic develop- ment in the Commonwealth which could have extensive repercussions on our balance of payments.
26. (f) Overseas Government Expenditure.-Much of this is military expendi- ture, which is in four main areas: Germany, Korea, the Middle East and Malaya. It is not for me to discuss the military and political problems involved in reducing such expenditures and we must await the results of the review which has now been initiated.
27. I do not rule out the possibility of some adjustments of the kind listed in paragraph 20 which would reduce to some extent the magnitude of the metal goods problem. We must, however, ensure that our choice is a consistent one and that we give sufficient instructions to produce a comprehensive economic policy which provides for the putting right of our balance of payments problem. This will take time and while we are considering these issues we must take steps to ensure that our decision is not compromised by the placing of further defence production orders.
28. Defence.--The defence programme to which the country is at present committed is, however, a rising one and the total burden imposed on the metal- using industries by, defence production requirements of all kinds (including civil
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