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PUBLIC RECORD OFFICE

Reference :-

LHC.O.882/11

|ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO

PUBLIC RECORD OFFICE, LONDON

C. 92052/32 [No. 28].

SIR,

44

No. 28.

WAR OFFICE

to

TREASURY.

(Copy received in Colonial Office, 19th April, 1933.)

[Answered by No. 29.]

War Office, 13th April, 1933.

I am commanded by the Army Council to refer to previous semi-official corre- spondence with the Treasury, regarding the future basis of the military contribution of the Straits Settlements, and to the letter from the Colonial Office to the War Office of 28th February, 1933*, a copy of which was sent to your Department, indicating the result of the negotiations conducted by Sir Samuel Wilson during his recent visit to Malaya.

It is reported that for the next five years, from 1st April, 1933, the Colony offers a fixed annual contribution of $4,000,000 in full return for the annual cost of the Imperial garrison and of all other Imperial military, naval, or air expenditure connected with the Colony, subject to certain conditions, (I) as between the Colonial Government and the Unofficial Members of the Legislative Council (paragraph 2 (a) to (c) of the Colonial Office letter), and (II) as between the Imperial Government and the Colonial Government (paragraph 2 (i) to (v) of the Colonial Office letter).

I am desired by the Council to offer the following observations on these proposals. Dealing with the conditions under (I), the Council have no remarks to make on those at (a) and (b) beyond observing that these conditions imply that future negotiations It is gathered that, so far regarding the contribution will, in effect, be conducted with the Unofficial Members of the Legislative Council and not with the Colonial Government.

as the constitutional aspect is concerned, the Colonial Office do not oppose the suggested arrangement between the local Government and the Unofficial Members, and, as the payment of the contribution offered is protected by the condition under paragraph 2 (ii) of the Colonial Office letter, the Council for their part do not object to these conditions.

As regards condition (c) under (I), viz., the proposed limitation of the Colony's expenditure on local forces to $500,000, I am to say that it is not clear what this limitation may involve. It is understood from the Colonial Office that the local Government have considered the matter and believe they can meet the requirements of the local forces within the limit of $500,000, including provision of a local Royal Naval Volunteer Reserve Unit to be raised in 1933. The point is of some importance as the limitation might on the face of it either involve some reduction in the local forces which would have the undesir- able effect of adding to the responsibilities of the Imperial forces in the Colony, or alternatively retard or prevent the full equipment of the local units. The Council will not, however, oppose the limitation in expenditure provided that the Colonial Office and the local authorities with the above considerations in view are prepared to agree to the limitation. In view of the additional charge to be incurred for the Naval Reserve unit, I am to suggest that the Admiralty should be consulted, and also the Air Ministry in case the raising of any local air units is in contemplation.

The Council desire to support the proposal that a proviso should be inserted that the amount of expenditure may be increased after five years if the Unofficial Members agree. Turning to the conditions under (II), I am to observe that their effect is to guarantee to Army funds a payment of $4,000,000 a year for the five years 1933-37, unless the Colonial revenue should fall below $20,000,000 (the estimated revenue for 1932 was some The $4,000,000 at the $23,000,000 as compared with some $34,000,000 in 1927), when the Colony can, if it wishes, restrict the payment of 20 per cent. of the revenue. existing rate of exchange represents £467,000 approximately and compares with the estinated liability of the Colony on the present basis under the Military Contribution Ordinance of 1899, viz., (a) £440,000 £450,000, payment for the maintenance cost of the existing garrison, which is all the Colony holds it should pay, or (b) £520,000- £530,000, the (very roughly) estimated cost of the garrison including maintenance and manning of the new defences (First Stage) of the Singapore Base when complete in 1937. The difference between (a) and (b) represents the cost of the items connected with main- tenance of the new defences as to which liability is in dispute.

I am to point out that as the fixed contribution is payable in dollars the yield of £467,000 sterling assumes that the Straits Settlements dollar will not depreciate. The Council are aware that the Straits Settlements dollar has been stabilized since 1906, but Their Lordships will doubtless consider whether any proviso is necessary that the value of the dollar remains as at present.

The possibility that the acceptance of a new principle for the assessment of the Straits Settlements contribution may have repercussions on Hong Kong, which is on the

• No. 27.

45

same basis as the Straits Settlements, has been considered by the Council, but it is thought that the risk of this must be taken. The possibility was discussed in paragraphs 46-47 of the memorandum accompanying Mr. Crosland's semi-official letter of 20th January, 1931, to Mr. Waterfield. In any case a fixed contribution subject to possible reduction only if it should exceed 20 per cent. of the revenue is less likely to cause difficulty than the reduction of the 20 per cent. limit to 17 per cent. which was proposed at an earlier stage of the negotiations on this matter.

As regards the condition under (v) of paragraph 2 of the Colonial Office letter, the Council understand that if payment is at any time made on the basis of 20 per cent. of the revenue the Unofficial Members desire to exclude from the assessable revenue interest on credit balances, investments, loan, etc., arising from the past savings of the Colony. The Army Council would naturally not wish to bar discussion on this point but they would observe that the principle is of long standing that such items should be included in the assessable revenue unless they are not utilized for revenue, but are re-invested or added to the funds from which they arise. In this connexion I am to invite your attention to correspondence regarding the Straits Settlements Opium Revenue Replacement Fund ending with War Office letter dated 26th October, 1927, (Treasury reference S. 3486) and to the recommendation regarding this fund contained in paragraph 47 (2) (1) (c) of the report of the Colonial Military Contributions Committee of the Cabinet dated 30th November, 1927.

Summarizing their views on the new proposals for the contribution, I am to say that, as Their Lordships are aware, the Council have not been disposed to dispute the principle of a fixed contribution provided the amount was satisfactory, even though it may involve departure from what might be held to be the Colony's legal liability under the letter of the Ordinance of 1899. The present definite offer represents an increase of some £30,000 over and above the liability which the Colony admit; it is made with the concurrence of the Unofficial Members of the Legislative Council, and it may accordingly be hoped that its acceptance will bring an end to a long standing dispute.

In all the circumstances I am desired by the Council to submit that, subject to the observations developed above, the approval of their Lordships should be given to the settlement of the matter on the basis put forward by the Colonial Office.

I am to add that on the existing basis of the contribution the Colony makes advances during the financial year equal to the estimated cost of the garrison for the year, and in a subsequent year furnishes any further payment necessary to cover arrears, i.e., the difference between the estimated cost and the actual outcome shown by the Account. Such adjustments have been made to cover the period up to 31st March, 1932, except an amount of £10,000 recently claimed, and it is assumed that if the flat rate is to apply as is proposed from 1st April, 1933, the account for the year 1932 will be settled upon the old basis, and the advances if necessary adjusted accordingly.

I am, &c.,

C. 92052/32 [No. 31].

No. 29.

TREASURY

to

(S. 3486/3.) SIR,

WAR OFFICE.

(Copy received in Colonial Office, 6th May, 1933.)

H. J. CREEDY.

Treasury Chambers, Whitehall, S.W.1, 4th May, 1933. I have laid before the Lords Commissioners of His Majesty's Treasury your letter

of the 13th ultimo*, relative to the future basis for the military contribution of the Government of the Straits Setlements, and in particular to the offer referred to in Colonial Office letter of the 28th February last†, and I am to request you to lay before the Army Council the following reply:-

My Lords observe that the offer on behalf of the Colony is made by the Unofficial Members of the Legislative Council and is in the following terms, subject to the conditions (a), (b) and (c) at the end thereof:-

(i) The Colony of the Straits Settlements offers the yearly sum of $4,000,000 for five years from the 1st April, 1933, to the Imperial Government as a fixed contribution payable by the Colony for the said period of five years in full return for the annual cost of the Imperial garrison and all other military, naval, and air charges whatsoever;

• No. 28.

↑ No. 27.