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PUBLIC RECORD OFFICE

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PUBLIC RECORD OFFICE, LONDON

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the Bill to be of paramount importance if necessity should arise. Failing agreement with Ministers I should however prefer that you should confine yourself to making it clear that you would not sanction introduction of substituted measure:-CUNLIFFE- LISTER.

C. 83227/31 [No. 35].

No. 48.

THE SECRETARY OF STATE to THE GOVERNOR. (Sent 7.30 p.m., 10th December, 1931.) [Answered by No. 49.]

TELEGRAM.

No. 237. CONFIDENTIAL. Your telegram of 3rd December.* My attention had already been drawn to letter from yourself to Board of Ministers of 30th October printed in Times of Ceylon of 9th November, particularly to following sentence :—

Begins: He has therefore instructed me, provided that I can obtain an undertaking from the Board of Ministers that they will introduce an Income Tax Bill as soon as possible, to prepare a measure imposing temporary levy on the salary of public servants.-Ends

I do not think that my predecessor intended that his approval of the salary cut given in his telegram of 29th October† was conditional on the prior undertaking in regard to income tax. The question of the imposition of such tax is a matter for the decision of the Board of Ministers by whom it was understood matter was already being considered and it was, I think, only the wish of my predecessor to withhold his approval from a general levy on salaries so long as he was not satisfied that the financial position of the Island rendered such a step necessary. I have not overlooked your telegram of 14th October, specific proposals in which were not expressly approved.-CUNLIFFE- LISTER.

C. 83227/31 (No. 41].

No. 49.

THE GOVERNOR to THE SECRETARY OF STATE. (Received 7.55 p.m., 13th December, 1931.) TELEGRAM.

[Answered by No. 50.]

No. 264. 13TH DECEMBER. Confidential. Your telegram No. 237.§ Your tele- gram No. 186, stated that in your view reductions in salaries of public servants was only justified when all practicable means of increasing revenue had been carried out and drastic reductions of expenditure was still necessary to balance the Budget. Although your final acceptance of levy on salaries before other means of raising addi- tional revenue had actually been enforced involved partial abandonment of this attitude it was clear to me from your telegram of the 19th October, No. 196,¶ that you still held the view that cut in salaries was not justified unless all other avenues had first been explored. Your telegram of the 29th October, No. 207,† contained no mention of this point. I considered it essential in the interests of public servants to make it quite clear to the State Council that you did not accept the view which had been strongly expressed by many Members that cut in salaries should be imposed as a first step towards securing financial equilibrium, without any regard to possibility of securing additional revenue by other means, and I have no hesitation in saying that resentment of the Service would have been far greater than it is had this not been made clear. Your telegram of the 29th October was received too late to allow time for further correspondence with you before sending to the Board of Ministers final communication which they would naturally wish to consider fully before the Council met on the 3rd November. Council had already been adjourned twice to allow time for your reply to be received and I considered it most undesirable to run the risk of having to ask for a third adjournment. Since, therefore, it was necessary for me for reason above stated to elaborate somewhat the

+ No. 45. 1 No. 39. § No. 48. No. 36. ¶ No. 43.

* C. 83227/31 [No. 34]: not printed.

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message contained in your telegram of the 29th October, I considered it safe to do so on the lines suggested in my telegram of the 14th October* as you had nowhere expressed disapproval of those suggestions.

My letter to the Board of Ministers is deliberately given in a truncated form in the Resolution of the Chamber of Commerce and in reference made in certain local news- papers. The text is as follows:-

Begins:He has therefore instructed me, provided that I can obtain an under- taking from the Board of Ministers that they will introduce an Income Tax Bill as soon as possible, and will at the same time take such steps as may be practicable to secure increased revenue from customs duties, to prepare, and submit to him for his prior approval, a Measure imposing a temporary levy on salaries of public servants.--Ends.

The reference to customs duties as well as income tax alters the whole implication which the Chamber of Commerce secks to read into the message. You are already aware from my telegram of the 14th October* that three Measures for adding to revenue which Ministers contemplated were (1) increase in customs duties, (2) levy on salaries, (3) income tax. Statement in my letter to the Board of Ministers that you could only agree to (2) if the Board of Ministers undertook to take immediate steps to introduce (1) and (3) therefore merely amounted to statement that you would only agree to levy on salaries provided that the Board of Ministers would also introduce other Measures which they were already contemplating. This statement appears to be fully justified by the language of your telegram of the 3rd October† and your telegram of the 19th October. Chief Secretary has already explained in the State Council during the Income Tax Bill debate that although you insisted on additional taxation as condition of imposi- tion of levy on salaries you had no intention of dictating to the Board of Ministers form which such taxation should take, and that specific mention of income tax and increase of customs duties was made merely because you were aware and the Leader of the House had already stated in introducing the Appropriation Bill that those were the Measures contemplated by the Board themselves. A further point of importance which entirely rebuts suggestion that introduction of Income Tax Bill was dictated by you is that before receiving my letter the Board of Ministers had already decided to introduce income tax, draft Bill being actually under preparation, and had also decided to introduce proposals for increasing import duties. Their reply to my letter was to this effect. Your reply in the House of Commons in which you suggest that there has been misunderstanding was necessarily based on incomplete information then available as to the text of my message and I think it desirable that any misconception which may arise here as a result of that reply should be dispelled. Publication of the whole of the correspondence with you has been asked for, but this is obviously out of the question. Since owing to the Recess it is not practicable to clear up the position by a further statement in the House of Commons I shall be grateful if you will send me a message which I can publish here.

C. 83227/31 [No. 42].

No. 50.

THE SECRETARY OF STATE to THE GOVERNOR. (Sent 4 p.m., 17th December, 1931) TELEGRAM.

CONFIDENTIAL, No. 246. Your Confidential telegram No. 204. I appreciate explanation and confirm your action in connexion with salary cuts. It is clear that there is no justification for suggesting that either my predecessor or yourself intended to dictate to the Board of Ministers as to the nature of the financial measures to be taken, which were in fact already under the consideration of the Board. My prede- cessor desired only to be satisfied that salary cuts would only be imposed after all other practicable measures to secure balanced Budget had been fully explored. In my reply to questions in Parliament which were based on incomplete reports I was only con- cerned to rebut suggestion that I was seeking to restrict the control over finance enjoyed by Board of Ministers and State Council under the Constitution. You may publish this telegram-CUNLiffe-Lister.

* No. 39.

† No. 36.

† No. 49.

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