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(iii) They include an estimate by the Chiefs of Staff of the minimum forces

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an estimation of our meets ont

the following order of urgency :-

(a) success in the "cold war;'

(b) defence of the United Kingdom against air attack;

security of sea communications;

retention of the Middle East;

provision of forces for Western Union; (f) general build-up for an ultimate offensive.

Details are given in the reports at Annexes B and C.

(iv) Full account is taken of the economy measures which are now being implemented as recently announced in the House of Commons. These, as my colleagues will recall, included reduction in headquarters staffs, training, maintenance and administrative establishments and in the works programme. All the suggestions for economy proposed by the inter-Service working party which were found to be practicable have been adopted and in many cases where the working party's suggestions could not be put into practice alternative economies have been found. These measures will secure economy on a substantial scale, though some of the steps involved (e.g., the closing down of the Naval dock- yard at Bermuda and the drastic reduction in the Naval installation at Trincomalee) may give rise to political difficulties.

(v) The plan aims at reducing the man-power in the Services from 739,000

(at which it stands at present)-

By 1st April, 1950, to 726,000. By 1st April, 1951, to 682,000.

By 1st April, 1953, to 677,750.

(vi) The Minister's proposals involve the acceptance of some serious risks

(see paragraph 12 of Annex A) :

(a) Reliance on a considerable period of warning before the outbreak

of war. We may not get this warning.

(b) The Air Force is comparatively small and its reserves would not

last for more than a month of fighting.

(c) The impossibility of reinstating the Royal Air Force component of the Berlin Air Lift owing to a two-third reduction in the present strength of our air transport forces at home.

(d) The lack of any margin with which to cope with any intensification

in the cold war.'

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(e) Inability to press on at the desired speed with the research and development on which we rely for our lead in all forms of technical equipment.

(vii) Taken as a whole, the Minister's proposals offer the prospect of con- tinuing (with American co-operation) to meet our principal responsibilities throughout the world and in particular of providing the forces needed for the "cold war at its present intensity.

5. After taking account of the economies referred to in paragraph 4 (iv), the Minister's proposals for the three years 1950-51, 1951-52 and 1952-53 amount to £810 million per year. This is a substantial increase over the £760 million voted for the defence budget for 1949-50. The principal factors which make an increase of this kind inevitable are the heavy expenditure to which we are committed in connection with Western Union extra production, the fall of about £20 million in appropriations-in-aid (largely due to dwindling sales of surplus war equipment) and additional commitments such as the reinforcements for Hong Kong. The Minister's proposals take no account of devaluation, and an additional sum (not yet evaluated precisely but probably between £15 million and £20 million) would have to be added to the £810 million.

6. In the course of the Defence Committee's discussion the Chancellor of the Eaglegger ofihat in present economic and fameiat piofumgances it was

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impossible agent meetda7full the cost of the Minister of agence piloals. The Committee therefore directed their attention to the possibility of securing some reduction in the Minister's figure.

The possible discarding of responsibilities··

7. The Defence Committee first considered whether the problem could not be eased by discarding some of our existing responsibilities.

8. The provision made in the Minister's plan for the defence of the United Kingdom, particularly the provision made for air defence where the risk of defeat would be most immediate in the event of war, cannot be regarded as excessive for the purpose.

9. In Western Europe our Armed Forces are discharging the responsibilities which flowed from our victory in the recent war and are at the same time playing their rôle under Western Union and so helping to build up a united and resolute Western Europe as the first line of defence against another war. Any contraction of our efforts in this area would have most serious political consequences.

10. In the Far East our task is to hold back the Communist threat and to prevent its spread over South-East Asia. This is an area of immense economic significance to the Western world in general and to the United Kingdom in particular. We cannot do less without pulling out altogether.

11. Finally, there is the Middle East. This is an area which the Chiefs of Staff regard as vital from the strategic point of view, and it is an area in which our armed forces are fulfilling far more than a military rôle. They provide stability in an area which, like the Far East, is of vital economic consequence to us; they occupy a position in the centre of the Commonwealth and of the Moslem world, withdrawal from which could hardly fail to split the Empire and lead eventually to the loss of Africa to the Communists. The Committee agreed, therefore, that there. could be no question of our withdrawing from the Middle East. They were, however, of the opinion that, as war does not at present appear imminent and as reinforcements could be sent out from the United Kingdom at fairly short notice if required, there was a case for making a small reduction in the size of the present peace-time garrison in

the Middle East. Orders have accordingly been given that the British forces in Tripolitania should be reduced to the numbers required to provide for internal security, the forces thus released being returned to the United Kingdom.

12. Thus the Defence Committee came to the conclusion that they could not recommend the discarding of any of our main responsibilities as a means of easing the problem.

Administrative Economies

13.

The Defence Committee next considered whether there was hope of achieving the same military effect more cheaply by exercising greater drive and imagination in the matter of administrative economies. The plan put forward by the Minister of Defence is the end product of a study of the size and shape of the Armed Forces which has been in progress for the past year. During this period a continuous whittling process has been at work and the Service Depart- ments have been forced to make certain drastic economies in order to get within the proposed financial limits. Service Departments would not have proposed some of the economies put forward-for example, the reduction in the scale of war reserves and the size of the air transport force-if less damaging alternatives had been available.

National Service

14. The Defence Committee considered the possibility of achieving economy either by abolishing National Service or by changing its character. They were satisfied that neither suggestion is practicable. The Army and Air Force rely on National Service for a little less than half the total number of men now serving with the colours. Without it, therefore, neither the Army nor the Royal Air Force could discharge their present responsibilities. The required numbers could not bePage77by andre9sing the intake of Regulars betagee77umfel09 Are

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notpobtainable in sufficient numbers. Indeed, the problem at present is to main- tain our existing force of Regulars. Changes in the character of National Service, in the direction of adopting some form of Selective Service, are politically objectionable.

Equipment

15. Finally, the Defence Committee discussed the provision made for equip- ment in the Minister of Defence's plan. Some increase in 1950-51 over the provision made for equipment last year is inevitable. War stocks, on which so much reliance has hitherto been placed and for the sale of which we have in the past received substantial sums, are running out and new orders must be placed; there must be some modest expenditure on modernisation if the equipment of the Services is not to grow progressively out of date; and we are committed to a considerable programme of production in connection with Western Union. The Committee agreed, however, to look very closely at the equipment programmes

of all three Services.

Defence Committee's general conclusion

16. After studying the Minister of Defence's proposals in detail the Defence Committee as a whole concluded that it would be very difficult to meet the full Bill which he had submitted. They agreed instead to recommend to the Cabinet-

"That the provision for defence in the 1950-51 Estimates should amount to £780 million, on the understanding that if this amount was shown to be insufficient to meet the expenditure on essential equipment which the Defence Committee might hereafter agree to be necessary for the Services, the necessary balance should be made by way of supplementary estimates. No work should be undertaken which would require finance by supplementary estimate without the approval of the Defence Committee being first obtained.

""

17. The Minister of Defence proposed a three-year defence budget, but in present circumstances it is difficult for the Government to commit themselves. beyond the year 1950-51.

18. As my colleagues are aware, when announcing the recent economy measures in the House of Commons and making public the decision to cut the 1949-50 defence expenditure at the annual rate of £30 million, I reserved our position in respect of the 1950-51 defence budget. After listening to the discussions in the Defence Committee I am satisfied that bearing in mind our wide responsibilities, we cannot make a smaller financial provision than that now suggested by the Defence Committee. In reaching this conclusion, I have particularly in mind the obligations we have assumed under the Brussels Treaty and the Atlantic Pact. I am confident that the development of an integrated defence plan under these two treaties will strengthen our ability and that of our Allies not only to resist aggression but, what is more important, to prevent war. All the countries concerned are, however, in varying degrees lacking in equipment or trained man-power and, until these deficiencies have been made good, co-ordinated planning, necessary as it is for true defence, cannot be expected to reduce the current levels of defence expenditure.

19. I accordingly invite the Cabinet:-

(1) To endorse the conclusion of the Defence Committee quoted in

paragraph 16 above.

(2) To take note of the general strategic conception on which the provision for defence will be based, as outlined by the Chiefs of Staff in Annex C, and the particular military risks which are involved, as outlined in paragraph 4 of this paper.

(3) To ask the Minister of Defence to bring forward his proposal for a

three-year defence budget on some future occasion.

10 Downing Street, S.W.1,

Page 87 December, 1949.