CAB129-52 — Page 74

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(d) Overseas Commitments

2

We must examine ruthlessly our expenditure: -on direct defence Middle East, Malaya, Hong Kong, &c.; indirect defence supporting Yugoslavia, &c.; oil development-which should only be undertaken if we can guarantee to hold the refineries; inflated war-time sterling balances-still being released to Egypt, &c.; the Colombo Plan.

(e) Incentives to Exporters

We should try to discover at once ways of giving special financial incentives to exporters, especially to the dollar area. I am sure, too, that profits must be progressively freed from taxation if we in this crowded island, with little but skill and enterprise to sell, are ever to pay our way in an increasingly competitive world. The Socialists ruled in a world sellers' market; they received vast American aid. I believe that the soaking of profits was a luxury Britain could afford only in those exceptional circumstances.

(f) Agriculture

I hope that the review promised by the Chancellor and the Minister of Agriculture will show ways of securing a large expansion.

I also agree with the Chancellor on the importance of a stern internal financial policy even if it involves higher rents and food prices. This is bound to be unpopular, but it is far better than national bankruptcy.

I agree that exporters and others must be able to rely on adequate supplies of steel. The Socialists failed to provide for our needs; as a result, in the last year supplies have fallen far short of demand and our whole economy has been hamstrung. We must make quite sure that our future needs are covered. As immediate measures we should examine urgently the possibilities of:

(i) replacing cast-iron by steel products which often use only half as much

metal;

(ii) importing more steel;

(iii) reducing exports of steel of low value.

I agree, too, that we must export more coal. We have 34 million tons more in stock than last year and could sell it on the Continent to great advantage (I hope at a higher price). We should also, I think, set a high target for expansion of coal exports over the next few years. This will no doubt call for an even greater increase in output than seems to be contemplated at present. The task is difficult but worth a great effort.

I should also like to see additional measure to enforce exchange control, attempts to fund sterling balances on a voluntary basis, and more high level and continuous co-operation with the Americans to foresee and forestall those ups and downs in trade which have such disastrous effects on our exiguous gold reserves. If the Chancellor's paper is followed up resolutely we shall really have the makings of an economic policy to put the country on its feet again before the next election.

(Signed)

CHERWELL.

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