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constitutional problems. He has however to keep his own Party convinced that he is not giving way unnecessarily to the Opposition or succumbing needlessly to pressure from the Governor or myself.

15. If Sir Frederick Bourne is unable to bring the opposing factions together on an agreed form of constitution, it will be necessary to resolve the issue at a General Election. For various reasons, this is unlikely to be held until after the rains, in late September or October.

16. If Sir Frederick Bourne can successfully complete his task by the end of the year, Gold Coast independence by December 1956 is still a faint possibility. If he takes rather longer, then it might be possible early in 1957. If he is unsuccessful and a General Election is held, independence is most unlikely before the middle of 1957.

17. I cannot, of course, say whether he will be successful but, whatever happens, there must be a final decision about the form of the Gold Coast constitution some time in 1956, and therefore there must be at least some discussion of possible Gold Coast membership of the Commonwealth at the Prime Ministers' Meeting in June of next year. Accordingly I agree with the recommendations made by the Commonwealth Secretary in paragraph 5 of C.P. (55) 182.

18. I will of course continue to keep my colleagues informed of developments in the Gold Coast. The situation should be considerably clearer in a couple of months' time.

Colonial Office, S.W.1,

26th November, 1955.

A. L.-B.

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OVERSEAS EXPENDITURE

Memorandum by the Chancellor of the Exchequer

In a paper which I circulated recently to the Defence Committee (D. C. (55) 48), I gave some information about the trends of Government expenditure not only on defence but in other fields.

2. In recent weeks I have been perturbed at the large number of proposals put to me for additional expenditure overseas. All Government expenditure, whether at home or overseas, has of course to be met from our own resources. But external expenditure imposes an even greater strain than expenditure at home; for, while both make increased demands on output, external expenditure requires that the increase in output should take the form of an expansion of exports. The purpose of the present paper is to put before my colleagues the position as I see it in regard to our overseas expenditure.

The

resent Iosition

-

3. How do we stand at the present time? What resources have we which could be devoted to additional overseas expenditure? To answer this we must look first at our balance of trade and, of course, not only imports and exports but invisible transactions as well. Clearly, unless we have a favourable balance of visibles and invisibles together we have no resources which we can devote to expenditure overseas except to the extent that we can meet the cost of overseas expenditure by borrowing overseas or running down our reserves.

4.

When we make up our external accounts, we then bring in items of expenditure overseas which are of a current nature, The chief items of expenditure directly attributable to the Government are:-

(i) External military expenditure, £150 millions

a year (which will be increased by over

£70 millions a year if and when we have to meet the full cost of our forces in Germany).

(ii) Grants for Colonial development and assistance,

£27 millions a year.

(iii) Other political expenditure, £20 millions a year.

(iv)