CAB129-78 — Page 160

in recent weeks

some of which have been approved

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None of

are the extra cost of troops in Cyprus; gifts of arms for Libya and Iraq; increased assistance for the Arab Legion; assistance in Malaya and Singapore (when these Colonies become self-governing) towards the cost of raising and equipping local troops; and economic help to Malta over a long period of years. these individual items involves large expenditure, with the exception of Malaya where the cost may be anything from £6-£12 millions a year, but the cumulative effect creates an atmosphere in which it is taken as axiomatic that more burdens should fall on the United Kingdom taxpayer.

11. For the Kariba hydro-electric project, in the Federation of Rhodesia and Nyasaland, we are committed to loans of £18 millions and to a release to the International Bank of about £10 millions from our £60 millions. Our offer to guarantee a £40 millions credit towards the Third Indian Steel Works is likely to be insufficient to secure the contract and we are being pressed to go further.

For the Aswan High Dam we have for some time been thinking of a guarantee of up to £45 millions, including £5 millions credit, and have been pressed by the Egyptians to do more; the picture is rapidly changing, and we now seem likely to be pressed to make a straight loan or even an outright grant. Finally there is the Volta River project, which will cost £200-£300 millions; our share remains to be settled, but on the earlier estimates Her Majesty's Government were to put up 40 per cent.

12. All these items and any others which may be approved can only be met unless we run further into debt from the £200-£300 millions surplus on current account which we have set as our target · a surplus which has also to meet our existing capital commitments - a surplus, moreover, which is only our aim and which at the moment we are not earning.

The Future

13.

seas.

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Large

The situation on overseas expenditure as set out in the preceding paragraphs, without our taking on any new commitments, is serious in relation to the current and prospective state of our actual net earnings over

Substantial success in reducing inflation at home under the measures taken up to and in the autumn Budget will at best restore us to a healthy condition with only our present commitments. But these measures will take time to work in full. There are forces at home working against us. wage claims are in sight and so far as they are granted they will increase the inflationary strain at home and add to our difficulties in our overseas trading. Moreover, we have still to see how far the credit squeeze can be carried without causing serious harm. Finally, we must remember that taxation is very high and it is most desirable to reduce it both politically and to help to restore the incentives necessary to foster our export trade in a highly competitive world.

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14. I know that the object of some of the new proposals - an object of great importance is to strengthen our political standing and economic influence in the world. But there is a great danger that we may defeat our own object if we take on more than we can afford. There is no doubt that our economic difficulties this year have been watched with critical eyes abroad. There have been widespread fears, not only in Europe but also in the Commonwealth, that we were reaching an impasse which would place on intolerable strain on sterling. These fears have shown themselves in a number of ways; in pressure from the Europeans on sterling, but more significantly still in a growing tendency for sterling arpa utrifs 19 wish to held their own separate gold and dollar reserves. India is a conspicuous

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