Cab 195/19 cabinet minutes

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H. Wd. precipitate request for incln of China.
D.S. But wd. give us initiative. Otherwise we seem to be out-manoeuvred by R.
P.M. In my ltr. I have asked him to re-consider his posn. This is a positive line for time being.

  1. Cyprus

Tel. 7.7 from Cyprus

S.Ll. It looks as tho’ all save finance is at last settled.
I.M. We have authorised £11.5m. M + K. ask for £16 + £2 for Turkish community + £1.4 miscellaneous. Amery proposes £13.84 or £15.84.
H.A. Blackmail – and v. alarming figures. As douceur after independence, what will it provoke in way of demands elsewhere.
I.M. Greatly out of line with anywhere else – e.g. only £12m. for 35m Nigeria. £5m for Singapore. V. little available for Mauritius. Certainly, it will be v. diff. to satisfy other Colonies if we do as much as this for Cyprus.
H.A. Remember too, that there will be less for oversea aid in future.
S.L1. But what is the alternative. What will be the cost if we don’t settle this?
H.A. This is always the argument: we are out-maneouvred in negotn. Independence followed by financial support is intolerable.
H.W. But re-occupn. wd. be v. much more expensive.
I.M. You cd. use same argument for Singapore: and I can’t offer more than 20% of their bid. £13m shd. be absolute limit for Cyprus.
D.S. If we speak now, it will be clear that it’s over money.
H. Only real alternative is to leave Cyprus.
H.A. Yes.
R.A.B. That wd. be impossible.
P.M. Reviewed history. If we had conceded crisis there wd. have bn. war in E. Medn. Better surely to have promoted Zurich agreement. Doesn’t satisfy Greek Cypriots. Too late now to think in terms of w’drawing. We may abandon bases in 5 yrs or so: but at least there will then be a republic to which to hand it. Can we not stress fact tht. this is internatl. not colonial, problem: to avoid worst repercussions on other Colonies. We may be able to reduce B. forces there, as time goes on. But stark fact is: we can’t resume direct rule.
D.E. But general problem – we can’t continue to meet all our oversea commitments unless B. people are ready to accept redn in current consumption.
J.H. Agree. For believe we may have to face same thing in Singapore, Malta & prs. Aden.
M. A few months ago (in emergency) we shd. have bn. glad to settle for this sort of figure.
P.M. The cession clause is good – because it does enable us to go away.
H.B. We have got to make best terms we can – this week. But if we have to do this sort of thing again, we must give H.A. more support in squeezing economy at home: to make it more viable.
H.A. This base will be strategic liability, not asset. Believe the same may be true of Singapore. Wd. wish that recorded. But admit that, as things are now, we must get a settlement of Cyprus.
D.S. After settlement we must review scale of mil. establishments in C.
H.A. What of Akrotiri.
H.W. We are committed to move villagers if they want to go: but my belief is that they won’t want to move. They will do better to stay.
R.A.B We must settle this, at lowest price Amery can fix.
I.M. What worries me is that we give to our enemies, but not to our friends. This must mean tht. I have less to give to Kenya, Nigeria etc., There is element of bluff in M.’s attitude. Do let us look at figures. £15.8 surely is much too high.
P.M. General aid cd. be represented as £13m over 5 years. Remaining items as defence or related projects of our own (e.g. Nicosia).
P.M. We must get a settlement at cheapest price obtainable.
S.L1. I wd. offer smaller sum quickly: e.g. £10m + the oddments.
P.M. On net figures we shall have to go to £13m. Does he stand on £10m. at first? Probably, yes. Agreed: opening bid of £10m. incldg. grant to Turks. etc. = £11.5m. Plus discretion to go to £13m. if he can clinch it. F.O.&C.O. to draft, submit to H.A. & P.M. Later: authorise upper limit of £14.84 inclusive + make Amery come back if he needs the other £1m. i.e. £12m only for general aid. And try to get the £1.5m. for Turks w’in the general aid.

  1. European Television Agreement

S.L1. Agreed betwn. Dpts.

C.H. Seems all right.
Memo. approved.

  1. Economic Situation

H.A. Reserves figures for June will be + £11m. Some inflow of funds. But big money is still going into Germany. Due probably to talk of re-valuation.

C.C.39(60) 5th July 1960

1. Foreign Affairs. [Enter M.R.

(a) Disarmament.
S.Ll. General – suggn. of special mtg. Has bn. abandoned. U.S. & Fr. against it.

Nuclear – R. seem willing to carry on.

(b) Cyprus.
S.Ll. Outstanding points resolved. Settlement shd. now be initialled Wed.
I.M. W. Paper – planned for Friday am.
(c) Cuba.
S.Ll. Protest made. Can’t be based on legal grounds – for provisions catering for refinement of Cuban crude oil. Based on general argument of action contrary to Br. interests.
Avoid appearance of merely supporting U.S. interests. We have our own.
U.S. trying to establish an ‘exile’ Govt. – doubtful where to put it.

2. Shipping : Cunard Liners.

M. As in memo.
H.A. Warning note. [In reply to P.M. – existing ships were built on Govt. loan : repaid in less than 25 years allowed : market rates.]
Commitments. Unless we face taxation at increased rates, as propn. of income we shall have to escape some of these. No time to take on more.
Price asked here is too high for prestige gain.

Other prestige projects – supersonic air liner and space research. We can’t do them all.

Two ques. – i) shd. we do it at all. ii) shd. we do it on these terms.

Did our pledge commit us to action even on unreasonable terms?

I wd. have thought not. These terms are not reasonable. a) We shd. be subsidising this interest rate – and tho’ our rate wd. drop if co’s profits were low, it wd. not rise if they were high. b) We are to carry whole of insurance. c) Incentive to other countries to extend their policy of subsidising shipping.

Proper solution : co-operation between ourselves and U.S. and France in N. Atlantic shipping. Uneconomic venture : best return we cd. expect wd. be 3% whereas private industry looks for 10-12% on £30 m. F. earnings are not attractive enough to justify this subsidy.

Net figure also likely to be less than these estimates.
My solution. Operate Q.E. alone, under co-operative arrangement & p’pone decn. to replace Q.E.
If that is not approved, seek a better bargain with Cunard.

Admit that, in view of our pledge, we can’t avoid supporting a reasonable scheme.

M. Return to estimates at 7% not 3%.

No chance of getting Cunard to accept higher rate than 4½% - cf. para.12.

E.M. No hope of getting better deal with Cunard. This plan is more onerous to them than that for Q.E.
H.W. I agree : but Q.E. cost £12 m. and this wd. be £30 m.

No hope of internatl. co-opn. on N. Atlantic.

Can’t run a [weekly] transatlantic service with 1 ship.
R.M. Arguments con are not strong enough to release us from our pledge.
M. Competn. from air – Chandos report sees a future for sea travel.
D.S. Prestige – more to be gained from being in van of supersonic flight.

Only argument for going on with this – election pledge.

D.E. Economist forecast. Gt. increase in transatlantic traffic. But prestige prize will be in the air. Yet no. going by sea will increase absolutely. Shows it will be good business to keep this weekly service going. F. earnings must take a/c of effect of landing them here.
Points to need for more hotels.

Effect on ship bldg. industry will be salutary.

D.S. Case for this is economic not prestige.
H.B. Good reason to believe this ship will be a success.

Why therefore shd. Govt. bear whole of risk? In particular, why shd. they also take whole of profit.

R.M. Dangerous for Govt. to take equity interest in private firms.
P.M. Better to put Govt. in posn. of preference shareholder.
M. We cd. get i) earlier repayment, if they make more than 7% and ii) different rate cd. not be negotiated because of terms given by U.S. and France. iii) re-cover interest or bldg. period, if successful.
K. These terms aren’t unreasonable because don’t include anything we cd. not have foreseen at the time. In fact prospects for ship seem better now than in July ’59.
P.M. 1. Agree to do this on best terms we can get.

2. Mills, M/T. and H.A. to re-consider terms & submit to P.M. eg. improvements a) re-cover interest for bldg. period b) some reward to Govt. if cos. profits rise above 7%. c) Co. to carry more of the insurance.

J.M. Open competitive tender will be difficult to work.
E.M. Not so difficult now because of changes in structure of industry. Gives chance of detailed specification &especially for machinery.
This is technically desirable as well as politically.
P.M. Politically, this wd. get us out of intolerable choice between Clyde, Belfast and N.E. coast. Cabinet must not be left to decide that.
J.M. Admit I can’t press my point if Cunard have agreed to it.
H.A. Don’t consider this a wise use of our economic resources.
E.M. Make it clear to Cunard that this doesn’t commit us to a 2nd ship.

3. Relaxation of Import Restrictions.

H.A.) Nothing to add to memoranda.

H. Odd to do this so soon after restrictions on expanding economy.

Also promised to give reasonable notice to Australia.

Strong case for p’poning until autumn.

R.M. Comm. countries have known for months we were going to do this – expected us to do it in May.
J.H. Confirm that. But we are in trouble with Australia over it’s wheat.

Believe this will displace fresh, as well as other canned, fruit. Will cause us b/p. trouble over next 5 years.

R.M. But can’t justify it now on b/p. grounds.
H.A. Tho’ after that we can stand pat on the rest.

Of increased imports only ⅛th is due to these relaxations.

R.M. And we have made corr. increase in our exports.
P.M. You won’t get much credit for this in U.S. now. Why not leave it until new Adminn.?
R.A.B. How reconcile our defence of Bank rate etc. with this voluntary addn. to our dollar imports.
R.M. That doesn’t take a/c of our increased exports.
H.A. We propose this from self interest (exports) not kindness to U.S.A.
R.M. We shan’t gain anything in pressure on U.S. Adminn. by m’taining this restriction.
J.H. If we don’t liberalise this now, we shall have to issue new quota figures in 10 days.
But, on balance, I wd. favour waiting until new Adminn.
M. So would I.
R.A.B. Me, too.
H.B. Increase quota now, and liberalise in the spring.
Agreed : make some increase in quota now and liberalise when new U.S. adminn. is in.

4. Colonial Development Corporation.

I.M. Difficult debate on Thursday because of pressure that C.D.C. shd. operate in new independent territories. I can stand this. But I can’t in addition defend Ty. attitude to Corpn’s. finance.
Ministers decided to limit to £130 m. and treat that as revolving fund.

Can just continue it on that basis. But with Ty. conditions in para.9. I cdn’t get a Board.

Para 9(a) I must rely on tight control of equity type operations.

9(b) This wd. leave Corpn. with no incentives.

9(c) Sinclair recommended higher : I agree to pari passu.

I suggest that ranking shd. be determined on each loan on merits (Ty. wd. have last word.)

H.A. In general we (C.O. and I) are in agreement. Remaining issues are not v. divisive.
On (c) I cd. accept I.M.’s proposal. Or, if he likes, outside loans can rank between our two classes of loan. Dpts. can settle that.

On (a) their record is v. bad. I was ready to put in another £3.2 m. to round off. & treat the total as revolving fund. I.M. wants £3 m. for new ventures also. Not keen to put new money in for new ventures. Must do that on Votes. Already known that £7 m. wd. have to be written off.

I.M. Good case for abolishing it & dealing direct. But, if we don’t, we must give it a chance to operate. Can’t therefore de-bar them from new equity business entirely.
H.A. To the extent that they can sell off some of their present commitments, they can operate in equity business with what they have saved.

Need I.M. be so specific in debate? Leave this until negotns. with Corpn.; and then I will try to be as accommodating as possible.

I.M. can say in debate Corpn. will continue in equity business, but there will be a ceiling and we shall treat it as revolving fund.

Surely I.M. can discover what Corpn. think of paras. a) and b).

And I’m ready to consider how these can be adjusted to meet their views.
P.M. Must make it plain that C.D.C. will continue.

In debate it can be said there will be equity element.

Method of arranging limits & control will have to be negotiated with new Corpn.
H.A. and I.M. to agree on formula to be used in debate.
Form of amendment to Motions approved.

C.C.40(60) 7th July 1960.

1. Parliament. [Enter M.R.

R.A.B. Business for next week.

2. International Monetary Fund.

H.A. We can move to Art.8. – in the sense that our economic posn. warrants it. De facto we now have all the restrictions applicable under Art.8.

At same time, we don’t want to move faster than others : and should do what we can to p’pone move by others rather than hasten it.

Draw attention to para.8 of memo. But drawing rights also depend on Fund being satisfied v internal economy.
France is not in a hurry to move : they may hold back the other members of the Six.
Para.9. of memo. No discrimination save v. currencies declared ‘scarce’. This wd. mean tht. we cdn’t discriminate v. all non sterling area countries generally. Unlikely tht. in future all countries of st. area wd. be willing again to discriminate v. dollars. Also Canadian position. Experience has shown tht. internatl. rules can’t prevent country from acting to protect its economic interests : no v. real risk therefore.
R.M. If we get into trouble, it wd. not be dollars only – non sterling countries – because so great a measure of general convertibility.
No advantage in rushing this. Danger to £ if we held back when others went forward.
D.E. We have raised Bank Rate etc. partly because of b/payment position : odd to move soon after to Art.8.
H.A. Unlikely we shall have to move before end/autumn.
D.E. Even so, mistake to do it unless confident that our economy can stand open competition in world trade. Have we that confidence now?

We shd. have no control over anything but transfers of capital.

P.M. Travel allowances – no proof of lack of confidence if we thought it wise to cut these back.
H.A. We cd. on a non discriminatory basis.
R.A.B. That is only difference. Under either Article we shd. have to justify our action to the Fund.
I.M. We shd. act on behalf of U.K. and Colonies. We shd. have to make it clear to Fund tht. Colonies on becoming independent cd. apply for membership of Fund on basis of Art.14. not 8.
P.M. Take note of memo and points in discussion.

Await developments.

Be prepared to decide when others move.

C.C.41(60) 13th July 1960

Europe. [Enter M.R., R.W.
P.M. Purpose of mtg.

Debate – aim for Monday week. Spokesmen : R.M. and F.O. Minister. Quiet and exploratory discussion.

H.A. Importance.

Political act with economic consequences – not reverse.

Our pol. posn. and influence in years to come wd. be less effective. Economic : main pro is indecision in large home market.
Arguments can – with present set up. Loss of economic freedom. Comm. preferences and free entry – we shd. be requd. to discriminate v. them. New policies for agric. & horticulture – lower subsidies but higher food prices (2% on c/l. index. Loyalties to E.F.T.A. not all of whom cd. subscribe to Treaty of Rome – viz., the neutrals. Finally, possibility tht. approach wd. be rebuffed.
Persuaded by arguments for getting as far in as we can w’out destroying Commonwealth link.
Alternatives : i) full membership of T. of Rome : not on, because wd. involve discrimination v. Commonwealth.

ii) membership on special terms. We wd. have to reserve control over our non European policies : some measure of free entry for C. products esp. for foodstuffs. Consequence : our preferences wd. be whittled away – we now enjoy them on 20% of our exports, & tho’ dropping they are of substantial value.

iii) assocn. short of membership. Easier to include E.F.T.A. But cdn’t win gt. influence over Six.

(iv) Build up E.F.T.A. Depressing outcome : never more than 2nd best.

Of these therefore I prefer (ii) or (iii). If that is our line, avoid hasty action. Keep in line with E.F.T.A. and bring them along in association with us. (ii) wd. mean end of E.F.T.A. (iii) wd. not. Cdn’t decently pursue (ii) unless majority of E.F.T.A. wd. join it too.
Those prelimy. ques. – a) what wd. France think of ii) or iii). If she wd. black-ball us for either, we shd. avoid approach. How can we find out?
b) Consult Key Doms. on their likely attitude to the price we wd. have to pay for ii) or iii). C. Finance Ministers in 3rd wk. of Sept. if we were ready. Canada. A. &N.Z. especially.
c) How do we influence opinion here – to accept danger of quick decision to join Six – a holding statement.
R.M. Memo. brings out dilemma. Six based on common policies, commonly determined & executed. Membership therefore involves abandonment of national policy - & U.K. consultn. with Doms. On other hand danger to us & market of size of U.S. with price/wage levels same as our own, with its threat to our world trade.
Memo. contains one big change in advice viz., no gt. diffies. in common tariff with Six if C. diffy. cd. be surmounted.
Two main diffies. – agriculture & C. Agric. effect mainly on consumer, not farmer. But C. diffy. remains. Our aim shd. be to get best agreement we can consistent with C. interests. Not impracticable, as E.F.T.A. shows, if Six were willing to find basis for agreement. Must wait for that.
Obstacles now. Monnet (likely to become more helpful) : Hallstein &Commn. (bldg. their posn. as v. Govts.) : France (concerned only with status of France as leaders of Six : they won’t want us) : U.S.A. (unhelpful – may change after Election). No early change likely in attitude of France & U.S.
Danger of Press pressure. People in Europe will think we are on run.

Need for holding statement to steady opinion. Must resist pressure to go cap in hand.

H. Long-term strategic and pol. needs – Atlantic & U.S. – strong reasons for going in. Balance G. influence, after de G. goes. Greater U.K. influence. Surrender of pol. sovereignty : others won’t do it – eg. France.
But in world context, more doubtful. Our influence has depended on our world outlook. We shd. now be looking inward to a European bloc. C. spreads throughout world and keeps us on world stage. If we look to Europe, Doms. will turn to U.S.
Present terms of Six wd. wreck N.Z. & damage A., Canada, Ghana.

On those terms we cdn’t join.

Agree that real choice is betwn. ii) and iii).

Further study needed. If we can increase earnings by £200 m. doesn’t matter how we do it. Why not thro’ E.F.T.A. and C.? cf. recent increase of exports to Canada. Suppose we cut imports from S. American and E. Europe, how much more wd. C. take from us.

If we tried iii) we shd. have to associate C. in negotiation. They won’t let us do this for them. Consult CF Ministers in Sept.
D.S. Until ii) and iii) are more closely defined we [Enter S.Ll.

can’t choose between them.

We face prospective decline in econ. strength & pol. influence unless we associate with Europe or with C. more closely. H’to always failed with C. – can we hope to succeed now.
We can’t sit and watch Six evolve : too gt. a danger.

Pol. implicns. don’t alarm me. We made mistake in not going to Schuman conference : Monnet feared/thought then tht. if we had gone, outcome wd. have bn. looser assocn. If we now joined alone, our influence wd. be great. If we went in with E.F.T.A. members we mght make a majority in favour of looser assocn.

Need now is to create genuine wish to negotiate on the other side.

We shd. be active in preparing way for these. Can’t be idle. Many interests to be educated.

I favour (ii) as ultimate objective.
K. See advantages of getting closer. But b) on p.33 : can we get a basis which doesn’t damage agric. and C.
Face also results. C. Ques 16-18. Stress p.22 para.4. Politically (p.27 para.5) v. serious. Apart from sentiment, remember value of C. as one instrument by wh. emergent countries can be influenced & steadied & one method of countering Communist pressures in Asia & Africa.
E.F.T.A. p.8. Ques. 9. Resentment.

Agriculture p.10. Fundamental change of policy : accompanied by higher food prices (7½% increase).

Risks therefore are damage to C., ‘perfidy’ to E.F.T.A. members destroy confidence of farmers in Tory Party & raise food prices. A pretty packet.
Even so, we’ve got to go on – seeking some solution : paras 12-16 of cover note.
Favour (ii) if we cd. get it. (iii) might fall betwn. 2 stools. Wd. lose us leadership of Europe. Without that as prize, risks above wd. not be worth running.
I.M. Agree that (i) is out of ques. Wd. disrupt Commonwealth.

Much to be said for making that clear in debate. U.K. Press has given impn. in Commonwealth that U.K. Govt. have decided to join on present terms.

Then we must try to get as close as we can. Problem then is political.

Some Colonies will suffer : but even so we must try to get as close as we can. Avoid rebuff. Play it slow therefore at official level.

But try informally to make it clear we cd. meet a response.

R.M. ‘Join on special condns. wd. be taken to imply radical change of policy.

D.E. Any chance of (ii) unless we break some pledges – eg. to agriculture : our scale of prodn. cd. not fail to be reduced. Public wdn’t stand that – & it wd. break Tory Party.
Suits Six that we shd. wait – for they are consolidating posn. The vitality of the Six is common feeling in favour of a larger unit in Europe. M’while N. and S. America will expand. So will Australia – parts of E.F.T.A. etc. Huge economic prizes to be won outside Europe : & if our industry is efficient we can win them.
Six have a bad pol. and moral posn. Algeria, Congo, and economic policies which disregard under-developed. Can we change that, even from w’in.
Can we touch this pitch?
While we flirt with this, we may break a spirit of C. Why shd. they keep their balances here? In our early days, we thought united Europe wd. keep with sterling : but now their currencies are strong.

A. and N.Z. and India might take their balances to N. York.

Six have a sense of purpose. Have we, strongly enough?

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