811.24/1489½
The British Embassy to the Department of State
Memorandum
His Majesty’s Government are anxious to grant reciprocal Lend-Lease aid to the United States of America on the most generous scale possible and are well aware of the political importance attaching to the matter, but the extent of the assistance which they can give is necessarily affected by their financial position. The United Kingdom is already defraying war expenditure equal to sixty percent of the national income and the rates of taxation in force are the heaviest of any of the United Nations.
Progress towards a financial settlement is now urgent and H. M. G. submit that the present financial arrangements are increasingly inappropriate. Munitions supplied from our pre lend-lease contracts are now regarded as being at the disposal of Combined Boards and are allocated by these Boards in accordance with strategic needs. The move towards a pool of overseas resources is further emphasised by the reciprocal lend-lease proposals, the principle behind which we accept and warmly approve.
[Page 545]It seems quite inappropriate in present circumstances that we should be required to ship to the United States currently mined gold, which can surely be of little value as an addition to United States resources, to pay for munitions which will be as much at the disposal of the United States as at ours. We can only obtain such gold by increasing our overseas indebtedness and even if we had no payments to make in the United States or Canada and were acquiring no gold, we should still have to increase our overseas indebtedness by upwards of £400 millions this year to meet our growing expenses elsewhere. This point is frequently overlooked. It is not merely that we export less and import much more from the United States and Canada. The same thing happens with every other country from which we draw supplies.
The annual increase in the liabilities now being incurred by the United Kingdom to countries other than the U. S. A. and Canada, is not less than four times the total amount of the present output of gold by the sterling area, and H. M. G. are anxious that the gold output should be retained as a partial reserve against these liabilities. At the same time the possibility of holding or accumulating a reserve has been heavily reduced by the loss of tin and rubber exports, by the loss of exports, which it is impossible yet to estimate, from India, and the absence or shortage of shipping, labour and raw materials resources in the United Kingdom itself.
H. M. G. suggest as a general principle that from now on there should be no transfer of capital assets or of gold between the United States and the sterling area, and that at the same time the sterling area should not accumulate dollars over and above an adequate working balance. If this is to be done a new settlement involving the remaining pre-lend-lease contracts is urgently required.
If arrangements can be made to carry this general principle into effect, H. M. G. would hope not only to extend reciprocal lend-lease aid on the desired scale, but also to avoid difficulties and possible criticism arising out of the bringing of borderline or doubtful cases within the ambit of the lend-lease system.