DECISIONS OF POLICY AFFECTING THE FINANCIAL POSITION IN STAGES II AND III

A day or two before leaving for U.S.A. I mentioned to Sir R. Hopkins that I was uncomfortable about the possible cumulative effect of certain current decisions of higher policy (or, in the case of exports, lack of decisions) on our prospective financial position, especially in Stage III. He asked me to prepare a few notes and to ask Sir D. Waley to consider a more detailed examination of the case.

It will be convenient to begin with the latest estimate prepared in the Treasury (dated 1.9.44) of our overseas expenditures and receipts in the first year of Stage II, which I shall assume in what follows to be co-terminous with 1945. I shall argue subsequently that this estimate is in some respects too optimistic and in other respects too pessimistic. (In particular, a significant improvement will result if the Prime Minister's latest man-power directive is actually carried into effect.) But it will serve as a text to bring out the main points which I have in mind.

(1) The Chancellor should know that this latest estimate of our net overseas disinvestment in the first year of Stage II (say 1945) is higher than for any year of the war up to date, even on the assumption that lend lease and Canadian mutual aid continue on the same lines as heretofore.