I enclose herewith a record of a long conversation which I had with, the, Prime Minister  on Tuesday last  with regard to the rearmament position in Great Britain. Attached to the record are the notes I made before my interview.  While I did not use these notes in my conversation they were so clearly in my head that I more or less followed them. I did not give to the Prime Minister all the figures which appear in the Notes I gave him rather more of them than appears from the record of the conversation, and in every case even if I did not give him the exact figures I gave him percentages or the proportional relationship to other countries. This point is of importance because the Prime Minister in no way challenged any of the figures which I had used. This, of course, does not mean that he accepted them all, as no doubt they were not all in his head but I am quite clear that the position was broadly known to him and that he was aware that it was approximately as I indicated even if not absolutely.
I have no doubt that the facts will be a considerable shock to you. They are certainly not known outside a very limited circle in this country. The general public is under the impression that now we have set our hand to rearmament we are rapidly making up our deficiencies and overtaking other countries. They have, I fear, a comfortable feeling that if the trouble can only be staved off for another year or so that we shall then be in a position to cope with any trouble that might arise.
The question which must inevitably arise in your mind after reading the enclosures is what step should the Australian Government take in the matter. My own view is that for the moment you should do nothing. As I say in the comment at the end of the record of my conversation with the Prime Minister, I am fairly clear that he does now grasp the seriousness of the position and he will probably immediately go into the matter himself. If he does I think we may anticipate immediate results.
The position here is a very different one since the change over from Baldwin.  In Baldwin's day everything was allowed to drift and there was no directing mind with regard to the Government's policy. With the advent of the new Prime Minister all this has been changed and he is personally playing a very active part with regard to all major questions. He has already taken a firm grip with regard to Foreign policy and our relations with other countries and it is the Prime Minister himself who is behind the moves which have recently taken place in the International sphere.
Up to date with the many other preoccupations which he has had, I do not think he has had time to take a hold of the rearmament question. I also feel that he had not realised the seriousness of the situation and the necessity for some accelerated action. I think he now quite clearly appreciates the position and I anticipate he will immediately take a hold of the problem himself.
If he does so I feel fairly happy that we shall see a very marked improvement in the situation so far as Air Defence is concerned, by which I mean the more rapid production of the necessary A.A.
guns and other defence requirements. This is a problem that his practical mind is well fitted to deal with and provided I am right in my impression that he is now alive to the necessity for action, I would regard the Prime Minister as probably the best conceivable person to deal with the situation.
With regard to the other equally necessary action, namely in connection with Air Protection, I am doubtful whether the Prime Minister is the right man to deal with the situation. To bring about a great acceleration here will need drive, imagination and a power of public appeal. These qualities are not the ones with which the Prime Minister is preeminently endowed. I feel here, however, we must wait to see what happens.
The Minister mainly responsible would be Sam Hoare, as Home Secretary. He is tremendously ambitious and is working strenuously to obtain for himself the succession to the Prime Ministership.
Action in connection with Air Raid precautions would afford him a great opportunity and possibly he may take advantage of it, but again, he has hardly the qualities which are necessary for the task.
The answer to the question I have put above, namely what should the Commonwealth Government do, is, I suggest for the moment, nothing. It is necessary to wait and see what results from my conversation with the Prime Minister. if, however, by the time you have received this letter, which will not be until the later part of January owing to the necessity of my sending it by sea, there appears to me that any useful action could be taken, either by a direct communication from yourself, or by my seeing the Prime Minister on your behalf, I will cable to you.
There is no need for me to stress to you how confidential and even explosive the information is which I am sending in this letter. I would strongly urge that you should not disclose it save to perhaps one or two of your colleagues such as Menzies and Casey.
 In regard to the latter it is desirable that he should know the facts as I indicated to him in one of my telephone conversations that it appeared to me possible that Australia might have to go even further than she has with regard to her Defence expenditures but when telling him this I indicated that the reasons for my view were of such a confidential character that I could not communicate them to him over the telephone.
S. M. BRUCE