158 Mr M. MacDonald, U.K. Secretary of State for Dominion Affairs, to Mr J. A. Lyons, Prime Minister

Circular Cablegram B79 LONDON, 24 March 1938, 2.40 p.m.

IMMEDIATE

Following for Prime Minister:-

My telegram Circular B. 77. [1]

Following are the provisional terms of the passage relating to rearmament:-

His Majesty's Government have accordingly considered proposals for increasing the production and accelerating the completion of the rearmament programme. The details of that programme have been from time to time laid before Parliament. Recently in connection with the estimates for the defence departments, statements have been submitted to the House of Commons as to steps to be taken in the next financial year. The existing programme however has been carried out with the intention of interfering as little as possible with normal trade. In fact notwithstanding this limitation an increasing degree of priority over civil work has been gradually accorded to rearmament orders with the result that in some cases the execution of the orders for home and export trade has been delayed. The additional skilled and semi-skilled labour required by the programme has occasionally had to be provided at the cost of withdrawing labour from other activities.

Only by such means has it been possible to undertake large scale programme of production which in spite of some delays is now continuous and rapidly increasing in volume.

We had hoped that further acceleration with its consequent interference with normal commercial work might have been avoided but, as the House knows, we have always made it clear that the defence programme was flexible and was subject to review from time to time in the light of changes in the international situation.

We have now come to the conclusion that in the present circumstances acceleration of existing plans has become essential and moreover that there must be an increase in some part of the programme especially that of the Royal Air Force and Anti-Aircraft defence. In order to bring about progress which we feel to be necessary, men and material will be required and rearmament work must have first priority in nation's effort. The full and rapid equipment of the nation for self-defence must be its primary aim.

I gratefully acknowledge the way in which workers and employers have co-operated in carrying out the programme hitherto. Such a co-operation will be even more necessary for bringing to practical and early fruition the plans to which I have referred and the Government are confident that they can rely on the continued help and goodwill of all concerned. In the view of the Government it is not for them to try to dictate to great industries the detailed action which will be necessary for overcoming difficulties. It is in accordance with our traditions that these industries themselves through their joint machinery should work out details in which each is most likely to be effective. Steps are already being taken to inform organised workers and organised employers of the nature of the demands which the accelerated plan will make upon their industries and thus place them in a position to devise practical methods for meeting those demands by mutual arrangements and with a minimum Government interference. By such means it is expected that the volume of production which, in the new circumstances, is not sufficient for our needs will be substantially increased. The building operations necessary for the expansion of the three Services will be expedited. This will facilitate the process of recruitment of naval, military and air force personnel. The action already indicated will serve to accelerate the production of naval equipment. Similar measures will be taken for completing at the earliest date possible the erection of new factories. Further capacity with a view to advancing the output of anti-aircraft and other guns will be put in hand.

This priority will also enable us to expedite the programme of air raid precautions. The satisfactory response to the appeal for recruits in connection with air raid precautions is evidence of the widespread interest that is being taken throughout the country in this urgent question.

By these and other measures within the Defence Departments themselves for the purpose of ensuring full and adequate co- operation with industry, we are satisfied that we shall be able to facilitate production and secure the necessary acceleration of the Defence programme.

1 Document 156.

[AA : A981, GREAT BRITAIN 8B, ii]