I have received copies of the attached document for distribution. Ordinarily I would, in the light of the covering letter to me,1 distribute them without question, but before I take any action in this particular case, I feel I should acquaint you with a conversation which the Prime Minister had with me just a couple of days ago.
As you know, I was not present in Cabinet during the discussion on the Colombo Plan item. I am told that it became a little intense. Anyway, I can understand the keenness of your feelings on the matter and your desire to bring into the open and dispose of, once and for all, any misconceptions or arguments in this field.
However, the gist of the Prime Minister's conversation was that he had asked that the particular discussion should not proceed, and that he had said to Ministers that he proposed at an early opportunity to arrange a Cabinet discussion on what he considered to be the main question — i.e. the extent of Treasury control over the expenditure of money by Departments after the money had been appropriated.
I took him to mean that he wanted this discussion carried on strictly in relation to the principles involved without side issues such as apparently developed in the Colombo Plan discussion, and it is for this reason that I thought I should write this letter to you in case you wish to reconsider the question of circulation rather than act immediately to circulate the document.
RELATIONS BETWEEN THE DEPARTMENT OF THE TREASURY AND
DEPARTMENT OF EXTERNAL AFFAIRS AND OTHER DEPARTMENTS
I wish to refer in this note particularly to certain criticisms which were made in Cabinet yesterday of the attitude of the Treasury towards officers of the Department of External Affairs, with special reference to budgeting and procurement under the Colombo Plan.
I do not think it necessary to recall those charges, although my main object in circulating this note is to refer to one of them in particular.
2. I may say that I am deeply concerned that a Ministerial colleague should feel it proper to make general charges of a very serious character against un-named officers of my Department without warning me in advance of his intentions, and without bringing to the Cabinet table in support of his charges the documentary evidence which he alleges to exist. It is not new, of course, nor is it perhaps to be wondered at, that the Treasury should be the object of attack by some Departments, and even by Ministers, since it is the function of the Treasury to examine critically the spending proposals of Departments and to draw out fully for the information of Cabinet the financial and economic implications which underlie the policies proposed by the Departments concerned. If the Treasury did not occasionally come under fire for this reason it could safely be concluded that it was either incompetent or afraid to perform its normal functions.
3. There are two forms of attack, however, which I regard,as hitting below the belt, and I have been distressed in recent months to find that each of these forms of attack has been becoming more common. The first is the type of attack which was well exemplified during yesterday's discussions on the Colombo Plan, the nature of which will be fresh in the minds of my colleagues.
4. The second is the more insidious whispering campaign which is sometimes set in motion by disgruntled or jealous individuals, who, for the most part, do not have the strength of mind or character to make their attacks in public. It has been my experience, time and time again, that this form of attack is the more difficult to answer, mainly because those criticised never got an opportunity to state the other side of the case or to lay all the facts on the table.
5. My object in referring to this is to invite any Minister who has knowledge of any allegedly unreasonable or objectionable behaviour by the Treasury to bring it instantly before me for open enquiry and report—if necessary to Cabinet. I have from time to time heard indirectly of allegations, but I have ignored them on the ground that full publication of all the facts would usually have rebounded more against the accusers than the accused. The Treasury shoulders, however, are not so broad that they can be expected to go on indefinitely submitting to secret criticism and denigration. I am accordingly very serious in requesting my colleagues to bring any criticisms they may have against the Treasury to my immediate attention in written form, so that a full statement of the facts may, in appropriate circumstances, be placed before Cabinet.
6. I return to some of the statements made in Cabinet yesterday, one of which was to the general effect that Treasury officers were intolerant and arrogant in their dealings with officers of the Department of External Affairs in relation to the Colombo Plan matters. My enquiries have revealed that the two Treasury officers most directly concerned in this matter are amongst the most amiable, modest and competent officers of the Department, and those who know them will have little difficulty in accepting this statement. At a higher level there are less frequent dealings with the First Assistant Secretary (Financial and Economic Policy),2 who is not noticeably tainted with arrogance or intolerance. Very occasionally, the Secretary of my Department has exchanged formal correspondence with the Department of External Affairs on Colombo Plan matters and has on numerous occasions discussed them (to the best of my knowledge, amicably and without heat) with the Minister for External Affairs.
7. The last and most important occasion on which the Secretary of my Department communicated in this matter with the Secretary of the Department of External Affairs was on the 20th June, 1955, that is a little more than a week before the Cabinet discussions on the 28th and 29th. As the written record is a little more reliable than words spoken in the heat of the moment, I should like my Ministerial colleagues to be acquainted with the text of the Secretary's letter of that date so that they may judge for themselves the degree of 'arrogance and intolerance' which has been displayed in this Colombo Plan matter by the Departmental head of the Treasury. The text of the letter follows:—
20th June, 1955
Department of External Affairs,
COLOMBO PLAN: 'PROCUREMENT PROCEDURES' (NO. 2061/4)
I refer to your memorandum of 14th June, 1955,3 and to your further memorandum of the same date and same reference number entitled 'Colombo Plan' Procurement Procedures.4
2. The former refers to matters arising out of the existing procedures for procurement of Colombo Plan supplies, while the latter suggests a new set of procedures to replace those at present in operation.
3. Until the receipt of your memorandum I had been under the impression that we had been working under procedures satisfactory to both Departments except in respect of a few special cases where we considered that Treasury requirements were not being fully met. Except for those cases which, it is true, have been becoming a little more frequent, we had been reasonably well satisfied with the existing system and have been prepared at all times to discuss any improvements or modifications which might commend themselves to you. From the tone of the memorandum under reference it now seems that your Department is addressing itself to the possibility of presenting the Treasury with an ultimatum. Whether such an approach would accord fully with the desire expressed to me by your Minister that the relations between our two Departments should be improved by closer personal contact between ourselves and our respective senior officers I do not know. For our part, however, we are inclined to regret the course which this correspondence is taking and to ask that you discuss this aspect of the matter more fully with your Minister.
4. In coming to the substance of your first memorandum, it seems to me that you are inclined to overlook the essential character of the negotiations which proceed between our two Departments and between your Minister and the Treasurer prior to the preparation of the Budget. It has been the almost invariable practice of your Minister to seek for Colombo Plan purposes a rather greater share of our exportable surplus than the Treasurer has believed we could reasonably afford. In support of a higher rather than a lower budgetary allocation promises have been made of the closest possible co-operation and liaison between the officers of our Departments in order that the unfavourable impact on our owneconomy of Colombo Plan activities should be reduced to a minimum. In the light of those representations by your Minister the Treasurer has, on more than one occasion, gone further than he would otherwise have done in the confident expectation that the Departmental liaison would be mutually satisfactory and productive of good results.
5. This is one possible method of procedure and the one which broadly has been followed hitherto. There is another course of procedure open and one to which we would have no objection if in fact it commended itself to your Minister. Stated briefly, that is that the Treasurer should formulate his views on the basis that no special consideration will be given to a process of adjustment during the year to meet particular problems as they arise, and to agree to an allocation for Colombo Plan purposes within which the Minister will have full discretion, within prescribed limits, to expend Colombo Plan moneys as he wishes. When I say 'within prescribed limits' I refer to certain basic economic and financial requirements which the Treasury would regard as fundamental to acquiescence in any form of public assistance which would have repercussions on the internal Budget and our external financial position. In other words, if your Department now claims the right to make final decisions within an approved Budgetary allocation it must expect that Budgetary allocation to be less these it would be if a mutually satisfactory process of adjustment and accommodation can be envisaged during the course of the year.
6. While I am writing frankly about this question, I should perhaps refer to another tendency which I seem to detect in the correspondence. There appears to be some disposition on the part of your officers to relegate the Treasury to a position entirely analogous to that of other Departments to whom you are in the habit of referring Colombo Plan problems, and to ignore the fact that the major issues between us are matters of primary Treasury jurisdiction. In fact, in a number of instances referred to at various points in the correspondence you are a little inclined to counter our views with opinions obtained from officers of other Departments who themselves accept Treasury directives in regard to the policy issues involved. I refer, for example, to the question of the dollar component; or the International Bank Loan component, in Colombo Plan exports. It is quite true that the Department of Trade and Customs is responsible for the issue of export licences but it is equally true that the ultimate responsibility for the dollar balance of payments and the acquittance of our obligations under International Bank Loan Agreements is, and must remain, the responsibility of the Treasury. In exercising that responsibility we do in the ordinary course of every day business seek and give attention to the views of the Comptroller-General of Customs (with whom we enjoy a very happy relationship), but we do not expect for that reason to surrender our responsibilities to those who are carrying out the detailed administrative application of policy.
7. It seems to me to follow from what I have said above that our major problem is to decide on what basis our relationships should be founded with regard to budgeting for the Colombo Plan. Having decided that, I think the next step should be to enquire with somewhat more particularity into the reasons why the existing procedures have failed to work out to our mutual satisfaction. I am not prepared, prior to making a detailed examination, to deny that the Treasury could be at fault in some respects. From what information is already available to me, however, it would appear that most of the current difficulties have arisen out of the failure by your officers to apply accepted procedures which should have given mutual satisfaction. The misunderstandings that have resulted from this seem to have carried us into a seeming conflict on fundamental issues which is not, I suggest, soundly based. If I am wrong in this then it seems that we must have a very much more fundamental examination of the whole problem.
8. In this connection it would be very relevant to consider, not merely the more technical Treasury requirements, such as those relating to foreign exchange and so on, but the basic procedures of Treasury supervision and Parliamentary control of expenditures. This is a matter on which the Joint Parliamentary Committee of Public Accounts is currently displaying a very active interest, and one which is leading them to conclude that the block allocation of large sums of money to be expended at the discretion of a single Minister is a derogation from the rights of Parliament. I feel sure they would not be very impressed with a system of financial control by the Treasury which could result in large sums of money being appropriated on the basis of a submitted programme which a Minister is entitled to change at will after the money has been appropriated. I do not think that the Joint Committee would be so little cognisant of the need for adjustment and adaptation as to suggest that a forward programme should be blindly adhered to in every respect, but I consider it quite reasonable to think that the Joint Committee would expect the Treasury to ensure that funds are not made available for one purpose and used for another.
9. You may be inclined to reply that the alternative is Treasury intervention to the point where policy passes from the control of the responsible Minister to the control of the Treasurer. This would, however, be an over-statement of the position which I am putting to you, since we in the Treasury have no desire to control or direct the policy of your Department in these matters provided certain basic and essential requirements are met. On this we had assumed that we had no dispute with your Department, but if there should be a dispute on such procedures there is a very easy way of settling it. That is, to refer them to Cabinet for consideration and decision, and, this course would, I am sure, commend itself to the Treasurer. Before suggesting the preparation of a joint memorandum which would clarify the issues, however, it would be profitable to enquire just which Treasury requirements are contested by your Department so that the issues may be placed before Cabinet with accuracy and lucidity.
10. In the meantime, I suggest that we struggle on until the 30th June on the present basis, and consider these rather far-reaching issues in conjunction with the determination of the Colombo Plan allocation for the coming year.
11. Perhaps I need hardly add that I am available at any mutually satisfactory time to discuss these matters with you in person should you so desire.
(SGD.) Roland Wilson
Secretary to the Treasury.
8. I am not asking that this memorandum be discussed in Cabinet, but I await with interest any individual approaches by Ministers in response to the invitation contained in my foregoing comments.5
[NAA: A4940, C353]