London, 30 May 1968
9000. Secret
This morning I had a talk with Harold Lever, the Financial Secretary to the Treasury at his request. I took Fleming with me. Lever is a rich man, seemingly Old Commonwealth-minded, and possesses a remarkable lucidity. He put forward a proposal for a way in which the Australian Government could assist the British Government over the next six months to ward off political pressures to impose further restrictions on British investment in Australia. I undertook to pass his proposal on to you for consideration.
2. Lever opened with some general comments on broad relationships between our two countries, and asserted that he had been opposed to the way in which the East of Suez matter had been handled. He said that he believed that on political grounds there was no question that Britain should remain east of Suez, and that the issue was solely an economic one of how large a presence Britain could afford. He criticised the reaction of some British opinion that because Britain could no longer afford an Imperial role in world affairs it should retreat to a Little England. He said he did not believe the Little England concept was acceptable to the British people as a whole, but that something in between was needed. I encouraged him in these views, emphasising that his Government’s defence decisions had injured Anglo-Australian relations.
3. Lever went on to draw a parallel with Britain’s reserve currency role. He thought that Britain was carrying responsibilities in this field beyond her resources but that the solution was not to throw away all the responsibilities. Instead, they should be reduced gradually to manageable dimensions. He claimed that he himself had been opposed to the devaluation of sterling and thought that other ways should have been found to accomplish the transition.
4. Lever said that there were hopeful developments in international cooperation towards new arrangements for supporting sterling while its reserve currency function was declining. He was probably referring to discussions we understand to be taking place between central bankers on a new type of Basle arrangement, 1 but he agreed that Fleming should be given as much information as the Treasury could divulge on what was under discussion.
5. Lever also said that he fully expected Britain’s trading position to show a marked improvement towards the end of the year and that he, as an anti-devaluationist, had never expected a rapid improvement. However, before real improvement could be demonstrated there would be a period of uncertainty, and during that period attention was bound to be focussed on such matters as the outflow of capital to Australia particularly for portfolio investment.
6. He agreed there was room for argument as to how large the outflow had been, but his officers had advised him that it was significant, and he mentioned a figure of £50 million as the abnormal outflow in the March quarter. I said that I thought there had been some exaggeration of the amount involved, but he replied that the problem was that the public had large figures in mind and that the Government was under strong pressure to control the flow.
7. Speaking for himself, and he thought also the Chancellor, he said he was most anxious to avoid such action during the crucial period of the next six months. It could have most damaging effects in the longer run which it might never be possible to erase. He mentioned the disastrous effects it could have on Stock Exchanges and the permanent loss of confidence in British investment which could follow. I interjected that it would also damage confidence in his Government.
8. His desire to leave unchanged the voluntary programme, and portfolio investment, led him to propose that the Australian Government should make a statement to the effect that they would be prepared to hold the abnormal inflow of capital from Britain in sterling during the period of uncertainty lying ahead. He believed that such a statement could be of immense value in warding off the political pressures. It could be quoted by the Chancellor to show that the investment in Australia was not burdening the British balance of payments. Also, it could be accompanied by a statement by the Chancellor that there was no intention of restricting the flow of investment to Australia which would bring to an end the uncertainties which were helping to stimulate the flow. He thought that if the Australian Government could reach agreement in principle to an approach of this kind, it should not be too difficult to work out the details. He emphasised that he was suggesting action by Australia only in the short-term, and said he would be ready to discuss the situation again in six months time in the light of developments.
9. Lever said he would write to me, but I thought you should have this account of the discussion straight away. I appreciate that the proposal will raise some large issues for you which will need to be considered carefully, but from my viewpoint I should like to say that the acceptance of the proposal could strengthen those well-disposed towards us in the British Cabinet against the left-wing. Equally important, if by this form of co-operation we can avoid Jenkins attacking portfolio investment, the balance of advantage might well lie with us.
1 See note to Document 258.
[NAA:M1003]