London, 20 April 1967
842. Top Secret
Please pass the following message from the Prime Minister to Mr. Holt as soon as possible.
Begins.
I arranged with George Brown that he would take the opportunity of his visit to Washington for the SEATO meeting to let Paul Hasluck and also the Americans and New Zealanders know about the latest developments in our thinking about our future long-term defence arrangements in the Far East. But I thought I would let you have a personal message to explain the broad background.
2. We have been giving a great deal of hard thought to our general economic position and the need to get our long-term policies, both at home and overseas, into a pattern which will ensure a healthy economic basis for this country’s future. Since the last war we have faced a recurrent series of economic crises: we have been living on a knife-edge so far as our balance of payments is concerned. In the short-term we have been making very good progress and have succeeded in getting sterling strong again. But we are determined to get the long-term pattern right.
3. One vital element in our programme, as the Chancellor emphasised in his budget speech, is that we should bring our long-term public expenditure programme into line with growth prospects as we now see them. Within this general picture the size of our total government expenditure overseas must be a matter for grave concern. This is at present running at some £550 million per annum, and on this scale it constitutes a burden which we cannot afford and which is indeed out of scale with anything undertaken by other countries with comparable resources to ours. Defence expenditure overseas represents the largest single item, and we must therefore arrange our long-term policies so as to effect very substantial economies in the defence field.
4. Our defence expenditure in all theatres has therefore been under examination within the continuing process of the Defence Review. In Europe we have, at some considerable political cost, secured for this year offset arrangements with the Germans which will substantially relieve the foreign exchange burden, and we are hoping to make force reductions in Germany both in short and in the longer terms. In the Mediterranean we have decided upon very considerable reductions and are putting them into effect, although, in the case of Malta, they have, as you know, involved us in difficulties. We are also cutting down in the Middle East, where we shall, of course, be pulling out of Aden entirely. Taken together, however, these reductions will not be sufficient.
5. Our defence expenditure in the Far East represents at the present time a disproportionate amount of our total defence expenditure, and it is clear that, in order to get the general pattern right, we must aim to reduce our expenditure there as soon as practicable. With the ending of confrontation we think it right to envisage early reductions to bring our expenditure and force levels in the near future below those envisaged in the 1966 Defence Review. We have therefore been studying what would be involved in reducing our forces to half the 1966 Defence review levels in Singapore and Malaysia by around 1970/71. It has become apparent from these studies that we cannot secure the most effective and economical military programme unless we project our planning beyond 1970/71 and fit our shorter-term reductions into a longer-term programme. As you know, many of the most important elements in the structure and equipment of defence forces have to be settled many years in advance, and we cannot, therefore, avoid the need to reach firm planning assumptions projected well into the 1970s. This has led us to the view that, in the light of broad economic and political considerations, the best planning assumption on which we can now operate in relation to the Far East is that we shall have withdrawn from Singapore and Malaysia by some time in the mid-1970s. In this context the possibility of our using facilities in Australia, which our military people have been looking into, is something which we will both wish to think over and possibly discuss at a later stage.
6. We feel that there are very good reasons for planning well ahead. Firstly we hope to prevent—so far as it is possible to do so—the precipitate adjustments which a severe economic crisis here or a sudden political shift in the area might impose. Secondly we have to be continually aware of the need for an orderly reduction for military and administrative reasons: the reductions of our forces in the Far East will coincide with reductions in our forces in other parts of the world, and they will have to be carefully co-ordinated so as to ensure that our logistic arrangements are not strained intolerably and that morale is not shattered by expediency. All of this adds to the need for taking a long look ahead.
7. These are very important matters for us, and I fully understand how important they are for you, as well as for New Zealand and the United States. In Malaysia and Singapore we must not create a disorderly situation, and we shall be examining how best we can help on the economic side, since in Singapore in particular, force reductions will have a large effect on the country’s own economy. Denis Healey will be taking some initial soundings of the Tunku and Lee when he visits Far East Command next week.
8. In short we need to make substantial budgetary and foreign exchange savings and to make progressive changes in our forces in the Far East within the kind of framework I have outlined. I would welcome any proposals and suggestions from you. In particular we shall wish to exchange views with you as to how best progressive reductions in our forces can be made, taking into account the future role of your own forces: the precise form of our reductions is still to be worked out. For reasons of our overall planning of public expenditure we shall need to come to a view on our future defence arrangements in the Far East, at any rate so far as the broad issues are concerned, in July. I am therefore very much looking forward to your visit in June, when we shall be able to discuss matters personally before we arrive at the point of decision. In the meantime we shall wish to consult closely with you, and, of course, with the Americans and the New Zealanders.
9. None of this as you will understand affects our firm intention to stand by Australia as Australia has stood by us in two World Wars. When Michael Stewart said this in Canberra he spoke for all of us. 1 By the mid-70s we shall be able to back this up effectively and economically—as was made clear in the 1966 Defence White Paper—through the development of transport capacity for the rapid movement of defence forces rather than through relying on large overseas establishments on the ground. You will have seen that George Brown made perfectly clear in Washington our continuing interest in the Far East. As he put it, in his speech at the opening session of the SEATO Council meeting, ‘Our association with East Asia goes back over a very long period of time. We intend to continue that association and we believe that is what the people of the area wish us to do.’
Ends.
1 See Document 59.
[UKNA: FCO 46/54]