The Defence Budget, 1945–50

Abstract

The desperate condition of the British economy in the immediate aftermath of VE day is well known. Keynes provided a vivid summary of the problem for the new Labour government in the first week of August 1945. Britain had accumulated overseas debts of about £3,100m and had lost about £1,100m worth of overseas income through sale of overseas assets, and about £7,000m (25 per cent of national wealth) on the costs of the war. Between 25 per cent and 30 per cent of merchant shipping assets had been sunk, and although exports were yielding about £400m, the balance of payments was in deficit owing to the need for £1,100–£1,200m to maintain wartime levels of consumption.² Following the surrender of Japan, problems were exacerbated within days by the termination of Lend-Lease from the United States and Mutual Aid from Canada. At a stroke, Britain was cut off from £1,350m of vital assistance. The landmarks in post-war economic reconstruction in Britain are equally familiar: from the Washington Loan of December 1945 to the convertibility crisis of 1947; from Marshall’s speech and the beginning of the European Recovery Programme, to the devaluation crisis of 1949. In spite of American assistance, Britain remained economically destitute during the Attlee governments, a constant factor in civil and military thinking about Germany, Europe and strategy generally.³

There is an occasional caricature-stereotype of defence planning which supposes that it is — or if it is not that it ought to be — a basically simple linear process. One starts by identifying one’s commitments; one assesses professionally what forces are needed to meet them; one costs these; and then one sends the bill to the Treasury, which pays up. It is not only in the final particular that this model departs from reality.

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