Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

13. Telegram From Prime Minister Wilson to President Johnson¹

London, October 24, 1964.

T57W/64. Following is message from Prime Minister to President.

My first task on forming my administration has been to undertake with my senior colleagues a thorough review of our present financial and economic situation.

We knew, while in opposition, that the position was deteriorating: but we deliberately refrained from turning it into a major election issue in order not to undermine confidence.

Now that we have examined all the facts I find the situation is even worse than we had supposed. In brief, we are faced with a probable deficit on external account for this year which may be as high as 800 million: and a suspected deficit, for next year, if we do nothing about it, which, while much less, would still be quite unacceptable.

My colleagues and I have therefore determined to take firm remedial measures. In deciding on our programme of action we have been guided by two main purposes. First, to avoid a repetition of the stop and go policies which have plagued the steady growth of the British economy since the end of the war. Secondly, to ensure that the short term measures which are necessary to meet the immediate situation should not hamper our action to get the balance of the economy right for the longer term.

We have considered and rejected two alternative courses of action: the first, with all its repercussions on the international exchanges, will be obvious to you, and this we have rejected now, and for all time: the second, an increase in interest rates, I am against in principle both because of its restrictive effect on the economy and because of its impact on your own problems, especially at this time. Our immediate situation has to be dealt with by means which we would, of course, have preferred to avoid both for the sake of the British public at home and our friends overseas.

On Monday, the government will be telling the nation what the situation is and announcing an eight point programme to set the economy moving on the right lines.²

The programme in brief is as follows:

1. Steps to reduce imports from all sources by imposing a system of temporary charges on all imports, with the exception of foodstuffs, unmanufactured tobacco and basic raw materials.

2. Plans to increase exports, including a scheme for relieving exporters of some part of the burden of indirect taxation which enters into the cost of production of exports, unimproved export credit facilities, the establishment of a Commonwealth exports council, cooperative selling arrangements for small firms.

3. Consultation with both sides of industry on plans to increase productivity and to evolve an incomes policy related to productivity: A price review body to be established.

4. A policy to make it easier for workers to change their jobs in accordance with the needs of technological progress.

5. A policy to foster more rapid development in the underemployed areas of the country.

6. A strict review of all government expenditures. The object will be to relieve the strain on the balance of payments and to release resources for more productive purposes by cutting out expenditure on items of low economic priority, such as prestige projects. The government are communicating to the French Government their wish to re-examine urgently the prestige project.³

7. The social programmes of the government to be unfolded in the Queen’s speech.

8. Consultation with the International Monetary Fund on the use by the United Kingdom of its drawing rights.

I have thought it right to let you know what we propose in advance of any public statement, first because I set great store by close and continuing co-operation with the American administration over the whole international field, economic and commercial as well as political and military, and also because my colleagues and I are most grateful for the co-operation we are receiving in these difficult times from the United States authorities. Some of the measures we shall have to take will hurt, but I can give you my assurance that not only are they temporary and not intended to be protectionist, but we consider them essential if we are to have a strong economy as a basis for playing our proper part in international affairs.

We have sent Sir Eric Roll⁴ to explain these measures in more detail to members of your administration.

The Foreign Secretary will be in Washington this coming weekend and will be able to put our action in the economic [illegible source text] into the perspective of our general approach to international problems.

1. Source: Department of State, Central Files, FN 12 UK. Top Secret; Exdis. The times of transmission and receipt are illegible.
2. On October 26, the British Government announced a plan to correct the United Kingdom’s balance-of-payments deficit, estimated between 700,000 pounds and 800,000 pounds for 1964. The plan’s principal measures comprised a 15 percent surcharge on all manufactured or semi-manufactured imports and a system of export rebates averaging 1–1/2 percent.
3. Reference is to the Concorde airplane, a joint French-British Government effort, which was considered a “prestige project.” Prime Minister Wilson’s wish to re-examine the Concorde project aroused deep concern in France, and Roy Jenkins, U.K. Minister of Aviation, visited Paris October 29–30 for talks with several French Ministers.
4. U.K. Permanent Under Secretary, Minister of Economic Affairs.