Draft notes of a conference held in the Board Room,
Treasury, Whitehall, London
(Secret) (C.A./H./48 - 2nd Minutes)

 

Present
Great Britain.		Irish Free State.
The Right Hon. W.S. Churchill, C.H.,M.P., Chancellor of the Exchequer. (In the Chair)		Mr. W.T. Cosgrave, T.D., President of the Executive Council.
The Most Hon. The Marquess of Salisbury, K.G., G.C.V.O., C.B., Lord Privy Seal.		Mr. Kevin O'Higgins, T.D., Vice-President of the Executive Council.
The Right Hon. The Earl of Birkenhead, Secretary of State for India.		Mr. J. O'Byrne, K.C., T.D., Attorney-General.
The Right Hon. Sir John Anderson, G.C.B., Permanent Under Secretary of State, Home Office.
Mr. G.G. Whiskard, C.B., Assistant Secretary, Dominions Office.
Mr. P.J. Grigg, Treasury.
Secretaries.
Mr. T. Jones, Deputy Secretary, Cabinet Secretariat.		Mr. D. O'Hegarty, Secretary to the Executive Council.
Mr. A.F. Hemming, C.B.E.

 

MR. CHURCHILL said that the present meeting was the result of the wish of the British Cabinet to meet the desire of Irish Ministers who, it was understood, desired to discuss the financial position between the two countries.

MR. COSGRAVE pointed out the great difference between the financial position today in the Irish Free State and that which had obtained in 1922. Conditions had greatly worsened during these two years. In 1922 there were British securities amounting to £124,500,000 held in the Free State. At the present time these securities had been reduced by £12 millions, while £4 millions had been withdrawn from the British Savings Bank and British Savings Certificates. There were moreover considerable payments amounting to £3 millions in respect of Land Purchase Annuities.

The Import and Export position showed that in 1924 imports amounted to £65 millions, and exports to £49 millions, there being an adverse balance of £16 millions. In the first seven months of that year imports amounted to £38,387,000, and exports to £26,470,000, leaving an adverse balance of approximately £12 millions (£11,917,000). During the corresponding seven months in 1925 the figures for imports were £35,579,000, and for exports £22,430,000; the adverse balance was therefore £13,149,000.

In the Free State it was important to remember that there are 250,000 occupiers of uneconomic holdings, i.e., holdings of less value than £10 per annum: this represents approximately one-third of the whole people. There were in addition 212,000 agricultural labourers whose position could also be regarded as uneconomic. Where the whole of their wages were paid in cash, they amounted to 25/- or 26/- a week, while when they lived in house, their wages in cash did not exceed more than £25 per annum.

As another example, the progressive increase of value of hereditaments from 1864-1925 could be cited. The value in the 26 counties had increased during that period by £2,714,000 to £4,218,000, being a percentage of 55.4%. In the six North Eastern counties during the same period it had increased from £1,009,000 to £3,159,000, an increase of 187.4%.

As regards taxation, there was a heavier tax on beer in the Free State than in this country: this amounted to 20/- a barrel. It was true that there was no tax on tea, but the amount of revenue that the tea tax would have yielded was fully off-set by the Free State imposition on clothing and boots.

As regards social services, the Old Age Pensions Scheme in the Free State provided a smaller maximum pension by 1/- a week. Moreover, the Free State Government had not been able to fund their Unemployment Insurance.

MR. CHURCHILL asked Mr. Cosgrave whether he was still decided in his former attitude in regard to the boundary. Did he still wish to maintain the existing boundary rather than adopt the new one?

MR. COSGRAVE replied that he did so. Since his return to Dublin after the discussions of last week he had received something in the nature of an Ultimatum from the tail of the party which normally supported the Government in the Dáil. It was clear that exception would be taken to any agreement, if made, by which Article 12 of the Treaty would be rendered inoperative.

MR. CHURCHILL enquired whether he considered it possible to prevent the publication of the Award by the Boundary Commission.

MR. O'HIGGINS referred to the conversations that had taken place at Chequers with the Prime Minister during the week-end. He then said that the Free State Government could survive on the basis of the territorial status quo if they got compensation in one of two directions. It was necessary for them either to secure an amelioration of the conditions under which the Nationalists were at present living in North-East Ireland or to obtain some form of concession by which they would be able to deaden in the 26 counties the echo of the outcry of the Catholics in North-East Ireland. He would personally greatly prefer to secure the first of these alternatives and he had discussed the question with Sir James Craig. He had pointed out the disabilities attaching to the minority in the six counties. In that area there were not only a substantial force of Royal Ulster Constabulary and British soldiery but 45,000 armed 'specials', while in the remaining 26 counties of Ireland there were only 6,000 unarmed civic guards and 15,000 soldiers. The second disabilities attaching to the Northern Catholics was that proportional representation which had been imposed by the Act of 1920 on the six counties had since been repealed to the disadvantage of the Catholic minority. There had, moreover, been a scientific re-distribution of electoral areas that amounted, in effect, to gerrymandering. The result of this was that the minority had suffered further injury both in their Parliamentary representation and in local government.

The position of the minority in the Free State presented a strikingly different picture. Protestant Bishops in the 26 counties had borne witness to the impartiality of the Free State administration, and even Grand Masters of Orange Lodges in the three excluded counties of Ulster had declared publicly, even on the 12th July, their satisfaction with the fairness of the Free State rule. It would be impossible to find a Catholic in Northern Ireland who would say the same of that Government.

If, however, it was impossible to secure any form of alleviation for the Nationalists in the six counties, would it be possible for the Free State Government to obtain compensation in some other form? It was necessary for them to consider the position not only of those who might have had a chance of entering the Free State under the award of the Commission, but also of those who never had such a chance owing to being too far North. If it were possible to improve the position of the latter, it might go some way to cut at the dissatisfaction of the former.

He had, however, succeeded in making no headway on these lines in his discussions with Sir James Craig. The latter had stated definitely that he could not re-enact what he had repealed, nor repeal what he had enacted. He could offer nothing that would enable the Free State Government to maintain their political existence on the basis of the territorial status quo. It was clear, therefore, that the Free State Government would fall if they were to attempt to proceed on the basis of last Thursday's discussion. Their fall would have serious reactions in the Free State where the political position was of a most fluid character. There was no coherent party ready to carry on the Government in the event of their resignation. They would probably be followed by a weak coalition who would be unable to withstand the forces of those who were endeavouring to obtain a mandate against the Treaty.

He had informed the Prime Minister of the negative result of his conversation with Sir James Craig, and he had asked the Prime Minister whether he could make a contribution beyond the meagre offer of Sir James Craig in regard to the release of political prisoners. The Prime Minister had enquired what form such a contribution could take, and he had suggested that it might lie in the direction of a modification of Article 5 of the Treaty. He had made this suggestion, but he did not consider that it was the most desirable line. He would have preferred to secure amelioration for the Catholics in Northern Ireland.

LORD BIRKENHEAD was anxious to be clear on the points raised by Irish Ministers. There were in substance really two matters to which they attached importance: (a) the undue number of armed special Constabulary maintained by the Northern Government and (b) the re-distribution of Constituencies in Northern Ireland in so partial a manner as to be unfair to the minority.

MR. O'HIGGINS agreed, adding that an additional point on which they were concerned had been the abolition of proportional representation by the Northern Government.

Turning to Article 5 the position was that the Free State Minister of Finance maintained that financially there was nothing in that Article from the point of view of Great Britain. The Free State Treasury held, that with the legitimate 'set-offs' and what might be called the Colwyn considerations in regard to taxable capacity and necessary expenditure, the result would be that the contribution, if any, would be negligible.

If this was the correct view might there not result very favourable political reactions, not only in the Free State but also in Northern Ireland and in Great Britain, if the determination under Article 5 were anticipated?

There was at present intense discontent and alarm in the Free State at the published forecast of the Award of the Boundary Commission. There was no prospect of that Award being accepted as a fulfilment of the Treaty. It was true that a Free State Government might succeed in keeping the controversy off the physical plane of direct action but they could only do so if they could point to some other form of alleviation. It was essential to supply the people with some safety valve.

Any Government in the Free State trying to restrain the people would be forced to consider whether any way out of their difficulties lay through their membership of the League of Nations. The whole matter had been considered with the greatest anxiety by the Executive Council of the Free State and the result of these deliberations he had communicated to the Prime Minister. They were now convinced that the proposals of last Thursday were politically impossible for them as a Government.

MR. CHURCHILL suggested that it would be convenient if at this stage he were to state the views of the British Government in regard to Article 5. The British Government had throughout strictly adhered to the Treaty and when eighteen months ago great difficulties had arisen they had, none the less, carried legislation appointing the Boundary Commission over the head of Ulster's objections. The British Parliament had thus rigidly carried out the conditions of Article 12. There then followed the protracted labours of the Commission and the position now was that Free State Ministers were disappointed at what they understood to be that Commission's finding. He was bound to say that having now seen the map prepared by the Commission (which he had not seen when he had last seen Mr. Cosgrave) he could truly say that the result of the Commission's labours was very much what he had expected and meant when he signed the Treaty. The British Government felt that they had done everything to carry out the letter of the Treaty, and as regards the spirit of it their conscience was quite clear. They had from the beginning stated that they anticipated a finding of this character.

As regards Article 5 the Treaty was perfectly clear. When Article 12 had been disposed of, it followed under the Treaty that discussion on Article 5 should begin. It was impossible to forecast the result of the arbitration under that Article, though each side naturally had confidence in its case. The view of the British Treasury, after a full examination, was that an arbitrator might reasonably be expected to award Great Britain the sum of 155 million and if that sum were paid over a period of 60 years it would mean an annual annuity of £8 millions at 5%. If, however, following the analogy of recent International agreements the rate of interest were reduced to 3 %, the annuity for the same period would be 6 millions. It would be a very serious step for a British Government to renounce on behalf of the British taxpayer so substantial a claim, especially at a time like the present when economy in every field of national expenditure was being rigidly carried out. Retrenchments were being pressed in education, health services, unemployment allowances and the armed forces of the Crown. Such economies naturally created dissatisfaction and all those affected would certainly attack the Government if the latter were to forego what they regarded as important claims of the British Government under this Article. There was not only this to be considered but there were also possible reactions to be borne in mind on the Northern Irish contribution. There was very little doubt that the waiving of Article 5 would strengthen the movement in Ulster to reduce or abolish the Northern Irish contribution. There were also reactions in the other Dominions to be feared. Large repayments were now being made, for example by Australia, of money borrowed during the war for war purposes. Finally, there was the position of the loyalists in Southern Ireland who were very discontented at their position. They would certainly object to any waiving of British rights while the damages they had sustained had, in their view, only been met to an inconsiderable extent.

The British Government had considered this question on Monday afternoon and they took a grave and adverse view of the consequences of waiving Article 5. The British Ministers at the present meeting were not authorised to do more than open discussion and to exchange views. It would be their duty to report their discussion to the Cabinet. It was important in considering the financial position of Great Britain to remember not only the internal debt, the service of which more than covered the yield of income tax and super-tax, but also the unexampled payments amounting to £34 million per annum which were being made to the United States. The interest charged by the United States would in 1933 be increased by 1/2 with a consequent annual increase of £4,400,000, in the annuities to be paid¹. With this prospect in view it was essential that all the resources at the disposal of the British Government should be husbanded. There would, he believed, be an explosion of public opinion if the British Government were to abandon Article 5 although they had carried out to the letter the terms of Article 12.

MR. COSGRAVE reminded the Conference that the Treaty had been signed for two purposes. In the first place it was to make peace between the South of Ireland and Great Britain and in the second place to secure peace in Ireland itself. Article 12 and the proposed Award under it gave no satisfaction either in Northern Ireland or in the Free State. He had gathered that Sir James Craig was prepared to allow Article 12 to drop. The trouble had been of twelve or fourteen years standing and had been the cause of much bitterness. Peace over the whole of Ireland as the result of agreement between Northern Ireland and the Free State was, he believed, possible. Such peace would be of importance to the British Government also.

As regards the sum of £150 (odd) million, this was based upon a total figure of £7,840 million for national debt, but of this £2,000 million were due from the Dominions and foreign countries. On this account the figure of £150 (odd) million should be at once reduced to £120 million. Assuming, however, for a moment that the arbitrator decided that an annuity of £6 millions was due by the Free State how could they possibly pay such a sum? They had not succeeded in existing circumstances in balancing their budget and they would not be able even to maintain services at the figure estimated in this year's Budget. The British Government surely did not wish to see the Free State bankrupt. They had great difficulties to face and were handicapped by having no substantial industries; they had moreover recently undergone a civil war and they had at their credit no large investments. They had faced their considerable financial burdens and they were trying to rectify the position in regard to Irish trade, but it would be a long process.

As regards the Southern loyalists they had suffered no disability from Free State legislation. They could only make complaint in regard to one matter and that was the refusal of compensation for consequential losses. Compensation in such cases had in a few instances been granted under the Malicious Injuries Acts but these decisions had been set aside by the late Lord Chancellor (Sir John Ross).

It was, however, fair to point out that this decision did not fall on the loyalists alone. It was equally true of other sections of the community including the supporters of the Free State Government. Incidentally he did not consider the House of Lords plan for dealing with this question satisfactory, but the problem did not appear to him to be incapable of solution. If the present difficulties were overcome, it might be possible - he could not, of course, pledge himself - to consider what flat rate of addition might be added.

MR. CHURCHILL asked whether he attached most importance to the amelioration of the treatment of Roman Catholics in the six County area.

Article 12, was to determine how much of Northern Ireland, as fixed by the 1920 Act, should have the right of remaining outside the Free State and to continue a separate political existence. Sir James Craig had referred to the abstention from the Northern Parliament of the Nationalists' members. The reason for this was, of course, in regard to the boundary. They felt that the position of their constituents might be prejudiced if they entered the Northern Parliament before the boundary question was settled.

Free State Ministers had always thought that they had seen confirmation of their view of Article 12 in the statements by the British Signatories to the Treaty. He referred to speeches by Lord Birkenhead and Mr. Lloyd George in December, 1921. It was impossible to mince matters, and he felt it right to say that the proposed Award was regarded in the Free State as a grotesque travesty of the Proviso to Article 12. The Free State Government were politically bankrupt and they were earnestly searching for a way out with a sincere desire for peace. They could, however, only say that the Treaty had broken down in this respect. The elements which always challenged the Treaty would in this way have at least a negative victory.

LORD BIRKENHEAD enquired when in point of time the Free State crisis would come. When was their Debate in the Dáil?

MR. O'HIGGINS replied that Mr. Johnson, the Leader of the Labour Party, had challenged a Debate last week. The Dáil expected to meet tomorrow (Wednesday) but it could perhaps be put off, though only for a short time. A definite line must be taken by the Free State Government within the next few days.

LORD SALISBURY said that the British Government took a rigid view of the obligations of Article 5, but he fully understood, and indeed sympathised with the Free State anxiety in regard to the position of Roman Catholics in Northern Ireland. He saw, however, a very great difficulty in correlating this attitude with the desire for relief under Article 5. Indeed he thought it a dangerous position to occupy.

MR. O'HIGGINS admitted that the Free State Government would be open to the taunt of having sold the Roman Catholics in Northern Ireland, but such an argument would only be a half truth. The fact was that the Proviso to Article 12 of the Treaty had completely broken down. The proposed Award touched the fringes of Northern Ireland only; it did not comply with the Free State conception of that Article of the Treaty. Free State Ministers had discussed the possibility of maintaining the Territorial status quo, and they believed that they could face the position which this would create if they could obtain substantial alleviations for the Roman Catholics of the six counties or if they could secure the elimination of Article 5. In the former case the outbreak of feeling might not be great. He had personally tried with Sir James Craig to secure a settlement on these lines, but he had failed. There would no doubt be an outcry from the Roman Catholics who would get no relief, but could not the Free State Government get some form of concession to prevent that outcry finding an echo in every one of the twenty-six counties in the Free State. The position would no doubt be invidious, but the Roman Catholics in the North would[,] it seemed, be let down in any case. The position was that the proposed Award was impossible, and that even the territorial status quo would be impossible unless the Free State got something in addition. It was clear that the forecasted line was not based on the wishes of the inhabitants, but was in fact the line of least resistance and had been adopted as such by the Commission, who saw on the one hand a large force of Special Constabulary and a truculent Government in the North, while in the Free State there was only an unarmed civic guard.

The actual promulgation of the Award, if made, would no doubt create a definite legal position in the face of which it would be the height of folly for the Free State Government to fly, and it would be the duty of the Free State Government as far as possible to restrain the feelings of their people but they could not do so on the ground that the Treaty had been fulfilled because through such an Award they did not consider that it had.

The Free State Government could ride the storm on the basis of the territorial status quo if they could get Article 5 waived. It was important in this connection to bear in mind the recent statement by de Valera in which he had pointed to the proposed Award of the Boundary Commission under Article 12 and had urged the people to brace themselves to meet a similar shock when arbitration took place under Article 5. Until recently the republicans had been divided but the way in which Article 12 had worked would be looked upon as a forecast of the way in which Article 5 would operate.

MR. COSGRAVE referred to another suggestion which had been made, viz. that the Oath should be made optional by modification of Article 4. Those in favour of such a course would argue that owing to the breakdown of Clause 12, by which it had been hoped to bring in more members to the Dáil, the only other way of strengthening that body would be to let in the 48 republican Deputies. Such a course, if adopted, would give poor chances of stability for the State and it would moreover make the republicans a political entity which they were not at present. Great benefits might be hoped to follow if agreement were reached with Sir James Craig. Indeed, there was already a change of atmosphere for the better.

MR. CHURCHILL suggested that the Conference should meet again at 4 p.m., and added that in the meanwhile he would confer with the Prime Minister. It was clear that definite conclusions could not be reached today and he expressed the hope that Mr. Cosgrave and his colleagues would be able to stay in London to continue discussion on the following day.

MR. COSGRAVE undertook to alter his plans and to remain in London for the night.

MR. O'HIGGINS said that there were other reasons apart from those already advanced in favour of waiving Article 5. The Irish Free State had been challenged in its infancy by civil war. In the first year of its life it had to pay £7 millions for its army; in the second year £101/2 millions and subsequently £4 millions. A great amount of material destruction had resulted from the civil war and the compensation that followed was an added burden in no way contemplated at the time of the Treaty. The Irish signatories to the Treaty had stood by their bond. Two of them had indeed died in that service. Due weight should be given to these considerations in discussing the method of dealing with this Article of the Treaty.

The Conference then adjourned until 4 p.m.