30 June, 1927.]

Chairman.

6894. We come now to paragraph 3 of the report of the Comptroller and Auditor General, and we will take along with that, pages 6 and 7. You will notice on page 7 there is a deficit of £283,000 odd, but if you turn to page iv I think you will see there is really an actual saving of £156,000. Sir Malcolm, have you anything to say on that?-(Sir Malcolm Ramsay.) This point was brought before the Committee in connection with the Abstract of the Air Ministry Account. I ventured to suggest that the Abstract was somewhat misleading, as it suggested there was a deficit, whereas really there was a surplus, and Mr. Watson told the Committee that this point was being considered so as to make the outturn a little clearer in the Abstract. It affects both the Army and Air Force whose Abstract is prepared almost exactly on the same lines, and it affects also the Navy, which has a much more which complicated form of Abstract avoids the particular difficulty that I call attention to here, but has added difficulties of its own through its complication. I hope before next year the Treasury will be able to get the three more uniform and perhaps clearer.

6895. Have the Treasury anything to say? (Mr. Fass.) No. It is technically

[Continued.

correct, but it does give a misleading impression. We will attempt to avoid it in the next statement.

Major Salmon.] We are not dealing, presumably, with the actual amount of money which was voted and the amount of money which you actually spent?

Chairman.] No, I think we should leave that until we come to the Account itself

Major Salmon.

6896. Where I find myself a little confused is that we are told these accounts work out very well, but I think I am correct in saying that you have supplementary votes. What I want to understand is, how is it that it is necessary in a service like the Army to ask for supplementary votes, because, presumatly, at the start of the year you are in a position to get a flat sum? (Sir Herbert Creedy.) I do not think there was any supplementary estimate in the year under review. There is one this year because of Shanghai. That 18 definitely and specifically because of Shanghai.

Chairman.

6897. Have you anything to say on paragraph 4, Sir Malcolm?-(Sir Malcolm Ramsay.) This paragraph gives the net result. You will see the total surrender on the Army Account for 1925-26 comes down to 0.35 per cent. of the Estimate. That is the best they have done since the War, and indeed is better even than the pre-War standard. The average surrender in the last 14 pre-War years was 13 per cent. of the Estimate.

6898. I congratulate you, Sir Herbert. Paragraph 5 deals with the financial adjustments between the India Office and the War Office. What is the position with regard to Aden?-(Sir Herbert Creedy.) The position with regard to Aden is that the Cabinet have recently decided that the British expenditure on Aden shall be borne on the Middle Eastern Vote of the Colonial Office; the military expenditure will be borne by the War Office, and we shall recoup ourselves from the Middle Eastern Services Vote.

6899. A little lower down there is a reference to Non-Effective Services. Is there an early prospect of getting a settlement in regard to those?-It

30 June, 1927.]

depends in the first place upon a settlement of outstanding war claims and counter-claims. That has been before the Cabinet, but no decision has yet been reached. We were providing in this general war settlement for the provisional payments of 1925-26 and previous years to stand as final. That is part of the general give-and-take of the proposed war settlement.

6900. That does not include the payment by India for sea transport, does it? That particular matter was noneffective. Sea transport is on the basis of a recommendation of a recent Interdepartmental Committee's Report. The Report of the Committee has been accepted by all concerned, and this adjustment is final. (Sir Malcolm

Ramsay.) That is as regards 1925-26. There is an open question as regards the years intervening. (Sir Herbert Creedy.) Yes. Adjustments for the previous years are taken up in the general proposals and counter-proposals in the War settlement.

6901. When do you hope to get a settlement?-The matter is before the Cabinet, and it is really for the Cabinet to say.

Sir Assheton Pownall.

6902. With regard to the payment to India for the Imperial share of the cost of the Aden Garrison, what is going to be the arrangement with regard to India paying us a certain amount if we are going to bear the cost ourselves in the future?-India is to make a contribution. It is explained in the current Estimates: "The military expenditure will be borne in the first instance by the War Office subject to reimbursement from the Middle Eastern Services Vote, which will be credited with an annual contribution to be paid by the Government of India, viz., £250,000 for each of three years, and thereafter £150,000, subject to a maximum of one-third of the cost of the garrison."

6903. Will the cost to the British taxpayer be larger in the future because of this change of system, than it has been in the past? That largely depends upon the size of the garrison, and that question is now under consideration.

6904. It rather looks to me on these figures as if we shall be paying an extra £100,000 or £200,000 a year. With regard to sea transport, has India agreed to the unified system on the lines of the

[Continued.

Committee's Report ?-Yes, the Report has been formally accepted by all concerned.

6905. So that there will not be in four or five years' time amounts brought forward that are still being brought forward for 1919-20?-We hope not, because they will have been settled as part of what I call the War settlement.

6906. Active steps are, I gather, being taken with regard to the adjustment referred to in the last part of paragraph 5-Yes, it is all included in the War settlement.

Chairman.

6907. Paragraph 6 deals with East African War Expenditure. Is there any chance of receiving any of this money, Sir Herbert?-I believe the money will go straight to the Exchequer.

6908. Have the Treasury any expectations? (Mr. Fass.) The agreement is, not to bring the point up until 10 years after 1925. Perhaps the Committee will remember the position with regard to these Colonies. It is set out in the Finance Accounts of the year. So far as Kenya and Uganda were concerned, as late as 1923-24 there was a loan of £3,500,000 without interest for five years, and with regard to Nyasaland there had been a loan in aid of administration for every year since 1921 until 1926. It was quite clear that it was no good attempting to come to a firm arrangement as regards the interest to be paid on those loans unless there was some prospect of the Colony being able to meet the payment out of their own resources, which they could not do on these figures, and on that account it was agreed to leave the question of interest over until a later date when we could see better what the financial position of the Colony was likely to be.

6909. Has any of it been paid?-None of it.

6910. Did not Uganda pay something? -(Sir Malcolm Ramsay.) Yes. Uganda paid about £115,000 in a lump sum. That is allowed for. This figure here is the net sum outstanding after that payment had been received.

6911. What about the last paragraph, Mr. Fass, referring to the liability of Nyasaland? What will the Treasury do in regard to that ?-(Mr. Fass.) I think this loan is in the same position as the other loans which are at present without interest.

30 June, 1927.]

Sir John Marriott.

6912. You say that it is in the same category, but this paragraph says that it is in a different category?—I meant as regards interest.

6913. Why is that? Will you explain? -(Mr. Watson.) The position is that we are still making loans to Nyasaland in order to meet their current expenses of administration, and until they can meet their current expenses out of current revenue the Treasury has felt that it is little good pressing them for interest, or even repayment of the War expenditure.

6914. But Uganda, we understand, has paid something?-Uganda paid a proportion of its liability originally. There is a balance of debt due from Uganda which is in the same position as the debt due from the others.

6915. You mean the net amount of £533,000?—Yes.

6916. Why was Uganda in a better position to pay, for example, than Kenya? -They were certainly managing better as regards their income and expenditure statements for the years of that time.

As

6917. I do not want to press the point, but did you let Kenya off, so to speak, because it managed worse than Uganda? -(Mr. Fass.) The accounts do not show any loan to Uganda for administration purposes, which shows that they did not require any assistance from this country for their ordinary administration. regards Nyasaland, on the other hand, in every year there has had to be an advance made in aid of expenses of administration, and from that point of view this particular debt is in the same position as the other debts upon which it is useless to ask for interest when we should only have to provide it ourselves.

6918. How does the Treasury determine its treatment of these Colonial debts?I do not happen to deal with that part myself. The Colonial Office send us the accounts which they receive from the Colony upon which they determine

whether to ask for an advance from the Home Government or not. The Treasury would then examine the account and see how far it would be right to require increased taxation, or decreased expenditure in the Colony, and upon that they would arrive at a decision whether to call upon the taxpayer to make a further advance in aid of the administration of the Colony or not. I do not do that work myself.

[Continued.

6919. Who does ?-Another Assistant Secretary in the Treasury.

6920. But is it not a question for this Committee to ascertain?-I could get a statement from the other Assistant Secretary, or he could be called before you at any time.

6921. I should have thought the Comptroller and Auditor General might probably have been able to tell us?-(Sir Malcolm Ramsay.) I cannot tell the Committee what goes on inside the Treasury. I know, generally, that they scrutinise the accounts as any man of business would, and they would decide any particular question according to the ability of the Colony to pay its expenditure, the scale of taxation, and so forth. The circumstances of these Colonies vary very much because some of them have more works of development in hand. For instance, in Kenya there is a good deal of money being put into development.

6922. My only difficulty is this. should have thought that of the three Colonies Kenya was in the best position?

(Mr. Fass.) This is a point that will arise on the Colonial Services Account. Mr. Stocks would have been here if I had known you were going to raise the

matter.

Major Salmon.

6923. But surely the whole of the accounts before us have regard to the War expenditure and not to expenditure of to-day? That is so.

Sir John Marriott.

6924. If I might observe to my honourable friend, this paragraph says that the liability of Nyasaland has been increased. That is not War expenditure at all; that is post-war expenditure, I understand? (Mr. Watson.) That is on the current administration.

6925. Exactly. It is not War expenditure; it is current expenditure?—(Sir Malcolm Ramsay.) Well, it was incurred during the war time. It was expenditure incurred by Nyasaland during the War period or immediately afterwards, and for various reasons the expenditure was defrayed out of surplus Army moneys which happened to be on the spot. is why I say that this particular liability is in rather a different category to the others, being in the nature of a first debenture, whereas I should call the others. second debentures. That is what I meant

That

30 June, 1927.]

[Continued

in my report. I think there has never been any doubt about Nyasaland's liability to pay this £220,000, or as to the amount of it. The other items were more doubtful.

Major Salmon.

6926. But the point I should like to be more clear about is this. Are we ever likely to get the capital sum back either with interest or without interest?-(Mr. Fass.) We hope so.

6927. Will that be with or without interest?-We hope with interest, but we cannot determine whether there is any usefulness in charging interest until we see what the debtor's account is like.

6928. So that really the effect of it will be that you will be waiting till the expiry of 10 years from the date the arrangement was entered into when a very large sum will have accumulated in interest, and then you will presumably look at the state of the Colony and see whether they can afford to pay the interest together with the debt that has been owing for 10 years, or whether they are only able to pay the capital without interest?

Sir Assheton Pownall.] It says "without interest." Apparently the question of interest is to be dropped for all time.

Mr. Ellis.

6929. Is it not a record of debt which you will get if you can, if circumstances warrant, in the future? Yes.-(Sir Malcolm Ramsay.) I might add as regards the last paragraph that Nyasaland did, as a matter of fact, pay some money last year, and further sums are going to be paid this year. They are paying it off according to their ability.

Sir Assheton Pownall.

6930. I should like to know whether the Treasury assent to my point about the debt being without interest. Surely, from what we see in this paragraph, it is without interest?-(Mr. Fass.) It is, I think, open to us at the end of 10 years to ask for interest at what rate seems reasonable during this 10 years' period. I do not know if there is any definite pledge which prevents us from requiring any interest.

6931. The report of the Comptroller and Auditor General seems clear. It says: "It was agreed that the claims for these sums should be deferred without inter

est for a period of 10 years "?—(Sir Malcolm Ramsay.) During the period of 10 years no interest will be paid.

Sir Robert Hamilton.

6932. I should like to be clear about this, and I should like to have a definite answer from the Treasury. I should like to know whether it is intended at the end of 10 years to ask for the capital sum with the back interest?-(Mr. Fass.) The position is that the Treasury is not committed to any decision as to what they are going to ask for. Supposing there were extensive development of the Colony which would enable them to liquidate this debt over a period of years, I do not think the Treasury would feel itself precluded from asking for a scheme of payment which would include interest, either from the date when the new scheme was started or from the date of the original advance.

Sir John Marriott.] If I may respectfully say so, I do not think Sir Robert Hamilton's question has been answered. Might we know quite definitely whether the Treasury do or do not mean to claim interest if they can get it for these 10 years?

Sir Robert Hamilton.] I understood from Mr. Fass that they intended to claim it if there was any chance of getting it.

Sir John Marriott.

6933. Is that so?—Yes, I think that is the answer.

6934. Then what does this mean when it says: "It was agreed these sums should be deferred without interest for a period of 10 years "?-I suggest it means that we are not asking for any interest on the loan as from to-day. It is in the same position as some of these other loans where no interest has to be It is left over for charged as yet. determination later when the Colony's position becomes more clear as to whether they can afford to pay interest during that period or not.

6935. You mean you will not claim interest from year to year for 10 years, but at the end of the 10 years you will consider the position of the Colony and will then claim the accumulated interest if you think they can pay it? That is

80.

30 June, 1927.]

Chairman.

6936. These loans are rather different from the other ones, because the others were by Act of Parliament ?-These are by Act of Parliament, too, in the sense that it is money voted year by year by Act of Parliament on the Colonial Services Vote and appears in the Appropriation Act of the year. They are not loans which are issued directly as a result of a specific Act of Parliament, but they flow from an Act of Parliament, which is the Appropriation Act of the year.

6937. But the £3,500,000 was under the Trades Facilities (No. 2) Act, was it not?-I do not think it was.

6938. With regard to paragraph 7, dealing with charges for services requisitioned from Germany by the British Army of Occupation, I notice that negotiations were broken off in regard to this matter. Has any settlement been made yet? (Sir Herbert Creedy.) Claims in respect of these charges are still being examined in detail.

6939. When is there likely to be a settlement?-The whole machinery is very complicated owing to the right of appeal to the International Tribunal presided over by Dutchman, M. Patijn, and I might say that naturally the Germans were not too helpful. I think that is the explanation.

a

6940. Is there any payment on account? (Sir Malcolm Ramsay.) Yes. The point of the paragraph is really this. For the period subsequent to the 1st September, 1925, down to the end of the year of account, the Army have paid £407,500 which, as far as to the Army is concerned, under Treasury decision is a final discharge to the Army; but that amount does not rest on an ascertained basis and is a provisional shot. The exact amount still remains to be determined, and if the German claim is agreed at a sum in excess of £407,500 for that period the additional amount will be paid to Germany but will not be charged to Army Votes.

6941. Has the Treasury anything to say about it?-(Mr. Fass.) I might explain how this arose. Up to August, 1924, these services, which were billets and transport and such like, were provided by the German Government free of charge, and they had nothing to do with the amount paid by way of reparation. Then came the Dawes' scheme, and that provided that Germany should

[Continued.

pay an annuity. That annuity was to include the cost to Germany of these particular services. The result is that into Germany pays the reparation receipts a certain sum which represents her annuity and gets, out of the British share of that sum, paid back to her the cost to her of those services. Great Britain would therefore receive the annuity less the amount of the cost of those services. That put us in this position: there would be no means of ascertaining what these services cost to the British taxpayer unless they were passed through the Account of the War Office. To get them there it was arranged that the Army should pay to the Treasury the cost of these services, the Treasury paying back to them out of the reparation receipts exactly the equivalent sum, which means that both payments come into the Account, and the House and the country can then see what this is actually costing. Unfortunately, the machinery did not work quickly enough to get the actual figure. What happened was this. The German Government succeeded in getting a provisional allowance from the Reparation Receipts. Office, so that there was no inducement from their point of view to put in their bill within a particular time. The Army cannot move until they get the bill. When they get the bill they dispute a good many of the items. If those disputes cannot be settled between the two High Commissioners they have to go to the Arbitral Commission presided over by M. Patijn. That takes up a great Ideal of time.

It so happens that many

of the disputes involve questions of principle, and questions of principle have to go to the Interpretation Committee to be determined. The result is it takes a very long time to get the actual figure. If we had waited until we got the actual figure the whole of our purpose in passing these monies through the Account would have been frustrated, because they would have had no appropriation in aid and no expenditure, and nothing would be shown in this Account in respect of the cost of these services to the Army at all. We thought it a better plan to put in a figure which is the nearest figure we can get, which would give the House of Commons and the country an idea of what these services were costing-because they do cost the British taxpayer money in the sense