Volume 2 1922~1926

Doc No.

No. 362 NAI DT S4720A

Draft notes of a conference held in the Board Room,
Treasury, Whitehall, London
(Secret) (C.A. (H) 48.- 5th minutes)

London, 12.15 pm, 2 December 1925


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.
Mr. G.C. Upcott, C.B., Deputy Controller of Establishments, Treasury.    
Mr. F.W. Leith Ross, C.B., Deputy Controller of Finance, Treasury.    
Mr. G.G. Whiskard, C.B., Assistant Secretary, Dominions Office.    
Mr. P.J. Grigg, Principal Private Secretary to the Chancellor of the Exchequer.    
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 read to the Conference the reply 1 which had been received the previous evening from the Boundary Commission in answer to a letter despatched earlier in the day expressing the hope on behalf of His Majesty's Government and the Government of the Irish Free State that the Commission would be prepared to postpone the issue of their determination until a further communication was addressed to them by or on behalf of both Governments. (The full text of the Boundary Commission's reply is contained in C.P. 512 (25)).2

In that letter the Commission agreed to take no steps either to issue its Award or to publish its Report without previously communicating further with both Governments.

MR. CHURCHILL thought that it was clear from the terms of this letter that the Boundary Commission would insist on their Award ultimately being made public. He then read to the Conference the following Question of which Private Notice had been given to the Prime Minister for answer in the House of Commons that afternoon:-

'To ask the Prime Minister whether the findings of the Irish Boundary Commission will be put into effect in the absence of the signature of the Free State Commissioner?'

He had suggested to the Prime Minister that the reply might be as follows:- 'After consultation with Mr. Cosgrave, I have communicated with the Boundary Commission, and, in deference to our wishes, the Commission has agreed temporarily to postpone publication of their Report and Award.'

MR. COSGRAVE indicated that he concurred in the terms of the proposed reply.

MR. CHURCHILL stated that he had had that morning a conversation with Sir James Craig who had informed him that he had satisfied the Free State Ministers in regard to the position of Roman Catholics in Northern Ireland. He understood therefore that the Free State Ministers had now no requests on this score to make to Sir James Craig.

MR. COSGRAVE said that the arguments that he and his colleagues had previously put forward had failed to convince Sir James Craig. Politically an agreement with Sir James Craig would not be of value to the Free State Government. Under existing conditions he did not believe that the Nationalist members for Tyrone and Fermanagh would enter the Northern Parliament. He had, however, been forced to abandon his claims against the Northern Government because he saw that it was impossible to obtain their acceptance. He added that even if he had succeeded in his efforts he would not have made any real progress and would in fact have done nothing more than revert to the position of the time of the abortive Collins-Craig agreement. He was satisfied that Sir James Craig could not at the present time 'deliver the goods'.

In reply to a question by MR. CHURCHILL, MR. COSGRAVE said that a paper agreement with Northern Ireland would under existing conditions be useless to the Free State.

MR. CHURCHILL said that in that case the only question remaining to be discussed was that of finance. He and his colleagues had received from Sir James Craig a framework on which an agreement might be built. He then read the following document which he had received from Sir James Craig:

'Article 5.

Representatives of the Free State and of the British Treasury having discussed the question of the amount involved under Article 5 reached an Agreement this morning that £_____ is due by the Free State and that this debt shall be funded on the same terms as were agreed in the case of the British debt to the United States of America. It was further agreed that the whole financial position shall be brought under review in1933 by the Joint Exchequer Board on which two Members shall be appointed by the Free State Government in substitution for the Representatives of Northern Ireland.

Compensation. (For private circulation only.)

In addition, the Free State Government undertake to increase the amount available for post-truce compensation by a sum not exceeding 10% over and above the amounts awarded by the Courts.'

MR. CHURCHILL said that the British Government were not opposed in principle to an immediate financial agreement in substitution of arbitration. He enquired whether Sir James Craig's proposals outlined in the document he had read were acceptable to the Free State.

MR. COSGRAVE said that while he had discussed the question with Sir James Craig, he had not been able to go so far as to agree terms such as those outlined in the statement that had just been read to the Conference.

MR. CHURCHILL suggested that they might, however, serve as a basis of discussion for direct settlement.

LORD BIRKENHEAD thought that as the settlement had not been agreed, it would be better to approach the question de novo. He thought the most hopeful line of advance lay in the direction of a financial agreement in lieu of Article 5.

MR. COSGRAVE shared this view. It was true that Sir James Craig had mentioned a figure (£20 millions) the previous evening. He had, however, told Sir James that such a figure was impossible from the Free State point of view.

MR. CHURCHILL referred to the terms of Article 5 of the Agreement of the 6th December 1921 which provided that:-

'The Irish Free State shall assume liability for the service of the Public Debt of the United Kingdom as existing at the date hereof and towards the payment of war pensions as existing at that date in such proportion as may be fair and equitable, having regard to any just claims on the part of Ireland by way of set off or counterclaim, the amount of such sums being determined in default of agreement by the arbitration of one or more independent persons being citizens of the British Empire.'

MR. COSGRAVE considered that this obligation was limited by the capacity of the Irish Free State Government to pay. He referred in particular to the words 'fair and equitable'.

LORD BIRKENHEAD said that in his view these words had reference to legal or quasi legal claims and that the expression 'fair and equitable' was governed by the subsequent words 'having regard to any just claims on the part of Ireland by way of set off or counterclaim'.

MR. O'HIGGINS referred to the so-called Colwyn principles which he considered should apply to the interpretation of this Article.

MR. CHURCHILL said that in his view such principles had no application in this case.

MR. O'HIGGINS pressed his argument that the applications of such principles should be regarded as implicit in the Article unless it was sought to impose on Ireland a hopeless burden of phantom millions.

MR. CHURCHILL thought that the question could most conveniently be dealt with in two stages. In the first place, it was necessary to determine the amount due, and in the second place, the capacity of the debtor to pay. He cited the example of the Italian debt to the United States. In that case there was no dispute whatever in regard to the actual sum due. The question at issue, however, was how much they were able to pay to the United States.

MR. COSGRAVE suggested that while Article 5 might not admit an arbitrator to have regard to such considerations, the fact that Ireland was a poor country must necessarily result in weight being given to arguments of this kind.

MR. CHURCHILL pointed out that no state in Europe was at the present time paying less than 10% of its Budget in the service of public debt. If those conditions obtained in Ireland, the Irish Free State would be paying £2.6 millions a year for debt charges out of a total revenue of £26 millions.

LORD BIRKENHEAD enquired whether the Free State Ministers had considered the question of spreading the payment of the debt over a long period.

MR. COSGRAVE said that this point had been considered by his colleagues and himself.

MR. CHURCHILL assured the Free State Ministers that they would not find any difficulties raised on that aspect of the question. He again cited the example of the Italian debt where payment was to be spread over an immense period of years. He reminded the Conference that the British Government were paying nearly 50% of their Budget in the service of debt.

MR. COSGRAVE drew a distinction between payment of foreign debt and the payment of interest on sinking fund in respect of internal debt.

MR. CHURCHILL agreed that this was so, but pointed out the onerous character of the British debt payments to the United States.

MR. COSGRAVE referred to the payments amounting to £3 millions per annum being paid by the Free State mainly to persons not living in that country in respect of land purchase. No other example could be cited of a country paying such large sums for its land.

LORD BIRKENHEAD referred to the case of Northern Ireland whose income was small in relation to the amount of their financial contribution to this country.

MR. CHURCHILL said that this contribution had, for various reasons, been reduced from £8 millions to about £1 million per annum. The British Government expected that this figure would be substantially increased when the Special Constabulary had been disbanded and the Northern Ireland Parliament House had been built. He expected ultimately that the contribution would amount to £3 millions per annum.

In reply to a question by MR. CHURCHILL, MR. LEITH ROSS explained that the position in regard to Austria was that 16% of the total Budget was devoted to the service of public debt notwithstanding the fact that there was a moratorium on a special debt amounting to £30 millions. France was paying as much as 55% on its debt services.

MR. COSGRAVE said that the Free State did not want a mere paper arrangement. As regards the foreign countries, such as France, it should be remembered that they had had the advantages, such as they were, of a successful war. The Irish Free State had not had any such advantages, and were faced with the fact that 250,000 persons in the Free State occupied uneconomic holdings of less value than £10 per annum and that in addition, there were 212,000 agricultural labourers whose position could only be regarded as uneconomic. Nine counties in the Free State had moreover been scheduled as Congested counties. It would be impossible for the Free State to make debt payments in proportion to foreign countries except by a Poll tax or a tax on food.

MR. CHURCHILL suggested that the question of capacity to pay did not arise until after the actual amount of debt due had been agreed. In the present instance there could be no question of coercion, but the Free State could not fail to be sensible of the advantages to their credit that would follow a debt settlement. It was considerations of this kind that had led France and Italy to change their ideas and to cause them within the last year to attempt to settle their foreign debts. The British and Free State Governments were not in the same position as, say, Italy and the United States, because they had already agreed to the terms embodied in Article 5 of the Treaty. The British Government could not compel the Free State to carry out that Agreement, but there was the self compulsion of their own feelings. The British Government in dealing with debt questions were always ready to take a much lower figure than their paper claim. The British settlement of the American debt whereby the whole amount was to be repaid stood alone in such transactions. The British Government were anxious for a statesmanlike settlement of the present difficulties. Irish interests were dear to them, but if there was to be an agreement, it must take the form of a real and not a derisory settlement. If Free State Ministers felt in a position to make any suggestion, he would at once consult his colleagues in the Cabinet.

LORD BIRKENHEAD said that ever since the Treaty, he had watched anxiously the fortunes of the Irish Free State, and he entreated the Free State Ministers to put forward for discussion a figure of a character that the British Government would have some chance of successfully defending. It would not be necessary to put forward at the present time a binding figure, but merely a figure as a basis of discussion. He suggested that Irish Ministers might care to consider this question among themselves.

MR. CHURCHILL said that the British Government were in a position to offer a moratorium to the Free State, but if this was of no use to them, there remained the alternative of a definite figure on which to reach a settlement. If Free State Ministers would put forward such a figure, he and his colleagues would at once consider it and then set to work in regard to devising a method of payment. The debt settlement terms exacted from Great Britain by the United States were severe, and there was no need to take that transaction as a model. If a figure could be fixed as the total amount of the debt, he did not anticipate any difficulty in regard to the period of payment.

LORD BIRKENHEAD suggested as an alternative that it might be possible to grant a moratorium for a period of x years unless agreement was reached at any period in the meanwhile.

MR. O'HIGGINS said that politically a moratorium offered no advantage to the Free State. It would indeed only serve to make Article 5 a more sinister reality to the people than ever before. The experience they had had in regard to Article 12 would constantly be held before them as an indication of what they might expect under an arbitration at the conclusion of the moratorium period. Postponement of a decision would redouble the fears at present entertained on this score.

LORD SALISBURY said that His Majesty's Government were anxious to settle this question by agreement, but if that could not be achieved, it must be borne in mind that the Award of the Boundary Commission would inevitably become operative.

MR. COSGRAVE observed that the Free State would not be the only country that would bear the disadvantages attaching to that course.

LORD SALISBURY suggested that possible agreement might be reached by combining the principles of a moratorium and of an agreed figure as to the total amount of the debt due by the Free State. Under such an arrangement no payments in respect of the debt so agreed would be made before a certain date. Such an arrangement would have the advantage of refuting the alarmist forecasts by people such as de Valera regarding the total amount of the debt, and would also relieve the Free State Government from immediate financial pressure. In considering such a solution, it was necessary to bear in mind that the British Government were not in a position to accept a derisory figure.

MR. O'HIGGINS referred to the possibility mentioned by Lord Salisbury of the Boundary Commission's Award becoming operative. The publication of that Award would no doubt create a legal position, but it was impossible to forecast the consequences that would flow from the position so created. It was safe, however, to say that no good would come to the British Government or the Free State Government or the Government of Northern Ireland from such a situation. If the Free State Ministers were to return to Dublin without having reached a settlement, and being in consequence politically bankrupt, the primary responsibility for the conduct of affairs in the Free State would inevitably, within a short period, pass to others. He would regard such a result as a grave misfortune both for Ireland and for Great Britain. There was, he believed, at the present time, an opportunity of obtaining durable peace between Northern Ireland and the Free State. Was that opportunity to be lost because the British Government were not willing to make a contribution to a settlement by agreeing to forego phantom millions of money that they could never hope to obtain?

MR. CHURCHILL said that the public that the British Government would have to convince would not admit the accuracy of this view.

MR. COSGRAVE argued that the soundness of this contention was borne out by a comparison between the situation of Northern Ireland and of the Free State. Northern Ireland had a balance of revenue over expenditure and it was for this reason that they were able to make a contribution to the British Exchequer. The Free State Government had no such balance from which to make payments in respect of debt. There was, moreover, an immense disparity between North East Ireland and the Free State in regard to the proportion of the population that must be regarded as uneconomic. In the Free State the number of persons dependent on uneconomic holdings represented approximately one-third of the whole people. The Free State had not only been unable to balance their Budget, but had been forced to maintain the tax on beer and postal charges at a higher level than that in Great Britain, while their old age pension services were on a less generous scale. Northern Ireland paid no higher taxes than, and enjoyed as generous scale of social services as, Great Britain, but even so had been able to balance their Budget.

The Free State had moreover a national debt of £18 millions, and were paying annually in land purchase annuities a sum of £3 millions, the bulk of which left the country. They were also bearing a burden of £2 millions in respect of pensions[,] much of which also was paid out of the country. If Old Age Pensions were added, the total charges in respect of pensions amounted to no less than £5 millions. No one ever expected that the Free State would be called upon to bear higher taxes and receive less advantages than they had prior to the Treaty of 1921.

MR. CHURCHILL said that for long periods of time there was a surplus of exports over imports in Ireland.

MR. COSGRAVE believed there had only been a surplus during the war period. In the 17 years since 1909 when Old Age Pensions began, there had been an adverse balance for 10 years. If the Treaty had never been signed, Ireland would have been a liability and not an asset to England.

MR. CHURCHILL did not believe that this was a permanent condition, and he anticipated that future years would show a surplus. As regards the fixing of a figure at which the debt should be settled, the most important point to consider was the amount to be paid per annum. This was a more practical way of approaching the question than attempting to fix a capital sum, the size of which might look alarming. All that he asked the Free State Ministers to put forward in the first instance was an impression of a figure; it was not necessary for them to make an offer.

The Meeting then (1.15 p.m.) adjourned for Lunch.

1 Not printed.

2 Not printed.