Basing of Royal Naval Forces on Australia.
You will be aware that following upon the Prime Minister's discussions in London and the deliberations of the Quebec Conference, the United Kingdom Government has decided to base Royal Naval Forces (including Fleet Air Arm) on Australia.  The United Kingdom Government has been advised that the Commonwealth will be glad to co-operate to the fullest possible extent in the execution of the necessary works and other preparations arising out of these proposals.  At the same time attention has been drawn to our difficulties arising from the acute shortage of manpower and materials.
2. It is assumed you will have seen Dominions Office cablegrams Nos. 271 , 299, 300 and 301  and our replies Nos. 269 and 298.  In addition to the requirements listed in the Dominions Office cablegrams, requests are being received through A.C.N.B.
 for the implementation of other projects.
3. The Defence Committee is examining the Naval outline plan as varied by advices from the Admiralty, with the object of arriving at the total requirements thereunder and assessing the extent to which Australia can meet such requirements and the extent to which it will be necessary for United Kingdom to provide its own needs.
4. Although our acute position in regard to manpower and materials has been stressed to the United Kingdom Government and attention drawn to the action rendered necessary to effect releases from the Services for high priority industry, you will observe from Dominions Office cablegram No. 301 that Australia is being asked to meet direct labour requirements to the extent of 4,875 in respect of supply items and 5,000 plus 3,700, total 8,700, in respect of maintenance and repair of Royal Naval vessels. There is a further  request received through A.C.N.B. for Australian Service personnel to the extent of 3,860 to be provided for shore facilities for aircraft of the Royal Navy. These requests are additional to extensive demands being made on our labour resources for works.
5. Having regard to our cablegram No. 269 of 16th October, and the demands being made on our labour resources, you will appreciate our fear that it appears the Admiralty has not fully realised the seriousness of our advices in regard to manpower. A recent review  of the over-all manpower position made by War Cabinet indicated that, after apportioning the 45,000 special releases from the Services referred to in cablegram No. 269, and allowing for absorption in industry of routine discharges, there would remain at 30th June, 1945, a deficiency of approximately 50,000 manpower units for high priority requirements, without taking into account any appreciable contribution for the United Kingdom Forces to be based on Australia.
6. You will recall that, during the Conference of Prime Ministers, I stated our position at some length and outlined the difficulties that were being encountered in rebalancing the War Effort in order to remove certain strains and stresses which had arisen from the excessive diversion of manpower to the fighting forces and the direct civilian War Effort when we were in grave danger.  The solution of these difficulties was the purpose of my discussions with Mr. Churchill, President Roosevelt and the Combined Chiefs of Staff. There is a possibility that the Admiralty is viewing this matter from a different angle, viz. that their requirements should be met, to the greatest extent practicable, from Australian production, even if this involves curtailment of our other high priority commitments. You will not overlook the possibility as to whether United Kingdom manpower or Board of Trade policies in the post-war period are exercising some influence on the extent of the demands being made on the Commonwealth.
7. Without in any way retracting from our assurance that the Government intends to make as full a contribution as practicable to the needs of the United Kingdom Forces based on Australia, it is felt that liability to misunderstanding of the extent of our available capacity could be removed and advantages generally accrue, if you could discuss this subject with the United Kingdom authorities.