1. Reference my Nos. 133  and 174  relative to the provision of requirements of the British Pacific Fleet.
2. Following consultations between Ministers and Admiral Fraser and his officers, War Cabinet has given further consideration to the new programme of works for the Royal Navy totalling 3,309,500, which is additional to the programme originally approved for 5,562,500.
3. In the following paragraphs is given an outline of War Cabinet's decision  which has been communicated to Admiral Fraser.
4. It was noted that the following conclusions had been expressed in the aide-memoire submitted by the Royal Navy representatives at a Conference held in Melbourne on 10th July:-
'It has been possible to delete a few of the items owing to American releases, and Admiralty has been asked to cancel the Floating Docks.
Apart from this, the programme necessary is as already stated, and cannot be further reduced.' 5. When the additional works programme totalling 3,309,500 was originally submitted to War Cabinet on 28th June, the following observations and recommendation of the Production Executive were considered:-
'(a) That Full Cabinet recently approved a housing programme which was regarded as an essential minimum in view of the critical housing shortage and the key role of the building industry in plans for employment in the transition period. To achieve the programme approved by Full Cabinet during JulyDecember 1945, will involve a manpower requirement approaching 20,000 men when account is taken of the building labour needed on site, and the labour required to install utilities on site, to produce materials and fittings, and for other ancillary activities.
(b) That, even if the recommendations of the War Commitments Committee regarding the conditions of special releases from the Services are accepted, it is still likely that, amongst the labour becoming available from special Service releases and other sources, apart from the Allied Works Council, there will not be sufficient men of the particular types required for the housing programme in its various phases.
(c) That, if there is to be an assurance that the housing programme will be within our capacity, then it is essential that we should concentrate on obtaining resources for the housing programme from the chief source which is known to contain labour of the types required-i.e. the Allied Works Council. It is also essential that the right kind of labour should be obtained in the very near future, since, if availability is delayed until towards the end of the year, it will not be practicable to implement the gradual expansion of building activities which the success of the approved programme requires.
(d) That if this additional Royal Navy commitment is accepted, then the Allied Works Council, far from releasing labour in the near future, will require an additional 600 men immediately (to bring its labour force up to the maximum strength approved by War Cabinet), and will need to have its wastage replaced at least until the end of September. After the end of September, there may be a very slight release of labour, perhaps amounting to 1,500 men released in the December quarter of 1945.
(e) That if, on the other hand, War Cabinet decides that the additional Royal Navy commitment cannot be accepted, and if the Australian Services are held to the diversion of manpower from their own projects which they have offered as a contribution to Royal Navy projects, then the Allied Works Council should be in a position to release in July-December 1945 the bulk of the labour engaged on Royal Navy projects. Since it is understood that a great part of the existing approved programme is nearing completion, there is a prospect of very early releases which would make a vital difference to the progress of the housing programme.
(f)That the Australian Government, in a cablegram to the United Kingdom Government, had recently emphasised that there were strict limits beyond which Australia could not go in providing resources for the support of the Royal Navy; and that, from the very beginning of negotiations in regard to the basing of Royal Navy Forces on Australia, it had been stated that it would be necessary for the United Kingdom to make a substantial contribution from its own resources, and Australia's difficulties in regard to constructional labour and materials had been particularly stressed.
RECOMMENDATION That War Cabinet be advised that, in the opinion of Production Executive, the acceptance of the proposed additional commitment for Royal Navy works projects is beyond the capacity of Australian resources, having regard in particular to the urgent necessity to execute the housing programme on the scale approved by Full Cabinet.' 6. On 28th June, War Cabinet , on the recommendation of the Advisory War Council, accepted the views of the Production Executive, subject to certain elasticity which might be possible without prejudicing the realisation of the objectives of the housing programme. In regard to the relation to the housing programme requirements, of the labour bloc employed on Royal Navy works, the following stipulation was made by War Cabinet  when the manpower allocation for the civil economy was approved in October 1944:-
'That it was particularly important that works projects for the British Forces should not be allowed to absorb men and materials which would otherwise be available for the housing programme.' Notwithstanding the foregoing, War Cabinet noted , when a programme of works for the Royal Navy was authorised in November 1944:-
'That the United Kingdom projects will delay for approximately 3 months the release of further men by the Allied Works Council, some proportion of whom would otherwise be available for the Housing programme.
That the United Kingdom projects can only proceed at the expense of the Housing Programme, particularly in New South Wales and Queensland where work is already far behind schedule.' When the full original programme for 5,562,500 was approved by War Cabinet in December 1944 , the period within which the labour force of the Allied Works Council was to be reduced from 26,600 to 19,900, was extended from 30th June to 31st July, 1945.
7. At a Conference in Canberra on 6th July between Commonwealth Ministers and the Commander-in-Chief, British Pacific Fleet, the limits of the commitment for Royal Navy works, in accordance with paragraph 6, were defined as follows:-
'(1) The commitment in respect of manpower and material resources which the Commonwealth Government is prepared to accept for works for the Royal Navy is not to exceed the programme which can be carried out for the following sum:-
Original programme 5,562,500 Plus a margin for additional urgent items, minor unforeseen items, and under-estimates of approved major items 1,000,000 Total: 6,562,500 (2) In addition to the above commitments, the provision of the needs of the Royal Navy may be supplemented as follows:-
(i) The release of facilities which can be made available by the United States and Australian Forces.
(ii) The use of Royal Marine Engineers as a supplement to the labour force of the Allied Works Council. The provision of materials for projects undertaken by them is part of the total commitment referred to in paragraph (1).
(3) On the understanding that the figure in paragraph (1) is the maximum capital commitment, and, to the extent to which it is not possible to employ Royal Marine Engineers on normal works maintenance, the Commonwealth will undertake such maintenance work as an additional commitment in accordance with its interpretation of this term in relation to Australian Works Services.' 8. In re-affirming its decision that the limits in paragraph 7 are the maximum extent of the works commitments which can be accepted, War Cabinet recalled that the limitations on Australia's capacity had been constantly emphasised to the United Kingdom Government, vide cablegrams Nos. 133 and 174 and earlier references therein.
9. War Cabinet noted that the Commonwealth has already completed a works programme for war purposes totalling 183,000,000. The necessity for advantage being taken by the Royal Navy of existing accommodation and facilities vacant or becoming available in preference to undertaking new construction has frequently been stressed.
10. Finally, War Cabinet observed:-
(i) That Australia's fighting forces, on the recommendation of the Advisory War Council, are being reduced by 64,000 men by the end of the year, in order to provide for housing and other high priority needs of the civil economy.
(ii) That the report and recommendation of the Production Executive, referred to in paragraph 5 above, had been submitted in the light of the recommendation by the Advisory War Council that, in the assessment of capacity to undertake additional commitments, it was to guard against the neutralisation of the measures being taken to establish equilibrium in the war effort.
11. I would repeat the assurance given the United Kingdom Government that we would do all in our power to meet the requirements of the Fleet within our limited capacity and having regard to other high priority commitments. In order to provide for the original programme of Royal Navy works, the Government has accepted the retardation of its housing programme during the first six months of this year, and this has now become a matter of cardinal importance in its relation to social welfare and re- settlement of members of the Forces. The Government's co-operation has also been demonstrated by the fact that it has already accepted over-all commitments for the Royal Navy totalling over 25 millions.