1. Reference your telegram No.181 of 16th August in which you confirmed the offer made by the Admiralty to the Commonwealth Naval Board, to transfer to the Royal Australian Navy two of the suspended 'Majestic' Class light fleet carriers at half total cost of construction, which was estimated to be between 2,750,000 and 3,000,000 per vessel, exclusive of their outfits of stores and armament which were to be an Australian liability. It is now learned that these vessels will require modernisation involving substantial additional expenditure.
2. The dimensions of the Post-War Defence Programme were determined by the amount which the Government considered could be devoted to defence, and it was decided that the maximum amount that could be provided over five years was 250,000,000. To enable Australia to make a greater contribution to Empire Naval Defence, the largest quota was allocated to the Navy, which received an allotment of 75,000,000 as against 62,500,000 each for the Army and Air Force.
3. The financial basis of the programme having thus been determined, the Service advisers were requested to state the strengths and organisation which could be provided from the financial allotments approved for each Service.
4. The Naval Board's programme included the acquisition of the two light fleet carriers, and this was approved by the Government on the understanding that they could be provided within the allotment for Naval Defence. It now transpires that this is not possible, as no provision was made in the Naval programme for the additional cost of modernisation. It is also understood that, even after modernisation, the operational capacity of vessels of this class will be limited after 1955 if future aircraft have increased weight. This would appear to be a serious consideration from the defence aspect, in view of such a large outlay for naval defence.
If modernisation is not carried out, the desirability of obtaining this type of carrier appears to be a matter of even greater doubt.
5. In view of the statement made by me to the Conference of Prime Ministers last year that it was recognised that Australia must, in future, make a larger contribution towards the defence of the British Commonwealth in the Pacific, I would appreciate advice of the manner in which it is considered the Naval Programme might be adjusted to provide for this intention. It may be mentioned that the R.A.N. Squadron has already been reduced by one cruiser which was to have been kept in commission as Hobart has been paid off to provide the crew for the first carrier.