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Inskip's efforts to balance economic risks and rearmament in the late 1930s were crucial if Britain was to navigate successfully the threatening international situation and maintain her own long-term economic stability. Tough choices on defence policy, however, were quickly outdated by rapidly moving events on the continent and adjustments had to be made. The Inskip Defence review demonstrates the importance of balance, and crucially of not closing off future options.
By Professor George Peden, for RUSI.org
|This article is part of the Military History and Policy Series
Series III: Reforming Defence - Learning lessons from past Defence Reviews
In December 1937 the Cabinet was confronted with the conclusions of a strategic defence review designed to restrict expenditure over the next five years to what the Treasury believed could be afforded. It said the main effort should be directed to protecting the United Kingdom against air attack and to preserving its trade routes, thus privileging the RAF and the navy, and the army's anti-aircraft units. The next objective should be defence of Britain's then extensive overseas territories against sea, land or air attack. The last objective, which should be provided for only after the other three had been met, was co-operation in defence of the territories of any European allies Britain might have. Consequently the report recommended the army should not have the reserves of equipment and ammunition necessary to sustain it in Continental warfare at the outbreak of war. It was admitted that if France were again to be in danger of being overrun, as in 1914, it might be necessary to improvise an army to assist her, and that the government would be criticised for failing to provide for so obvious a contingency. Nevertheless, confronted with the need to balance economic and strategic risks, the Cabinet accepted the report's recommendations.
Given subsequent events - the Munich crisis in September 1938, the outbreak of the Second World War in September 1939, and the fall of France in June 1940 - it is not surprising that historians have been critical of the Cabinet's decision. The role of the army had been debated by ministers since 1934. In particular, Neville Chamberlain, both as chancellor of the exchequer and, from May 1937, as prime minister, had opposed proposals for equipping the Territorial Army's infantry divisions to reinforce the Regular Army's expeditionary force. Sir Michael Howard commented in his seminal study of interwar defence policy that with the Inskip report what had generally been termed a policy of 'limited liability' in support of France and Belgium shrank to one of no liability at all. How could ministers have arrived at such a decision? This article attempts to answer that question by looking at the process of decision-making, economic assumptions, the changing nature of warfare, views of Britain's place in the world, and the uncertainties of the international situation. Some brief observations are then offered on lessons that may be learned.
Defence policy bargaining
Under the pre-war system of government there was no ministry of defence; instead the Admiralty, Air Ministry and War Office were each represented by a minister in Cabinet who would make the best bargain he could for his own service each year with the Treasury. Until 1936 only the prime minister had individual responsibility for defence policy as a whole. In that year Sir Thomas Inskip was appointed minister for the co-ordination of defence, but he had no department and relied on a complex system of interdepartmental committees organised by the cabinet secretary, Sir Maurice Hankey. The Cabinet approved a long-term rearmament programme early in 1936 but by 1937 the Treasury was concerned about the mounting expense as more complex weapons systems were adopted and as departments asked for additions to their individual programmes. At the end of June Inskip was asked to review the costs both of rearmament and of maintenance of the enlarged armed forces that would be created by 1942. Inskip was assisted by a panel of senior civil servants including Hankey; Sir Horace Wilson, the government's chief industrial adviser and confidential adviser to the prime minister; Sir Arthur Robinson, chairman of the Supply Board, which co-ordinated the services' industrial requirements; and Edward Bridges, the head of the Treasury's division dealing with defence expenditure. Each of the chiefs of staff gave evidence to the enquiry regarding his own service, in effect bidding against each other, rather than reporting as a committee, as they normally did.
Inskip accepted the Treasury's argument that defence expenditure should not exceed the country's productive capacity, or its ability to pay for imports, or threaten confidence in its financial stability. He thought Germany might be deterred by the prospect of a long war in which sea power might be decisive, as was commonly believed to have been the case with blockade in 1914-18, and that therefore economic stability was 'a fourth arm of defence'. Howard's generation of historians assumed the economist John Maynard Keynes, who published his General Theory in 1936, could have advised on how to finance higher defence expenditure without straining the economy, but Keynes identified the balance of payments as the crux of the problem. Rearmament diverted industry from exports and increased imports, and from the spring of 1938 there was a deficit on capital account as financiers sought safe havens for their funds abroad. Even Germany, with greater state controls over trade, capital, labour and civilian consumption than would have been acceptable in peace-time Britain, encountered growing balance-of-payments problems. Given the economic controls available, and political assumptions about not cutting social services, it is not clear that Treasury estimates of what could be afforded for defence were far wrong.
Balancing UK, Imperial and European commitments
Rapid technical developments in aircraft made it seem likely that Germany might be tempted to make a decisive air attack against the United Kingdom early in a war, using gas as well as high-explosive bombs - hence Inskip's priority for air defence. Britain was dependent on imports of food and raw materials - hence priority for trade defence. The British Empire and Commonwealth extended over a quarter of the world's land surface, and the army would be stretched meeting threats from Japan and Italy. Britain's position as an imperial power was thus a strategic liability, although it was also a source of strength through control of naval bases and trade routes, and access to raw materials and reserves of military manpower. On 10 November the first lord of the Admiralty, Sir Ernle Chatfield, who was also chairman of the Chiefs of Staff Committee, took the view that Britain could not afford an army on the scale that the War Office wanted as well as the navy and air force essential for the security of the United Kingdom and the Empire. The threat to the United Kingdom would of course be increased if Germany secured air and naval bases across the Channel, but on 12 November the Chiefs of Staff Committee predicted that the German army would be unlikely to be strong enough to attack the French and Belgian frontier defences before 1939-40. On 23 November Hankey, who had always been an advocate of imperial defence, suggested to Inskip the order of priorities that were set out in the latter's report, with co-operation in defence of potential allies last.
Financial limitations and procurement loopholes
On 10 February 1938 Inskip produced a further report, allocating finance between the defence departments. The total amount did not greatly exceed the limit proposed by the Treasury for the five financial years 1937/8 to 1941/2, but departments were to be allowed to accelerate their revised programmes provided they could do so without disturbing the normal trade of the country. Moreover, he recommended that a further review take place twelve months hence to consider whether the defence programme should be enlarged in the light of developments in the international situation. In the event, the government relaxed the policy of non-interference with normal trade following the German occupation of Austria in March 1938, and defence expenditure in the financial year 1938/9 was 50 per cent higher than in 1937/8, with expenditure on the RAF rising most rapidly.
The War Office recast its programme to bring it within Inskip's financial limits, but did so in ways that reflected the views of the general staff rather than the priorities set out in his report. The programme for anti-aircraft units was cut by more than that of the expeditionary force, and the chief of the imperial general staff, Lord Gort, persuaded ministers that anti-aircraft guns could not be given absolute priority over field guns. The existing field artillery was outranged by that of foreign powers and would need to be updated or replaced even if the expeditionary force were sent to defend Egypt against the Italians instead of to France to fight the Germans. Planned production of tanks was cut, but the medium tank that was dropped from the programme was not ready for production, and orders for it were transferred to another model, the cruiser tank, which was. The first three Regular divisions of the expeditionary force were to be provided with ammunition reserves that would enable them to undertake defensive operations in Europe at the outbreak of war, leading a Treasury official to remark in March 1938 that the War Office was 'clinging to an army capable of fighting in the Continental role'. Changes in army policy were thus less dramatic than the conclusions of Inskip's report suggested they would be.
Overtaken by events
By February 1939 it was clear that appeasement had not brought about the improvement in the international situation that Chamberlain had hoped for. Moreover the loss of the Czech army as a result of the Munich agreement led the French to demand that Britain make a greater effort on land. On 22 February the prime minister reluctantly agreed to proposals from the War Office, supported by the Chiefs of Staff Committee, for the equipment and reserves of the Regular Army's expeditionary force to be brought up to the scale required for continental warfare, with the first two divisions (out of six) to be ready to embark within 21 days after mobilisation. Further contingents, including Territorial divisions, would be prepared to follow at intervals. On 28 March Chamberlain further reversed the priorities of the Inskip report by deciding to double the number of the Territorial Army's divisions from 13 to 26 divisions. He and the Foreign Office hoped in vain that Hitler would be deterred by this show of determination.
The experience of the Inskip report shows the need for a defence review to strike the right balance between military and economic threats, but also the difficulty in doing so without knowledge of future events. The lack of an effective army handicapped British diplomacy in 1938-39 and discouraged potential allies. On the other hand, rearmament was causing such economic problems by the summer of 1939 that the government contemplated quasi-wartime powers over private investment even before war broke out. Had ministers known that war would break out in September 1939 they would probably have taken greater risks with the economy in 1938. As things were they aimed at long-term deterrence, which required economic stability. It can be argued that they faced an impossible task, given the isolationist policies of the United States. Howard argued that support for European allies should have had greater priority than imperial defence, but in the limited time available, higher production for the army could only have been achieved at the expense of production for the RAF. Inskip's report at least had the virtue that it did not close off options: once air defence was secure, as it was by the autumn of 1939, the scales of army equipment appropriate for imperial defence could be expanded to what was required for Continental warfare. The expeditionary force was far from ready even in 1940, but it acquitted itself well in the retreat to Dunkirk.
Any defence review must anticipate future threats correctly; strike the right balance between military and economic risks, and between the armed forces; and take account of the possibility that priorities may have to be adjusted and therefore of the need not to close off options. Inskip may not have scored highly on all of these criteria, but even in 2010 perfection may prove to be elusive.
George Peden is emeritus professor of history, University of Stirling
 'Defence Expenditure in Future Years', Cabinet Paper (CP) 316 (37), Cabinet Office papers, series 24, volume 273 (CAB 24/273), The National Archives of the United Kingdom (TNA).
 The Continental Commitment (London: Temple Smith, 1972), p. 117.
 CP 26 (38), CAB 24/274.
 Brief for chancellor, by Bridges, 10 March, Treasury papers, series 161, box 1071, file S.42580/3, TNA.
B. Bond, British Military Policy between the World Wars (Oxford: Clarendon Press, 1980)
N. H. Gibbs, Grand Strategy, vol. I: Rearmament Policy (London: HMSO, 1976)
S. Greenwood, 'Sir Thomas Inskip as Minister for the Co-ordination of Defence 1936-39', in P. Smith (ed.), Government and Armed Forces in Britain 1856-1990 (London: Hambledon Press, 1996)
M. Howard, The Continental Commitment: The Dilemma of British Defence Policy in the Era of the Two World Wars (London: Temple Smith, 1972)
R. A. C. Parker, Chamberlain and Appeasement: British Policy and the Coming of the Second World War (Basingstoke: Macmillan, 1993)
G. C. Peden, British Rearmament and the Treasury, 1932-1939 (Edinburgh: Scottish Academic Press, 1979)
G. C. Peden, Arms, Economics and British Strategy: From Dreadnoughts to Hydrogen Bombs (Cambridge: CUP, 2007)
Robert P. Shay, British Rearmament in the Thirties: Politics and Profits (Princeton UP, 1977)