Adverting to recent telephone conversations with the Secretary of the Department, one of the chief impressions of the general situation here is the absence of any serious war nervousness. So ordinary does the conduct of life – work and recreation – appear that no one would conclude that a war of the magnitude of the present conflict is hourly continuing. From the windows of this Office during the last few air raid warnings one saw people going about their business normally and even leisurely.¹ At the big drapers' store opposite women were looking in the shop windows as though nothing was happening. It is of course true that no serious raids have taken place in London but even in Essex, where my son works, and where raids are frequent, the people appear to have great composure. The rationing of food appears to be satisfactory; the public have now got quite accustomed to the black-out, and during this morning at 9 o'clock when an air raid warning was sounded, the movement and transport of people proceeding to their work went on much as usual.

The general political situation appears to be that the Government's popularity is not as great as was the case a few weeks ago. I meet with expressions of considerable dissatisfaction about Mr. Duff Cooper and it is thought that before long he will be moved, though not out of the Cabinet. On the other hand the appreciation of Lord Beaverbrook's successful drive in increasing armaments is very general.

Mr. Neville Chamberlain's Private Secretary told me a day or two ago that his Chief had made a successful recovery. In view, however, of the fact that the operation was in connection with an intestinal stoppage of a rather unusual kind it may be that, at his age, Mr. Chamberlain will hardly be able to take the active part he has taken hitherto. He is not I think a man to leave the Cabinet but health considerations might compel this, and if he did go there would inevitably be a big reconstruction of the Cabinet.

The view in the City – a potent factor in these matters – is that even yet the Government are not putting anything like the requisite energy into their task. Munitions in practically every direction are not being produced according to the existing capacity of the country. Lord Beaverbrook succeeded in finding idle capacity and putting that capacity on a twenty-four hour time table for aircraft, and it is said that the same thrust should be shown in other quarters.

Allowing for the terrific losses just before Dunkirk there is a good deal of uneasiness here that, notwithstanding what Mr. Churchill said recently, the equipment of the army in England is still a long way below what it should be. Further, the training being given to the men in many instances is said to be not only inadequate but out of date.

Of the nine millions per day reported being spent on the war effort there was at least a wastage of 25 per cent. From my own recollection of the last war I would think this estimate reasonably correct.²

The present basis of the Excess Profits Tax the City argue will prove to be a mistaken policy since it will not only lead to excessive extravagance but tend to lessen the necessary control essential to obtaining the best results for output. On a matter of this kind the view of the City must of course be taken with reserve, but there is no doubt about their feeling that hasty, not to say panic, legislation is affecting efficiency. I think they are right.³