A question of sovereign importance to the continued existence of the empire is the question of defence. A country of which Imperial defence. the main thoroughfares are the oceans of the world demands in the first instance a strong navy. It has of late years been accepted as a fundamental axiom of defence that the British navy should exceed in strength any reasonable combination of foreign navies which could be brought against it, the accepted formula being the "two-power standard," i.e. a 10% margin over the joint strength of the two next powers. The expense of maintaining such a floating armament must be colossal, and until within the decade 1890-1900 it was borne exclusively by the taxpayers of the United Kingdom. As the benefits of united empire have become more consciously appreciated in the colonies, and the value of the fleet as an insurance for British commerce has been recognized, a desire has manifested itself on the part of the self-governing colonies to contribute towards the formation of a truly imperial navy.
In 1895 the Australasian colonies voted a subsidy of £126,000 per annum for the maintenance of an Australasian squadron, and in 1897 the Cape Colony also offered a contribution of £30,000 a year to be used at the discretion of the imperial government for naval purposes. The Australian contribution was in 1902 increased to £240,000, and that of the Cape to £50,000, while Natal voted £35,000 a year and Newfoundland £3000. But apart from these comparatively slight contributions, and the local up-keep of colonial fortifications, - and the beginning in 1908-1909 of an Australian torpedo-boat flotilla provided by the Commonwealth, - the whole cost of the imperial navy, on which ultimately the security of the empire rested, remained to be borne by the taxpayers in the British islands. The extent of this burden was emphasized in 1909 by the revelations as to the increase of the German (and the allied Austrian) fleet. At this crisis in the history of the two-power standard a wave of enthusiasm started in the colonies, resulting in the offer of "Dreadnoughts" from New Zealand and elsewhere; and the British government called an Imperial Conference to consider the whole question afresh.
Land defence, though a secondary branch of the great question of imperial defence, has been intimately connected with the development and internal growth of the empire. In the case of the first settlement of the American colonies they were expected to provide for their own land defence. To some extent in the early part of their career they carried out this expectation, and even on occasion, as in the taking of Louisburg, which was subsequently given back at the peace of Aix-la-Chapelle as the price of the French evacuation of Madras, rendered public service to the empire at large. In India the principle of local self-defence was from the beginning carried into practice by the East India Company. But in America the claim of the French wars proved too heavy for local resources. In 1755 Great Britain intervened with troops sent from home under General Braddock, and up to the outbreak of the American War the cost of the defence of the North American colonies was borne by the imperial exchequer. To meet this expense the imperial parliament took upon itself the right to tax the American colonies. In 1765 a Quartering Act was passed by which 10,000 imperial troops were quartered in the colonies.
As a result of the American War which followed and led to the loss of the colonies affected, the imperial authorities accepted the charge of the land defences of the empire, and with the exception of India and the Hudson Bay territories, where the trading companies determined to pay their own expenses, the whole cost of imperial defence was borne, like the cost of the navy, by the taxpayers of the United Kingdom. This condition of affairs lasted till the end of the Napoleonic Wars. During the thirty years' peace which followed there came time for consideration. The fiscal changes which towards the middle of the 19th century gave to the self-governing colonies the command of their own resources very naturally carried with them the consequence that a call should be made on colonial exchequers to provide for their own governing expenses. Of these defence is obviously one of the most essential. Coincidently, therefore, with the movements of free trade at home, the renunciation of what was known as the mercantile system and the accompanying grants of constitutional freedom to the colonies, a movement for the reorganization of imperial defence was set on foot.
In the decade which elapsed between 1846 and 1856 the movement as regards the colonies was confined chiefly to calls made upon them to contribute to their own defence by providing barracks, fortifications, etc., for the accommodation of imperial troops, and in some cases paying for the use of troops not strictly required for imperial purposes. In 1857 the Australian colonies agreed to pay the expenses of the imperial garrison quartered in Australia. This was a very wide step from the imperial attempt to tax the American colonies for a similar purpose in the preceding century. Nevertheless, in evidence given before a departmental committee in 1859, it was shown that at that time the colonies of Great Britain were free from almost every obligation of contributing either by personal service or money payment towards their own defence, and that the cost of military expenditure in the colonies in the preceding year had amounted in round figures to £4,000,000. A committee of the House of Commons sat in 1861 to consider the question, and in 1862 it was resolved, without a division, that "colonies exercising the right of self-government ought to undertake the main responsibility of providing for their own internal order and security, and ought to assist in their own external defence." The decision was accepted as the basis of imperial policy.