As conflict with Japan became a possibility, events in the Far East caused a reassessment of disarmament policy. Due to the decreasing sense of security and the abandonment of the ten-year rule in 1932, an assessment of the armed forces was needed. Britain's problems were made worse by the addition of Germany and Italy to the list of potential aggressors.
The Defence Requirements sub-Committee (DRC) was formed in November 1933. The committee produced three reports for the Cabinet, which amended the recommendations to take account of other issues (such as political or financial considerations).
The DRC's first report was submitted in February 1934. It recommended a series of programmes, which by 1939 would make improvements to the worst problems in the services. As a result of political decisions by the Cabinet, and the desire to respond to widespread concerns about air warfare, the Royal Air Force (RAF)'s deficiency programmes were accelerated and expanded irrespective of the priorities in the DRC report. The Army and Navy then asked for their programmes to be revised, and in July 1935 the DRC re-examined defence problems. Their second report was an interim one which asked the Cabinet for clearer guidance.
The third and final report of the DRC was submitted to the Cabinet towards the end of November 1935. After considering the report, a ministerial committee reported to the Cabinet in February 1936. The Cabinet generally approved the recommendations of the ministerial committee. Despite this there were both unavoidable and self-imposed constraints on rearmament.
Between 1933 and 1936 the worsening situation of British foreign policy greatly hindered initial attempts to rectify the worst deficiencies of the armed forces. Attention was focused on the Far East, but even before the Defence Requirements sub-Committee had submitted its first report, events in Europe made the ever-increasing threat from Germany more real. The actions of Italy against Abyssinia made the Stresa Front untenable, changing Italy from a potential ally against Germany to a potential enemy. The Anglo-German Naval Treaty in 1935 seriously upset France, and in 1936 Germany reoccupied the de-militarised Rhineland. In a few years, Britain had gone from facing one potential enemy to facing three.
Furthermore, political and financial considerations forced changes in rearmament programmes away from those envisaged by the DRC. Widespread fears over attack from the air during the early and mid-1930s caused a panic that required the Cabinet to devote more resources to the RAF in search of 'parity' with Germany. From the very start the Treasury had a strong say in the rearmament process, limiting the funds available and requiring as little interference as possible with normal trade and industry. It was concerned with the fourth arm of British defence - finance.
Closely linked to financial matters was the problem that the industrial base (on which rearmament relied) was small and difficult to expand. The years of low levels of defence spending and limitation of armaments by international treaty had reduced the capacity of defence companies. The shortage of skilled labour was now a serious problem.
One method of addressing the shortage of plant and labour was the shadow factory scheme, which allowed rapid expansion of the aircraft industry by effectively piggybacking it onto the new, and expanding, motor industry. In the war ahead the new motor manufacturing sites would rapidly swap to the production of aircraft.