Within a week of the Derry violence in October 1968, the O'Neill cabinet was considering the possibility of wide-ranging reform. The starting point was a memo by Capt O'Neill on the need for serious consideration of the criticism of government policy which had been voiced in the media since the Derry march on October 5th.
In his memo, dated October 14th, the unionist Prime Minister conceded that, while "firmness must be an essential aspect of our position, there are wider ramifications which we cannot ignore".
Referring to two previous meetings with the British Prime Minister, Harold Wilson, Capt O'Neill went on: "The Ministers of Commerce and Home Affairs (Messrs Faulkner and Craig) know, from personal experience, the pressure we were under to justify some of our practices.
"We all know, too, that a strong section of left-wing opinion has been pressing Wilson very hard to take some positive step. Up to now he has fobbed off this pressure, from our point of view very well. With Northern Ireland calm and a general feeling that slow but steady progress was under way, he could contain the situation - though not without a veiled threat on occasion."
The Prime Minister continued: "I would be failing in my duty if I did not make it clear that, in my view, Londonderry has dramatically altered this situation to our great disadvantage. Whether the press or television coverage is fair is immaterial. We have now become the focus of world opinion."
He had learnt through official channels that the British embassy in the United States had been under intense pressure from the US press.
Within the next month, O'Neill warned his colleagues: "We must face Harold Wilson again." He asked his colleagues to be realistic on the situation they were certain to face in London. "We shall be told that unless we give a definite undertaking that we will introduce further reforms, HMG will no longer be able to stand aloof from the situation. I must ask ministers to consider what we can expect if we are unable or unwilling to give such an assurance."
Capt O'Neill stressed the North's economic and financial dependence on Britain. There were "a number of levers which Whitehall could pull without any fuss" to disadvantage a recalcitrant Northern Ireland.
But O'Neill felt the situation transcended mere financial considerations. "I just do not believe that London is prepared to cut us adrift financially and concern itself no more. On the contrary, I believe that we would face at once such highly dangerous possibilities as a Royal Commission or proposals to amend the 1920 Act. We have said for years: Ulster is British. If the decision now is to turn our backs on Britain and go our own way, it would be one difficult to defend."
Turning to the internal situation, he felt the need "to temper firmness with fairness". He declared bluntly: "Of course, there are anti-Partition agitators prominently at work, but can any of us truthfully say, in the confines of this room, that the minority has no grievance calling for a remedy?"
He acknowledged "the appalling political difficulties" which the government faced. The first reaction of the unionist population "to the antics of Fitt and (Austin) Currie and the abuse of the world's press" was to retreat into the old hardline attitudes. But, O'Neill added, "If this is all we can offer, we face a period when we govern Ulster by police power alone, against the background of mounting disorder."
The only way to avoid any tinkering with the 1920 Act was to make concessions in other directions. "Things like the multiple vote at local government elections and the position of the Mater Hospital (in Belfast) are not essential to maintain our position. And we may even in time have to make a bitter choice between losing Londonderry and losing Ulster."
The Prime Minister's stark memo was considered at a full cabinet meeting on October 14th, 1968. Ministers felt that while it would be wrong to make concessions under the threat of disorder the multiple vote in local government should not be regarded as sacrosanct. The government's ongoing attempt to reach an accommodation with the Catholic Mater Hospital was welcomed.
The possibility of a crash housing programme for Derry was canvassed on the ground that this seemed to be a major grievance, a point taken by Cardinal Conway in a recent speech stressing the social aspect of the Derry problem, "apparently regarding housing as more pressing than employment or the franchise".
Northern Ireland's financial dependence on the UK exchequer was analysed by the Minister of Finance, Mr Kirk, who explained the difficulties that had arisen in recent negotiations with the British Treasury through decisions having been referred to ministers when formerly they would have been taken by officials.