As the allies you already don't really need to upgrade your navy. You have sufficient ships to take even 2:1 trades. Once the US gets into the war you get even more cannon fodder and if you are at least decent in the game there is no chance you'll get wiped out by the KM or RM. If the subs get removed then the ally players just need to park their ships in a wall around the North Sea and covering West France and then just let them sleep.
Also i don't find relevant comparing what really happened in WW2 with the game. People aren't playing it to re-eneact history and loose as Germany. If things should be as in reality then Germany has 0 chance industry wise and manpower wise to do anything. But it is a wargame and there needs to be a balance.
I do agree that the sub balance is not achieved yet BUT it is getting there fast. On a scale of 0 to 10 (where 0 si allied bias and 10 is axis bias) i would say that the subs in 1.4 are at 6/10.
Axis Bias:
1. Multiple long and all over the map convoy routes. Not very realistic but it's fun for both allies and axis to play hide and seek. Axis player can also sneak out surface raiders and that forces the allied player to also send out some surface combat ships (CA/CC) - NOTE: YOU SHOULD ALWAYS SEND AS MANY SHIPS AS POSSIBLE HUNTING SUBS. Even if you don't attack with them once you found the sub take advantage of ZoC and surround the sub from 3/4 hexes away.
2. That 40% dive chance

3. Spanish ports and allies taking dmg if they get too close (or just make a HR that you aren't allowed to bomb the port)
4. ZoC 10

Allied Bias:
1. The immense number of ships that you start with and the constant DD reinforcement you receive. Combine that with navy bombers (that you can put on your islands in the pacific and monitor convoy lanes) and you have a lot of tools at your disposal.
2. Once US joins your number of ships doubles. You should have at least 3/4 DD patrolling every shipping lane and 5/6 doing the Canada/US one so he can't touch it ever again.
This is just out of the top of my head but there is much more to discuss.
What i proposed to Lothos in order to bring balance (to the force) are the following
1. Reduce ZoC for subs from 10 to 7 (or 5?);
2. OR give out ASW 1 researched for the brits at the beginning of the war. You could say that they should have some experience with it since they know what Germany was up to in WW1. Also it would play into how subs really behaved. I think the problem of most players is that when you actually get to hit the sub (after you find him, can aproach because of the ZoC and he doesn't dive) then you do only a measly 1 dmg. The only unit in the game that does 2 dmg in the beginning is the CV. With ASW 1 researched then UK can start upgrading it's DD (if they want//have the MPP) and then when they see the sub and hit it, it will be more deadly for the sub.