§ The Chancellor of the Exchequer (Mr. Dalton)Too much money running after too few goods is the unavoidable sequel—in every country seriously affected, not only our own—of a major war such as we have experienced. In many countries today there is a break-away inflation, apparently out of control; but the measures which we have taken, including our controls, both physical and financial, have prevented a break-away inflation in this country. There have even been some signs that the inflationary pressure here has been relaxed in recent months. Currency notes in circulation have fallen from the August peak of £1,421 million to a figure of £1,364 million last week. This is more than double the fall in the corresponding period last year. This year, I hope that we may not require any increase in the fiduciary issue to cover the Christmas peak, and that we may be able before long to reduce the fiduciary limit for the first time since 1939. From this and other evidence, some financial writers—and I read them all, but not all with agreement—have recently drawn the conclusion that we were at the beginning of a new phase of comparative monetary stability. But however this may be or may have been some weeks ago, we now face a new situation.
We must now deal with the new inflationary pressure, which must inevitably be generated by the action we are taking in order to close, from both sides at once, the gap in our balance of payments. Nobody, not even the most skilful statistician, can measure this inflationary pressure, whether old or new, with any close precision. Many estimates are made. There are wide discrepancies between them. I am not, this afternoon, going to put any precise figure upon the inflationary gap which we have to close. But the line of our counter-attack, in so far as this runs through budgetary policy, is very simple indeed. We must reduce the total expenditure, and we must in- 394 crease the total revenue. If there is a heavier inflationary pressure, we need a larger Budget surplus than would otherwise have had to be provided; just as if there were a heavy deflationary pressure, we should require a large budgetary deficit to counter it.