HC Deb 14 May 1948 vol 450 cc2473-82

2.0 p.m.

Mr. Spearman (Scarborough and Whitby)

I am very glad to have the opportunity of raising the question of losses of our gold reserves as a result of capital transactions, because I believe it to be of the very first importance. I think a sober view is taken of our economic position on the Government Front Bench today, since that jubilant figure, the right hon. Member for Bishop Auckland (Mr. Dalton), has left the Front Bench, and the Leader of the House has apparently been converted to realism. I do not think any Member on that Bench would now deny that unless we spend less or produce more we are faced with economic collapse. At the same time, the economic consequences of a failure in those two directions may be long drawn out; in fact, they may last until a General Election. What could bring upon us sudden disaster is a loss of capital on the scale that we suffered last year.

The United Kingdom balance of payments White Paper issued in February showed that the deficit on current account amounted to £675 million, yet the total drain on our gold reserves was no less than £1,023 million. After allowing for subscriptions to the International Monetary Fund, that means a balance of £297 million due to repayment of external debt, or export of capital. I have reason to fear that the amount was in fact considerably larger than that, and so large that the Government dare not disclose it but took measures to conceal how much was lost. There appears to be some confirmation of my fears in the White Paper on National Expenditure of April, 1948, where in a rather obscure note, which is on page 22, it is stated that two items which may together be of the order of £100 million would perhaps be more properly treated as elements in external investment.

I hope the Financial Secretary to the Treasury will be able to throw some light on that, because, if my fears are confirmed, it would appear that the Government have adopted a practice which if adopted by a businessman would bring him within the arms of the law. The recognised amount presumably admitted by the Government of £297 million is a vast figure, about 30 times What the Minister of Fuel and Power was expected to save by abolition of the basic petrol ration and what we spent on timber last year. Had we spent that on importing food we could have imported half as much again. Moreover, we could have made that investment in raw materials, which the Economic Survey said we were unable to do in our financial position, but which would have reaped a rich reward. In fact, £300 million is about what we expect to get for a year under the Marshall Plan and we were told that if we did not get external aid we would face mass unemployment and near starvation. Therefore, if we repeat the losses of last year it will mean that the whole of the Marshall Plan will be wiped out as far as we are concerned.

This is not a trivial matter, but one of first-rate importance. I ask the Financial Secretary if it was contemplated by the Government and if it was, why they did not take steps to meet it? If not, why not? They have had many warnings? As late as last October the then Chancellor of the Exchequer waved aside warnings from various eminent men. In particular, I will quote what he said on 24th October in this House: I hope I shall be able to dispose of some of the old wives' tales which have been circulating, sometimes above the signatures of academic persons who are not completely well informed on these matters.… Including my old pupil, Professor Robbins, a very talented economist but not fully informed—that is natural, as he is now no longer in Government service—on some of the subjects on which he writes."—[OFFICIAL REPORT, 24th October, 1947, Vol. 443, C. 398.] If only the Chancellor of the Exchequer had been as well informed as Professor Robbins, I do not think we would be in the position in which we are today. I think our people would have had a much happier and more abundant year. If this loss was not contemplated, was it due to the fact that the Government received bad advice? If so, have they changed their advisers? Or was it due to the fact that they did not take the advice? If so, why have there been changes in the Cabinet? I suppose it may be said that the man most guilty was the Chancellor of the Exchequer and, indeed, that it is on account of these losses that so much relief was felt in so wine a circle in Government ranks at his departure. I suggest that this is not a small departmental matter for which one Minister alone should take responsibility. This is a matter of high policy and every member of the Cabinet should take responsibility. The Government have been most extraordinarily fortunate as far as criticism is concerned by reason of the fact that owing to the complexity and obscurity of the subject, the country at large did not fully realise what negligence had occurred.

We all know that debts accumulated during the war amounted to over £3,000 million. I realise that this raises a problem of great complexity, but what is quite plain is that we cannot repay them all and also we cannot repudiate that to which we put our name. We should distinguish between debts incurred in fighting the common enemy—which were very largely incurred in saving the very countries to whom we owe money—and the ordinary commercial debts for which we received benefits, and for which we always pay in full. It cannot be right that we should ruin ourselves and run short of food and have starvation in this country to meet these debts. I believe the United States made a condition of waiving interest on the Loan that we did not repay more than £430 million. What is the Government's policy in this matter? What is their external financial policy? Have they a policy? They are fond of asking what our policy is, but we have no responsibilities and can have no sources of information. They have both. It seems reasonable to ask them—and to press for an answer—what is their policy? What is their policy in regard to the sterling area? Is it to block all withdrawals from it? Before the war all subscribers to the sterling pool were able to convert and no one would remain in it unless they could convert. Is it the plan of the Government to block old debts incurred in the common defence in the war and allow convertibility to the new? That may be a practical proposition, but what is their policy?

The method of the Government seems to have been to consider each case on its merits, to but off those who shouted loudest and to leave all sorts of loopholes. That would seem to me to be a very unsound policy. It has certainly proved to be quite calamitous. I have some reason for thinking that the losses in April were considerably less. Is that just a flash in the pan or is it due to the Government taking measures that they have not told us about which will safeguard the future? I would draw the attention of the Ecibinuc Secretary to the "Economic Survey" of March, which forecast a total deficit for the first six months of £270 million. I would remind him that the figure for the first three months alone was about £150 million, which looks as though the Government failure accurately to predict is being well maintained.

I suggest that there must be an upper limit to the amount of money which is allowed to leave the country. Perhaps this is rather a delicate suggestion to make but the Government must really fact the fact that they have to do some planning. The rich man can afford to be careless in his distributions. The poor man must have a plan and must add up his total liabilities before he incurs them. This Government, as I see the position, are willing to spend time and energy on planning trivial and even vexatious matters but they have failed to make the large plans which are necessary. I am thinking of our failure to control the loss of capital as indeed they have failed to equate total demand and total resources.

Obviously I cannot possibly, in the short time at my disposal, make a detailed criticism of the Government or make constructive proposals. I am afraid that all I have been able to do has been to draw a very sketchy outline of the situation. I wish to stress as much as I can my dismay at the losses which have been incurred. I do not believe that there is any one failure of the Government which has caused this country so much in suffering and which has jeopardised our standard of living in the future so much as their failure to deal with this particular situation. To say that this is the greatest mistake the Government has made is certainly saying a great deal.

I wish to express not only my dismay at the negligence of the Government in the past, which has cost us so dear, but my grave anxiety and apprehension about the future. It may be that the Financial Secretary can show us today that the Government have, at immense cost to the country, learned by bitter experience and have at last taken measures to prevent disaster in the future. As the hon. Member knows I hold him in high respect, and I trust that he will think it no disrespect to him if I say that not only do I look forward to hearing him, but that I hope that at some date in the future the man in the Cabinet who is primarily responsible, the Chancellor of the Exchequer, will himself give us a clear account of what has happened and what he proposes to do in the future to prevent disaster occurring to this country.

2.15 p.m.

The Economic Secretary to the Treasury (Mr. Douglas Jay)

The hon. Member for Scarborough and Whitby (Mr. Spearman) represents a very important neighbourhood, and I am sure that any thinness in the attendance in the House this afternoon is more a tribute to the amenities of his constituency than any reflection on the merits of his speech. If I understand him aright, what he is asking us to do is to put a far more rigid control on exports of capital from this country both by exchange control and other methods. I welcome this conversion of the Opposition since 1946, when they opposed the Exchange Control Act. I remember that the right hon. Gentleman the Member for the City of London (Mr. Assheton) told us then that Permanent exchange control is a horrible prospect to those who love freedom. and went on to quote Professor Hayek as declaring such control to be 'the decisive advance on the path of totalitarianism and the suppression of individual liberty …'."—[OFFICIAL REPORT, 26th November, 1946; Vol. 430, c. 1450.] We ourselves have not changed our minds. We are firmly of the opinion, to which hon. Members have now apparently come round, that we must conserve our gold and dollar reserves to the utmost extent, and limit to the maximum any strain on those reserves caused by outflow of capital or unrequited exports. The hon. Member asked me whether the fall in gold reserves in 1947 and the deficit in the balance of payments was foreseen or contemplated. It is quite evident that the exact size of that deficit was not foreseen, but I think the hon. Member ratter distorted the picture by taking the current year of 1947 by itself. If he will look at the White Paper of December, 1915, he will see that the forecast of the del cit on the balance of payments for 1946 was £750 million and in the actual result was £380 million. In that case the official forecast erred on the pessimistic side.

If we take the two years 1946 and 1947 together, and indeed if we take the three years 1946, 1947 and 1948 it will be found that the two and three year forecasts were not far out. That is a point which people sometimes forget. In 1947, in particular, the hon. Member argues that capital exports were permitted on an excessive scale, particularly to sterling area countries. I agree that such a capital outflow of that kind must take the form either of a drop in our reserves of gold and dollars, on the one hand, or exports for which we get no immediate return on the other. I do not call them unrequited exports because we may get some important return at a later date. It is worth locking at both these points and seeing what actually occurred in 1947.

If we take the drop in gold reserves first, it is true, as the hon. Member says, that, as is shown on page 4 of the balance of payments White Paper, out of a total fall in reserve of £1,023 million, only £677 million was identifiable on account of the United Kingdom deficit. But a large part of the remainder, I think this is generally forgotten—actually £189 million—represents the net drain on gold and dollars in the year, due to the trade of the other sterling area countries with the dollar area. That is the biggest item over and above the £677 million. The hon. Member rather forgot that if a sterling area country such as India is compelled Jo buy grain from the Western Hemisphere to keep her own people from starving, and has to convert sterling for this purpose, the transaction appears as a capital export from the United Kingdom point of view, but it also appears as part of India's deficit on current trading account.

The gold and dollar reserves looked after by the Bank of England are not the reserves of the United Kingdom only, but also the reserves of the whole sterling area for whom we act as banker and trustee. It is easy for us here to talk as if the whole of the £1,000 million by which the gold reserve dropped last year should have been spent on United Kingdom account only. We should remember that the other members of the sterling area look at the matter like this: they would say that out of that £1,000 million more than £675 million was spent on account of one member of the sterling area alone, the United Kingdom. Is that fair, they would say from their point of view.

The sterling area, like the Commonwealth which is largely co-extensive with it, is an association of free peoples, and it has to work by mutual trust and cooperation, not by compulsion. Some of the extreme language used on this subject by academic critics about all gold used for other sterling area countries being "lost" —the word has been used even by Professor Robbins and Mr. Harrod, and the hon. Member himself used it several times this afternoon—would suggest a doctrine which, if pressed to the extreme, would, in my experience, threaten to undermine not merely the sterling area, but the Commonwealth itself. Secondly, and this is a further point, some outflow of capital from this country may reflect exports of goods for which we may get no immediate return. That is what the hon. Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) calls "unrequited exports," which is a shorthand term. These are shown in Table I of the White Paper. In the case of the sterling area they have been no more than £80 million in 1947, which is not much, in relation to the total. In 1946 there was a movement in our favour of £30 million. Inevitably, if we are to act as bankers. for the sterling area, there is bound to be a certain ebb and flow of balances between one area and another.

I agree, however, that this country cannot afford the strain of unrequited exports beyond a very limited amount, and we mean to keep them down within the limits we can afford. Nevertheless, it does not seem to be realised that there are several very good reasons for permitting some such exports in certain cases. I may mention three. First, they are necessary in many cases, if we are to push forward the physical development of the Colonies and other parts of the sterling area, which we all agree is vital to our future, and, indeed, to the proper use of the E.R.P. period. This is a case of real investment of physical capital in the sterling area which I believe will give us a rich return in the future.

Viscount Hinchingbrooke (Dorset, Southern)

That has got nothing to do with it.

Mr. Jay

If the noble Lord thinks it over, he will see that it has. Secondly, in other cases it may be possible to send sterling goods to another country in order to save that country from buying goods from the United States. That applies to textiles which are needed by some Far Eastern countries. To that extent, even at the moment, unrequited exports actually save dollars on the current account. Thirdly, it also may be necessary to send to sterling area countries goods absolutely essential to their existence and recovery. In the case of Burma, for instance, exports of textile goods from this country have actually enabled rice and other products to be harvested and marketed, which ha, been a great contribution to easing the whole world situation.

Mr. Spearman

The Economic Secretary has given us a lot of excuses for what has happened in the past. May I ask if he is going to give us any reassurances as to appropriate action by the Government to preclude the experiences of the past occurring again?

Mr. Jay

That is exactly the point I have reached. The hon. Member did ask, and quite rightly, what our policy was to be in the future. Unlike the Opposition, I am only too glad to answer. In 1948, our policy in this matter will be, in general, as follows: we shall, in the first case, continue to press the other member countries in the sterling area to reduce to an absolute minimum their net drawings on the common gold and dollar reserves, and to limit the drawings on their sterling balances, so as to keep both unrequited exports and the drop in our gold reserves to the lowest possible figure. The figures in the Economic Survey show what we hope to achieve in these respects.

We intend to carry out this policy in the following way. First, by a co-operative effort on the part of all members of the sterling area to limit their purchases of dollar and other hard currency goods to the absolute minimum. We have been working hard to achieve this throughout the past months, and I am glad to say—and the hon. Member seemed to have some knowledge of this—that the outflow of gold and dollars on account of other parts of the sterling area has been very much lower in the last two months than previously. I can also tell him that this is certainly due to measures taken in all kinds of ways to try and get the drain down. Unfortunately, these measures take a little time to mature, and the results we hoped to see in January and February have, in fact, appeared in April.

Secondly, we hope to achieve this by agreed measures to ensure that sterling balances are not unduly drawn upon. We now have agreements or understandings of this kind with practically all the countries in question. Thirdly, we shall work by the strictest possible exchange control round the whole sterling area to prevent pure leakages in the technical sense. Here, again, I fully agree that exchange control can never be 100 per cent. perfect, but we shall—helped no doubt by the Opposition conversion to our policy, in which the hon. and gallant Member for New Forest is playing such a large part—try to make that system of control as perfect as we can. Therefore, though I must repeat that we are not prepared this year, or indeed in any year, to use attempted compulsory methods in this matter, which would, in my opinion, threaten to break up the sterling area and perhaps the Commonwealth, we believe that without attempting this sort of method we can, by the measures I have enumerated, keep the strain both on the gold and dollar reserve and on our productive exporting capacity within full limits, as we clearly must if our country is to go on. We have a number of new members and we are anxious to prove to them that membership of the sterling area and the Commonwealth is something which is worth while in this world.

Mr. Spearman

Would the Economic Secretary, if not now, then on some future occasion, undertake to explain and either confirm or deny my suspicion that the actual drain was much larger than was disclosed, and what is the amount in that first paragraph of page 22 of the White Paper on National Income and Expenditure?

Mr. Jay

I know of no reason to suppose that the drain was larger than supposed. The figures given on pages 3 and 4 of the Balance of Payments White Paper set out the position fairly. I could not, without notice, give any detail, but I will look into it. I think the hon. Member can assume that the figures, slightly supplemented by the Economic Survey, give as fair a picture as we can give of what happened in 1947, and I do repeat my advice to him that he should look at the story of 1946 as well.