§ I now turn to another very important aspect of our finance planning—the degree of inflation or disinflation which exists, and what we ought to do about it in this current year. There has been a great deal of discussion lately, not only in this country but in nearly every country in the world, as to whether or not a period of deflation is beginning, 2070 and, if so, how suddenly it is likely to break upon us. As I have already pointed out, there is a tendency for prices of primary commodities to fall, and this tendency has quite recently started to invade the field of metal prices. It is being said that there is already a healthy degree of disinflation proceeding in U.S.A. These indications in other countries are, of course, important matters for us, of which we must take full account; but our first attention must be paid to our own situation.
§ Last year, it was our avowed objective to counteract the then existing inflationary pressure—as to which there was no doubt—and to bring about a comfortable, and not excessive, degree of disinflation. This, I think, we have succeeded in doing, largely as a result of the considerable Budget surplus, which was planned last year and has been realised in the last three months. There is of course no absolute criterion by which to judge how far if at all, disinflation has proceeded. We can, however, examine certain important evidence, and we must then use our own judgment, taking into account all the smaller, and less certain, evidential factors.
§ During the year there was full employment, and a high demand for labour. But the vacancies notified to employment exchanges fell steadily, and though they are still in excess of the number of unemployed available, the situation is coming into better balance. To any who are disposed to suggest that disinflation has proceeded too far, I would point out that the figures of unemployed which were 375,000 on 10th January dropped to 360,000 in mid-February, and that the preliminary figures for March, which are of course subject to confirmation, indicate a further decline in unemployment. It looks as if the mid-March figure will be a little more than 340,000.
§ There has also been over the year a considerable release of controls. Bread, jam, confectionery and clothing, are amongst the more important consumption goods released from rationing. It is also true to say that many goods are in more easy supply in the shops, additional to those which have been taken off the ration. Moreover, it is to be noted that the index of retail prices, which stood at 108 on 13th April last, had risen only one point to 109 by the middle of 2071 February; while over the same period wages had moved only three points from 105 to 108. Wholesale prices, which are, of course, much more affected by the cost of imports, and which rose from 185 in April, 1947, to 216 in April, 1948, only increased to 218 in February, 1949, a negligible increase. These results, placed against a background of full employment and of moderate de-rationing, are highly satisfactory, and certainly denote that the heavy pressure of inflation has been easing off.
§ There can be no doubt that a great deal of the credit for this improved state of affairs is due to the response, on all hands, to the plea for restraint put forward in the White Paper on Personal Incomes, Costs and Prices, which was published shortly before the last Budget. No one can doubt, in the light of what has happened since, the correctness of that approach or the importance of that appeal. As the financial facts of our present situation and their implications for the future become clear, it will, I am sure, be appreciated that we have just as much need for that policy of restraint today as we had a year ago; and I take this opportunity of impressing its need once again upon the country.
§ The general economic picture which I have given, of a mild, yet effective, degree of disinflation in this country, is strengthened by a consideration of the fiscal record of the past year. The total of the National Debt outstanding on 31st March, 1949 is £25,168 million, a fall of £453 million since 31st March, 1948. That happy result arises from two causes; first, the overall Budget surplus which has been realised, and, second, the sterling proceeds of the Marshall Aid Special Account, of which £107 million has been applied, with the consent of the Government of the United States of America, to the redemption of short-term debt.
§ Debt has never before been redeemed on anything like such a scale, and the operation has, therefore, naturally aroused a great deal of interest during the year. There has not been, as was expected in some quarters, any direct correspondence between the surplus and the amount of money in circulation or the volume of bank deposits. The latter are affected by many things besides the 2072 surplus itself. But the figures are nevertheless of some interest.
§ The total reduction of internal debt was £495 million. The note circulation, which was £1,245 million on 31st March, 1948, was £1,250 million on the corresponding date this year. Bank deposits, too, were practically level at £5,622 million in March, 1949, compared with £5,609 million in March, 1948. In this connection, it should be noted that a large part of the Budget surplus has necessarily been applied to meet floating debt maturities which arise from the reduction in sterling balances of overseas holders.
§ The main object of the Budget surplus of last year, as I then stated, was to raise enough revenue to cover not only the Government's current expenditure, but also that part of the investment programme that could not be safely left to be financed by private savings. If I had not done enough, there would have been further inflation; and bank deposits might have risen, because of excessive borrowing to provide funds for investment. The fact that they have not increased in volume is therefore a cause for satisfaction. We have thus achieved a balance between national income and national expenditure on current consumption and investment, and the resulting situation is far healthier than it was 12 months ago. Our task this year will be to maintain that good health.