§ The Chancellor of the Exchequer (Sir Stafford Cripps)
The usual quarterly statement on the balance of payments and its effect on our reserves of gold and dollars is now due and the figures are being published today. For reasons of which the House will be aware—and to which I have referred more than once in recent weeks—it is desirable for me to make al short explanation of the facts set out.
During recent months there has been a decline of business activity in many parts of the world. Instead of a sellers' market, we now have a buyers' market. As we all know, the most difficult problem with which the sterling area has been faced is in its balance of trade and payments with the dollar area. This has been well demonstrated by the critical effect of the dollar shortage upon our sterling economy over the last few years. The decline in demand from the dollar area for sterling area goods naturally brings with it important consequences.
As has already been pointed out on more than one occasion, this change in the financial and commercial climate has meant that the shortage of dollars in the sterling area has become even more marked. As the House is aware from the April and May figures of overseas trade, there has been a considerable falling off in our sales to the U.S.A., and this has reduced our dollar earnings. This decline has been even more marked in the case of other parts of the sterling area, particularly those selling primary commodities to the U.S.A., where both quantities and prices have moved sharply downwards.
It is good to know that our sales to Canada were well maintained in the month of May and that in that month they were very nearly an all-time record. We hope that these exports will be increased still further especially as a result of action taken by industry and by the Government following the visit of my right hon. Friend the President of the Board of Trade to Canada. We are also hopeful that our exports to the U.S.A. will resume their upward tendency. It cannot be emphasised too often that this is by far the most urgent and important task of all those concerned with exports. Success in that task does, of course, also 2150 depend on the willingness of the United States and Canada to accept our exports, and to continue to purchase the raw materials which the sterling area can supply.
As a result of the decline in demand that I have mentioned, our dollar gap has widened again and a new and unfavourable position has developed. While awaiting the figures for the second quarter of 1949, to make its usual quarterly announcement, the Government, in the course of its normal review of the situation, have already taken certain preliminary steps to deal with this situation.
The figures of our dollar deficit, before taking account of E.R.P. assistance, of the Canadian credit, or of drawings on the International Monetary Fund, were in the four quarters of 1948—£147 million, £107 million, £76 million and £93 million. In the first quarter of 1949, the corresponding figure was £82 million. The Economic Survey gave an estimate of £195 million for the first half of 1949, which would have allowed for a dollar deficit of £113 million for the second quarter, as expenditure was expected to increase temporarily in line with our E.R.P. Programme. In the event, however, the dollar deficit for the three months to 30th June has risen to £157 million.
There were no drawings during the quarter from the International Monetary Fund, but, after taking account of £85 million for E.R.P. reimbursement and £7 million from the Canadian Credit, the reserves of the sterling area fell from £471 million as at 31st March last to £406 million at 30th June. There is also a sum of about £20 million owing to us under E.R.P. for goods for which we have already paid. In addition, part of the E.R.P. allocation made to us in respect of the first 15 months of E.R.P. is designed to cover supplies which will not come forward, or be paid for, until a later date.
Though this fall in our reserves is a serious development, yet any comparison with the events of July and August, 1947, would be entirely misleading. In 1947, though our own recovery was under way, we were still in the middle of the process of re-conversion and re-deployment, which had itself been checked by the fuel crisis in February of that year. In 2151 Western Europe as a whole, the economic recovery had made little headway and the political situation was marked by weakness and uncertainty.
Today, as a result of the conclusion of the Brussels Pact, the establishment of the O.E.E.C. and the signature of the Atlantic Pact, our own position and that of the other countries concerned have been immeasurably strengthened. We have behind us in the U.K. two years of expenditure on capital goods on an unprecedented scale, and of uninterrupted economic progress. We have taken a variety of measures to deal with the inflationary situation with which in 1947 we were threatened.
Our production is at a record level in the whole of our history, and our exports are as high as they have ever been and half as high again as in mid-1947. We have practically reached a state of overall balance in our overseas trade. All this has been made possible by the great efforts of our own people and by the generous help of the United States and Canada, especially through the European Recovery Programme, which is so large a factor in the progress that is being made, and will, I hope, enable us to expand European trade in the way that I explained to the House on Monday.
Productive power is the foundation of a country's economic strength, and ours has grown to such an extent in the past two years as to give us confidence that we can deal effectively with the present unfavourable turn in our affairs. But a drain upon our reserves at the present rate calls for immediate corrective action, as well as for longer term and more fundamental measures. His Majesty's Government therefore acted at once in pursuance of what must remain the major objective of our financial policy, the safeguarding of the reserves of the sterling area. Before the middle of June, we had, much to our regret, been compelled by events to give instructions to all our purchasing Departments that they were to postpone new dollar purchases to the maximum extent practicable. That stand-still arrangement will be continued for at least three months and till after the discussions to which I am about to refer. Existing contracts and commitments will remain in force, but specific authority will be required for any new dollar purchases and will only be given 2152 where a clear case of urgent national interest is established. Dollar expenditure, other than on imports, will only be permitted where essential, and then at a reduced rate.
Unless the sterling area succeeds in restoring the volume of its sales to the dollar area, these restrictions upon dollar expenditure will have to be continued. As soon as the distribution of E.R.P. aid for the coming year has taken place and the new intra-European payments scheme has come into operation, we shall get out a new import programme in the light of the circumstances which then exist. We hope to have such a programme completed in September next. Before the discussions to which I will refer in a moment, we do not intend to make any immediate adjustments in the amount of dollar goods released for consumption; but, as soon as they are over, we shall have to reconsider the situation in the light of any decisions reached, and it may then become necessary to reduce consumption of certain selected foodstuffs which are primarily drawn from the dollar area and of certain raw materials.
I must make it clear that, just as it took some time for the position which I have outlined to declare itself, so this standstill will have little immediate effect in reducing the drain on our reserves. Unless contracts already entered into were to be broken, and the flow of imports for which firm arrangements have already been made was to be stopped, there could be no large degree of relief from the present measures until towards the end of the third quarter.
But a standstill on dollar expenditure, though absolutely essential, is no solution for our difficulties. The effect upon our trade relations with the dollar area of the change from an expanding to a contracting volume of world trade demonstrates the need for positive long-term policies. In the meanwhile, His Majesty's Government will press on with every practicable method of increasing our export trade, above all, the sale of goods and services for dollars. And for this it is fundamental that industry itself must quickly achieve a reduction in costs and prices by improved productivity, and give preference wherever possible to exports to dollar markets.
Any inability to hold our own in world markets must deprive us of essential supplies 2153 and our standards of life will suffer. This creates the imperative necessity for new directives to be given to all those in industry who are concerned with costing and securing contracts, that they must increase dollar exports. We must get our export prices down to a point which enables us to improve our position in these markets, and the rather easy methods resulting from the unlimited demand of the last 10 years must go.
The Government and the nation are pledged to a policy of maintaining full employment and protecting our present standard of living. To that end our efforts will be directed, but no democratic Government can do this alone. If a nation is to achieve these generally accepted aims, there must be complete co-operation. While we have no desire to see wages cut, we must and can cut down costs, and this we can do if we increase our efficiency of production. There should therefore be, throughout the Government services and every other public service, and throughout all industry, a resolute aim to achieve the utmost efficiency. In addition, we must avoid waste in materials and in every other way, so as to get the best possible results from what we import.
Above all, it is quite certain that our existing policy on personal incomes, costs and prices will have to be vigorously pursued. I must warn the House and the country that any attempt at this stage to force up personal incomes can only have the most adverse effect upon our situation, since it will raise prices, and thereby make it even more difficult for us to earn dollars or other hard currencies with our exports. This, in its turn, must lead to a diminution of our general standard of living. If our money is to buy us less in goods, an increase in money earnings is of no value. It is of crucial importance that in meeting the present situation we should not aggravate it either by demands for increases of personal incomes or by delays and stoppages in our industry which increase costs and reduce our dollar earnings.
This continuation and intensification of the policies we have been pursuing, though vitally important, will not in itself be enough to remedy our situation. The problem of the relationship between the sterling and the dollar worlds is not one to which the United Kingdom alone can find a remedy. It is a problem in which 2154 our friends and partners in the United States and the Commonwealth are especially involved. Just as we have in this post-war period concerted together short-term economic solutions to our difficulties, and together laid the basis for our long-term political association, so now we must seek together a long-term remedy for the stubborn problems of the balance of trade between the Western Hemisphere and the rest of the world, of which the sterling area forms so important a part.
As soon, therefore, as the facts of this greater stringency of dollars and its effects upon the whole of the sterling area, became evident we invited Commonwealth Finance Ministers to attend a meeting in London. This meeting will begin on 13th July, and its purpose is to discuss the situation as it now exists, and to devise mutual co-operative measures to deal with it. We are taking the opportunity of the visit of Mr. Snyder, the Secretary of the United States Treasury, who will be visiting London this week, to initiate discussions with the United States Government on the whole matter; Mr. Abbott, the Canadian Minister of Finance, will take part in these talks, as well as in those of the Commonwealth Finance Ministers.
Arrangements have thus been made for prompt discussion of the whole position at a high level. The House will realise that until these talks—which will undoubtedly take some weeks—have been concluded, it will not be possible for the Government to formulate and lay before them the full policy which we intend to pursue, in association, we hope, with our American friends and with the other members of the Commonwealth. In the meantime, we shall in the course of these consultations, and in concert with others, take whatever further steps may be necessary to deal with the immediate situation of the sterling area. I would warn the House and the country that a thorough-going solution of this sterling-dollar problem will take some time, and just as in dealing with every other great national problem following the upheaval caused by two world wars, we shall need, while exercising patience, to be prepared to take resolute action.
The United Kingdom carries a great burden of responsibility in this matter, not only as the central country of the sterling area, but also because it is so large a contributor to world trade. We have indeed 2155 fully recognised this responsibility in the assistance which we have provided since the war to stimulate world trade and to help forward world recovery. As the House is aware, we have devoted over £900 million to this cause.
We are convinced that the present circumstances offer a real opportunity for a long-term solution of the difficulties between the dollar area and the rest of the world. Our recovery and that of Europe has, with American and Canadian Governmental help—which cannot be expected to continue indefinitely—gone far enough to enable us now to look for a way out of these difficulties. If in the future we are to have the convertibility of currencies and the multilateral form of trade which we have sought ever since the end of the war, and are now seeking, we and others must begin to build the permanent policies that will make these desirable objectives possible of attainment.
It is therefore in a spirit of constructive determination that we approach the solution of our present difficulties, and if we must pass through a further period of restraint and restriction in order to bring about a more permanent solution of our problems, I am confident that, in so doing, we can rely upon the help and support of all our people thus safeguarding that basic policy of full employment to which we, in common with all other countries of the world, are so deeply pledged, and at the same time preserving the principle of "fair shares" to which our nation is committed.
§ Mr. Eden
The right hon. and learned Gentleman the Chancellor of the Exchequer has just made to us a statement of the utmost gravity on which I should not suppose that the House as a whole would wish to comment today. We all wish for a chance to read it, to study it and to examine its manifold implications which are none the less grave for the studious language in which they were couched. May I, therefore, first suggest—I think it is agreeable and acceptable to the Government—that we should have a Debate on this subject next week. I think a reasonable date would be Thursday. I understand that is acceptable.
Now may I ask the right hon. and learned Gentleman just one or two questions 2156 which emerge from the immediate statement? First, it will be realised by the House that the right hon. and learned Gentleman's statement is all the graver because it is completely out of line in respect of the balance of payments, with the Economic Survey issued only a few months ago. That is an aspect of the situation which will have to be further examined when we come to debate it.
The other point on which I am anxious to have the earliest information—if we have the Debate next week—is whether the right hon. and learned Gentleman will then be in a position to give us information about the standstill order which, from his statement, it appears was issued before mid-June. The House will understand how important it is that the country should know the effect of that order at the earliest moment, not only its effect on individuals in respect of whatever it is they may have to forgo—I do not know why the hon. Member opposite keeps laughing at me; I am trying to be serious and to deal with this matter with the gravity I think it warrants—but, even more important, in respect of industry and its position with regard to raw materials. It will be recognised that it is quite impossible for anybody to estimate what the effect of that standstill order is going to be.
The only other question I should like to ask the right hon. and learned Gentleman is whether, when he makes an appeal to industry to reduce its costs and prices in order to complete successfully in the markets of the world, and in particular in the dollar markets, he will bear in mind that the heaviest burden which industry has to bear is the continuing, and unhappily still rising, measure of Government expenditure.
§ Sir S. Cripps
I think the only question which the right hon. Gentleman addressed to me was whether I hoped to be able to give any particulars about the standstill order. I hope that I shall be able to do so.
§ Mr. Eden
If we are to have a Debate next Thursday, the important thing is that we should have our Debate in the context in which we know all the facts as they are. Today all we know is one figure which has been put out in the Press for many days past, and which has now been confirmed. I hope the right 2157 hon. and learned Gentleman will understand that we are trying to be reasonable about this, and that if we are to have a Debate next Thursday it must be a Debate in which we are in real possession of the facts. Otherwise we cannot advance much further than we have advanced today.
§ Sir S. Cripps
I was saying that I hoped that we should be able to give more particulars about the standstill order.
§ Sir S. Cripps
I cannot go into the exact amount of detail in which we can do it, but certainly we shall give the House all the information that we can on it.
§ Mr. Clement Davies
May I supplement what the right hon. Member for Warwick and Leamington (Mr. Eden) has said? I think we all regard the statement which has been made by the Chancellor of the Exchequer as the most important he has yet made while he has held that office. That being so, and inasmuch as, quite obviously, his statement next Thursday, if we have a Debate then, must take quite a considerable time if he is going to explain the figures and the effect of them on the welfare of the country, which depends on his proposals, would it not be possible to have a longer Debate than merely on Thursday? I put it to the Leader of the House that everything else must be secondary to this very important matter, and therefore would it not be possible to have at least two days for the Debate?
§ Mr. Geoffrey Cooper
Since the Chancellor of the Exchequer indicated that the solution to the problem lay largely in increasing our national efficiency, and since he took great pains to aid industry by his working parties and so forth, with a view to increasing efficiency, is it his intention to take any similar steps with regard to the efficiency of the Departments, to which he also referred? Is it his intention to set up a Royal Commission, or a committee of investigation, or a working party, to inquire into the working of the Civil Service?
Mr. Wilson Harris
When the right hon. and learned Gentleman spoke about the effect of forcing up personal incomes, 2158 was he referring to the whole scale of incomes, high and low, including dividends, salaries and wages?
§ Sir S. Cripps
Certainly, all those which were included in the White Paper which was issued last year.
§ Mr. Walter Fletcher
Would the right hon. and learned Gentleman, in any statement that he gives us, deal with the serious question of the big dollar leakage in the sterling area by which large quantities of dollar-earning commodities such as wool, rubber, hides and skins do not produce dollars for the sterling bloc but for other nations outside?
§ Sir S. Cripps
We can give an estimate. We certainly cannot give the figures, because one of our troubles is that we cannot always discover the facts.
§ Mr. A. Edward Davies
Our dilemma is that we want to sell our goods in America, but America does not want them. Therefore, if we are to get our goods into America and if we are to appeal to the workers of this country to stabilise wages, is it not a reasonable request, as the French have clearly pointed out, that an examination should be made of the tariff walls which keep our goods out of America? Do we not, in fact, send only a tiny proportion of our exports to America? Further, has not the time come for a re-valuation of the price of gold in relation to our dollar problem?
§ Sir S. Cripps
There are a number of matters which obviously can be discussed with America, some of which have been mentioned.
§ Mr. Stokes
May I support the request of the Leader of the Liberal Party to the Lord President of the Council? Will he give us an assurance that we shall have a longer Debate than one single day next week? Will he make quite sure that he does find out through the usual channels, what pressure there is? On the last occasion, when you, Mr. Speaker, had an enormous list, the Lord President was entirely unaware that any back bencher wanted to speak at all.
§ The Lord President of the Council (Mr. Herbert Morrison)
I remember that occasion very well. My hon. Friend is all wrong about it. Quite apart from the physical difficulty of Parliamentary time, which is very real, and although I 2159 appreciate—nobody more—the great importance of the matter, my right hon. and learned Friend will be engaged in conversations with the Commonwealth Finance Ministers. As it is, this Debate will come in the middle of those discussions, and I am sure that the House will appreciate that it would be very difficult for him to give more than a day's attention in the House to this matter. [HON. MEMBERS: "Oh!"] This fact must be faced if those discussions with the Commonwealth Finance Ministers are to be adequately proceeded with.
§ Mr. Morrison
I do appreciate that. I have no doubt that the Opposition will also remember it in future negotiations with the Government about time, and it will be a perfectly fair point to advance. We are in a difficulty about the physical limitations between now and the Recess. These discussions with the Commonwealth Finance Ministers must proceed. Their time is limited, and I am sure the House would wish to take their convenience into account as well.
§ Mr. C. Davies
Is it not correct that the Finance Ministers from the Commonwealth will be meeting the Chancellor before Thursday? Surely we can have an extra day; if we could not have the Friday, could not we have the following Monday or Tuesday? This is such a vital matter that surely the House would not begrudge sitting an extra day upon it, even going into August if necessary?
§ Mr. Gallacher
Could the Chancellor give some information, either now or when he opens the Debate next Thursday, on two small but very important points? If we have failed to balance our economy in a sellers' market and an expanding market, how can we balance our economy in a buyers' market which is a contracting market? Secondly, when the Chancellor spoke of cutting costs, he said that he had no desire to cut wages. How is it that the subject of wages comes into his mind instead of the subject of cutting 2160 profits? Would he kindly reply to those questions?
§ Mr. Spence
Could the right hon. and learned Gentleman add anything to what he said this afternoon on the question of the devaluation of the pound? While this question remains unanswered, a great deal of uncertainty is caused.
§ Mr. Henry Usborne
The Chancellor said that it is necessary to reduce the costs of products in order to sell them. The real cost of products is, or should be, measured in man-hours, which are not increasing. In many factories they are going down. How is it that at the same time the price which has to be charged is going up? Can the Chancellor explain that apparent unbalance which is a great inconsistency and is worrying many people in the country?
§ Mr. Maclay
On the question of Parliamentary time, can it be made clear that to discuss not only today's statement but last Monday's statement and the implications of the Argentine trade agreement, will certainly require a great deal of time? I must emphasise the need for more than one day for these subjects to be debated. Might I add that I sincerely hope that the Chancellor will take time to explain how what he describes as the desirable objective of multilateral trade on the widest scale is possibly consistent with the Socialist theories of the present Government?
§ Mr. S. N. Evans
Having regard to the very important discussions which will take place between now and the Debate on Thursday next, may I ask the Chancellor whether he will ceaselessly point out to those with whom he is called upon to negotiate that the present financial and economic situation finds an exact parallel with the military situation in 1940? May I ask him to recall to them that had the metropolitan air force been thrown into the Battle of France, the Battle of Britain could never have been won and the war would have been lost? May I ask the Chancellor to explain to 2161 them that the Hurricanes and Spitfires of that desperate period are the dollar and gold reserves of the sterling area today?
§ Mr. Wadsworth
When the Chancellor meets the Finance Ministers from the Commonwealth, will he give consideration to the problem of large-scale family emigration which is largely a solution of the problem?
§ Mr. Morrison
I think the right hon. Gentleman knows the difficulties under which we are working. [An HON. MEMBER: "What about the Whitsun Recess?"] Does the Leader of the Opposition want to be controversial? I am not seeking to be controversial and what I suggest—[Interruption]—if the House does not want an answer I will sit down. [HON. MEMBERS: "Give an answer."] Very well, I. will give an answer. What I was going to suggest was that this can be discussed through the usual channels and we will see what can be done. We are in difficulties, but we will see what can be done.
§ Mr. Platts-Mills
The gravity of the statement we have heard today shows that the Chancellor of the Exchequer is quite incapable, even yet, of seeing that all we have said about the Marshall Plan is being proved true. We protest against these cuts and threats of cuts outlined in the statement.
§ Mr. Platts-Mills
It was leading to a question. May I put a question to the right hon. and learned Gentleman? Will the Chancellor not now acknowledge that what we are faced with, and what is covered by all these long words like "convertibility" and "multilateral trade," is the bitter conflict between British and American capitalism, as a result of which American capitalism is trying to strangle us and squeeze us out of the markets?
§ Mr. Speaker
The hon. Member goes outside the rules of Questions every time. His question is endeavouring to convey a particular point of view. That is not what is in Order in Questions.
§ Mr. Platts-Mills
On a point of Order, Sir. In view of the nature of the statement that was made, I understood—and I understood it was the general practice on such statements—that it was the practice to give a certain latitude. Just because the Deputy-Leader of the Opposition says he does not—
§ Mr. Speaker
Certainly I allowed rather long questions, but they were never conveying a particular point of view. They were never directed as propaganda, and that is what is the trouble with the hon. Member's question.
§ Mr. Platts-Mills
Further to that point of Order. Is it not implicit in every single question that has been asked——
§ Air-Commodore Harvey
Will the Lord President tell us why he is being so difficult about giving extra time to the House when the Government are proposing to introduce a new Bill to take the place of the Mountbatten Bill, which affects only a handful of people? Surely the Chancellor's statement is a matter of grave importance which affects everybody. Will the Lord President not tell the House, what everybody wants to know, that we shall get the extra time?
§ Mr. Scollan
May I ask the Chancellor of the Exchequer whether he has now been satisfied that, in spite of all the efforts to capture the American market and open it up for our goods, what is actually happening is the complete collapse of multilateral trade owing to international monetary policies? May I ask him whether, in his meetings with the representatives of the Commonwealth, they will consider the extension of bilateral trading on the basis of goods, commodities and capital machinery?
§ Colonel Crosthwaite-Eyre
May I ask the Chancellor one question on the gold figures he has produced? It was generally accepted that £500 million was the lowest to which they could fall. They are now £400 million and the Chancellor says that under the standstill agreement a further 2163 large fall is to be expected. Can the Chancellor give an undertaking that His Majesty's Government have some new, revised figure below which they will not allow the reserve to fall and that they are satisfied that such a figure will still be adequate to maintain the sterling area?