STERLING BALANCES (Hansard, 15 November 1949)

§ Colonel Crosthwaite-Eyre (New Forest and Christchurch)
I am grateful for the opportunity to raise tonight the matter of sterling balances and sterling area reserves. This is a subject which has been discussed many times, but as the months go by it becomes ever more urgent to try to get from the Government some statement which is not purely designed to obviate any commitment on their part.
We have now come to a situation in which hesitation on the part of the Government is no longer possible. The Chancellor of the Exchequer has made it quite clear that, whatever room we may have had in the past for latitude of movement, it does not exist now. On our current actions the future of this country will be decided. In his speech on devaluation, the Chancellor made it quite clear that it was no longer possible for anyone either on this side of the House or on the Government side to burke the issue any further, and that we have to do something concrete, immediate and effective.
My purpose in raising this subject tonight is to hear from the Government how far the very right challenge made by the Chancellor has been carried out by the Government. I think it can be shown that, far from the Government meeting any one of the challenges mentioned in that Debate, they have, as in the past, burked every issue. They have made no decision and have contented themselves with a number of pleasant platitudes which, however agreeable to their own back benchers, have done absolutely nothing to meet the requirements of the situation.
I will start by reminding the House of one or two things. When the Chancellor 1964 made his speech on devaluation, he said that the rate of 2.80 at which the £ was to be devalued was the ultimate limit, and that it was impossible for anyone to say that the rate could go lower. Indeed, he stressed that he had fixed this rate in the belief and on the assumption that no one, either on the basis of normal commercial transactions or on what he called black market transactions, would want the rate to go lower than that which he had fixed. But, in fact, as is known by the right hon. Gentleman the Financial Secretary to the Treasury, who I believe is to reply, the rate of the £ is now 30 cents lower in New York than the official rate, and is now down to 2.50.
The question I want to put to the right hon. Gentleman relates to what I think is the crux of the present situation. His Majesty's Government have failed throughout to make two simple decisions. They have failed, in the first place, to try to settle what we call sterling balances, but what in fact are debts arising out of the war. They have always paid lip service to settling these debts but they have never done anything to settle them. On the other hand, they have always been willing to enter into any bilateral agreement which may suit their purposes for the moment, but which may have the gravest consequences on the economy of this country. I want to try to develop those two points tonight.
I want to remind the House—I think this is valid—of a statement made by my right hon. Friend the Member for Woodford (Mr. Churchill) who, speaking in the devaluation Debate, said: Although his personal honour and private character are in no wise to be impugned, it will be impossible in the future for anyone to believe or accept with confidence any statements which he may make as Chancellor of the Exchequer from that Box."—[OFFICIAL REPORT, 28th September, 1949; Vol. 468, c. 168.] We have had a very good example of that today in a Question which I asked about the proceeds from the sale of Indian manganese. I asked whether those profits accrued to the sterling area dollar pool. I am the first to admit that that Question was badly framed. The Question which I put down on the Order Paper was not one which, on the face of it, would attract the attention of the Chancellor of the Exchequer to the point I wished to raise. On the other hand, 1965 I am certain—and I think the right hon. Gentleman will agree—that the point in that Question was perfectly clear; it was manganese.
The Chancellor of the Exchequer rode it off in one way or another. He quoted my Question in terms which enabled him not to admit the true situation. I must admit that possibly I was not quite candid in my last supplementary question which was deliberately designed to get from him a reply which would show the true position. I think that the only construction that can be put on the Chancellor's replies to me today was that the profits from the sale of manganese in relation to the sterling area dollar pool were not the subject of consideration in the latest talks between the Indian Government and the United States in Washington, because in fact all the proceeds from the sale of manganese last year as well as this year were granted to India for her own use. If that is so, it raises this immediate problem. For one reason or another we have granted many releases from the sterling balances, not only to India but to other countries, and every single one of those releases has meant either a drain on what we produce in this country or, alternatively, a withdrawal from our hard currency reserves. Of all the countries so concerned, India has been the most beneficially treated. She has had the best possible terms.
Now we have the present case, where the Chancellor, through his undoubted ability, is able to ride off a Question when, in fact, all it can mean is that not only in this current year but in the past year one of the prime products which India can sell to provide dollars for the sterling area has been used by India with, presumably, the concurrence of the Treasury for the benefit of India herself and not for the pool. We find ourselves granting these enormous releases to India, which cannot be justified on any terms of equity, and at the same time finding that the Treasury agreed to allow her to use one of her prime exports not for the common benefit but purely for her own benefit. If there is any determination on the part of His Majesty's Government to defend sterling—and I hope there is—there can be no worse example of what they have permitted in the past than this.
1966 Perhaps I am being slightly hasty, but we have only to take the question of the recent release to Persia. There, for what reason I know not, the Government agreed to pay Persia £5¾ million for the use of the Persian railways during the war. I have no idea on what basis that sum was agreed but one thing I do know, as I think does every hon. Member—if it had not been that we moved materials through the Persian railways in order to support the Russian front, Persia would never have maintained her independence. It is difficult to name any country in the world where our direct contribution was more responsible for safeguarding her future than it was in the case of Persia. Yet, what happens? We find ourselves with a debt of £5¾ million. I know not how that was agreed or who agreed it.
The situation is even worse than that, however, for at the same time His Majesty's Government not only agreed the debt, apparently without any question of counter claims for defending Persia, but they also gave a guarantee that if we devalued the £ at a later date, then His Majesty's Government would indemnify the Persian Government against that devaluation. Thus, instead of owing them £5¾ million, we now find His Majesty's Government paying them £8 million, because of devaluation.
The story does not even finish there, because that £8 million is not even a charge on our own productivity. It is not a charge purely on what we ourselves may be able to provide but, in the terms of the agreement, the whole of that £8 million may be used at the discretion of the Persian Government either to purchase from ourselves, within our own area or from the dollar area. Therefore, the whole of that £8 million which, whatever the computation, is purely a sum incurred by this country in the defence of Persia, has become now a charge on our dollar reserves. I suggest to the right hon. Gentleman that for His Majesty's Government to allow the Persians to get away with that sum is something which cannot be justified in any sense of equity.
We have heard a great deal about the sums demanded from every industry in order to send goods to hard currency areas. The one thing that stands between us and disaster is our ability to earn dollars in the markets abroad, but if there is one thing that stands in the way of 1967 those markets it is His Majesty's Government. Their policy of releases of sterling balances makes it not only difficult but almost impossible for our own efforts to bridge the gap between our present insolvency and what we all want to see—this country standing on its own feet.
The Financial Secretary will find it hard to deny that if he analyses the figures of last year's trading he will discover that something like one-fifth of everything that we exported was sent abroad without any payment to this country at all. It was sent abroad solely because His Majesty's Government, under one agreement or another, had released sterling balances to enable foreign countries to purchase from us. I know that the right hon. Gentleman will say: "What else could we do? We had to make some sort of agreement." Of that great sum of £3,000 million which represents our war-time debts, there was not a single item that was agreed to under the Coalition Government.
What was agreed to then was that when times of peace came and a settlement could be made between the creditors or owners of the balances on the one hand and His Majesty's Government on the other, it would be on the basis of who had done what to support our war effort. It would be made between ourselves and places like Egypt, Argentina and India. There would be a just settlement. The Financial Secretary and the Chancellor of the Exchequer have made statements time after time that when these debts were raised and an opportunity offered, something would be done. The fact is that they have done nothing. For the last four years these debts have been drawn down upon us and our resources raided, purely to enable countries whom we had defended to live on a better standard than our own.
The same thing is true today. The exchange rate of 2.80 was the limit, we heard from the Chancellor of the Exchequer, to which we would go, but now it appears that in Paris and New York that rate is at a discount because the foreign investors believe that it is no longer necessary to earn sterling. They have only to go to His Majesty's Government to get it free on one pretext or another. Who can blame them when they see the latest agreement giving the 1968 Persians £8 million for nothing? We are making no counter-claim for what we have done for Persia. Think what we have done for Egypt in helping her during the war and what we are paying in settlement. So far as any ordinary observer can see, His Majesty's Government have not the slightest intention or inclination to try to make sterling balance in the markets of the world.

§ Mr. Ellis Smith (Stoke)
I am sorry to interrupt the hon. and gallant Gentleman. I have listened to him very closely. I should like to know what action he proposes should be taken and what action he would have taken.

§ Colonel Crosthwaite-Eyre
That is a very fair question. I was just coming to my peroration, but if I may interrupt it in order to answer the hon. Member, the answer is what my right hon. Friend the Member for Woodford has said from this Box. All these debts incurred during the war were not an obligation of this country to meet, but, because of the very nature of the war, something which we had to incur but which, when the days of peace came, would be adjusted between ourselves and every other country concerned on the basis of what effort the countries concerned had put into the war.
Purely on the financial side, we might find that we owed the Egyptians £300 million or £400 million, but on the other hand, because we defended Egypt with the Eighth Army, there was a certain claim on our side. We should then take the two claims and adjust the balance to determine whether Egypt owed us something or we Egypt. I can safely say that for all sterling balances that is our view. Without reference to who has done what or who has achieved what, all these debts have been accepted by His Majesty's Government, and instead of our finding ourselves today in a position in which we can build for the peace, we are striving to settle the war.
When the Financial Secretary or his right hon. and learned Friend say that devaluation has achieved something, they know full well that it can achieve something only if the terms of trade turn with it to our advantage. The right hon. Gentleman must know that sterling is now below the terms which the right hon. and learned Gentleman set in the devaluation Debate. Where do we go 1969 now? Are His Majesty's Government anticipating another devaluation. If not, how are they going to defend sterling? How can the right hon. Gentleman expect to defend sterling when he grants these enormous sums to the Persians, the Indians and other countries? It just does not make sense. Either sterling has to be a currency which enables a valid commercial transaction or it is a token at the whim of His Majesty's Government. Sooner or later the Government have to answer this: are they going on making these releases and gestures, reducing sterling not to a means of international trade but to something purely at the discretion of the Government, or are they by a firm policy and a realistic decision going to make sterling what it was in the past, a valid international currency? That is the decision which only the Government can make.
I suggest to the right hon. Gentleman that the time has come when it is useless for him, the Chancellor or any other Member of the Government to come to that Box and utter a series of platitudes which convince no one. What we want is action, and I hope that at last the right hon. Gentleman will give us at least a symbol of that action.

§ Mr. Walter Fletcher (Bury)
I am delighted to have this opportunity of saying a word about sterling balances for, as the right hon. Gentleman and other hon. Members may recollect, it is a point which I have brought to the attention of the House steadily for nearly three years. I feel a good deal of sympathy for the right hon. Gentleman because he has now to stand up and answer for the sins which were committed by the present Chancellor of the Duchy of Lancaster. It was during the epoch—

§ The Financial Secretary to the Treasury (Mr. Glenyil Hall)
Most of our troubles today are due to the fact that we had years and years of Tory Government.

§ Mr. Fletcher
I hardly thought that in a Debate of this sort a party point of that "Let us face the past" nature instead of "Let us face the future" would be introduced. Because I think the matter is so serious and because this is an economic point, I shall certainly eschew that form of argument and shall not follow that path.
1970 There is no doubt that an examination of the speeches and arrangements made in settling the war debts shows that the present Chancellor of the Duchy took a view parallel to that which he took on the spending of the first dollar loan. His refusal to take the advice of anybody on the convertibility clause was one of the great causes of reducing our present sterling balances, and his financial policy was an ebullient one based on vicarious generosity with money from the pockets of the people.
I really feel sympathy for the right hon. Gentleman and also for the present Chancellor who have inherited the position regarding sterling balances, which was undoubtedly one of great difficulty. However, I feel that it was only recently that they connected up the financial implications and the financial arrangements with the true meaning of sterling balances and their settlement, which is the direct diminishing of the amount of goods manufactured in this country that are available for importing raw materials and food. The fact that the Chancellor of the Exchequer, in the speech he made on devaluation, for the first time really came out into the open on that point was good and healthy and rather encouraging to people like myself who have been flogging away at this point for so many years.
Yet we are now beginning to have some doubt because we have not yet seen the action which would back up the protestations made by the Chancellor that something was really to be done about it. When the Chancellor comes down and speaks here, he nearly always makes what I call a speech of the seven veils. We have to tear away veil after veil—fortunately, possibly not the last one—to try to get at what he is always trying to hide. I would try to impress on His Majesty's Government on this question of sterling balances and unrequited exports, which is now becoming a burning question in the country, the need for taking the public into their confidence more. Now that it is realised by the working man that possibly half a day's work a week of everyone concerned in the export trade is being given to paying war debts, which are real obligations, there is no doubt that this has become of greater interest than before. I can vouch for it from my experience in my own constituency.
1971 One of the pleas I have put forward on many occasions, and should like again to put forward now, is for the monthly figures and statistics to begin to show the true position. We are told by responsible Ministers inside and outside this House of our precarious economic situation, but if, every month, we were to be told in plain figures the true position, if the export figures were not boosted and at the same time we were told what proportion of them are bringing back nothing in return, this would not be a discouragement to the people of this country but a real incentive—not of the material order—because people are beginning to realise more and more that the mere fact of devaluation will not prove a panacea and is no true lifebelt in the stormy economic seas in which we are precariously floating. The 2.80 rate is like the Maginot Line—it is not there to defend us, as the French so wrongly thought; it is there for us to defend.
When we see our sterling balances in jeopardy, when we see the slowness with which the Government are tackling that problem, we are entitled to feel nervous. In the world in which I spend most of my time, in which we deal with commodities of every sort, the effect of devaluation is disquieting at the moment. The big dollar earners are not the manufactured goods from this country, but the commodities from the whole of the Empire: wool from Australia, gold and hides from South Africa, and tin and rubber from Malaya. There is a whole list of them, which the right hon. Gentleman knows too well. If he will take the average dollar price, not the average sterling price since devaluation, I think he will find that on balance there is not an increase in dollar earnings. Sterling balances translated into unrequited exports are, therefore, taking away from us not only dollar-earning power, but power to keep the machinery of industry going.
I am the first to admit that it is an extremely difficult problem; that if by some miraculous mischance I were to find myself in the position of the right hon. Gentleman, I should not find it very easy to tackle the question of war debts. We cannot in any sort of circumstances think that this country would wish to repudiate those debts, and nobody on this side, as far as I am aware, has put forward 1972 such a proposal. There is a great distance between repudiation and a round-table discussion between debitor and creditor out of which might come an arrangement which would allow the parties to continue and over a series of years reach a better balance, but we see very little sign of that. The Prime Minister of India, Mr. Nehru, has been here. Was the opportunity seized to discuss this very difficult and ticklish point? We know quite well that this affects the economies of other countries, that it cannot be settled by a unilateral overnight decision. We also know that the disturbing effect that devaluation without previous sufficient consultation had in the Empire—in India, in Pakistan—is not being repeated in this case.
I urge on the right hon. Gentleman in all seriousness, in view of the facts which he knows much better than I—because I can see only one small section of the world in which I move—that because the sterling balance and the dollar gap situation are disquieting, the great urgency to deal with the sterling balances situation must be ever present. If he or the Chancellor were to come to this House and say either, "I have summoned a general conference"—which might be one method, but a difficult one—or "I have achieved a new settlement with one country on sterling balances"; if there was one sign of real progress; if there was anything but the sort of attitude which the Chancellor took this afternoon with my hon. and gallant Friend the Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre), which is really one of arrogant contempt that anybody should dare to wish to find out what the Chancellor is doing, what is going on and what sort of action he is taking—an attitude which has produced great resentment not only on this side, but on the other side of the House and outside it—if I say, there was really some sign that a real attempt was being made to tackle a difficult question, in which everybody would wish to assist in every way, there would not be the same anxiety that we might again have to face a further devaluation.
The history of other countries—of France and a great many others—shows that it is useless to pretend and persist in the attitude that "It can never happen to us." It has happened to us, and we have not felt the full effect of it yet. I 1973 ask the right hon. Gentleman when he replies not to pour scorn or to make the sort of interjection which he made just now, but to try to reassure not only this country on a subject in which an increasing number of people are informed and interested, but other countries, whose assessments of the value of sterling and of the correctness of the financial policy of this country are really what govern the future of sterling. If he will give tonight a sober account of what is being attempted; if he will say, "You must be patient for a little longer, but we are really tackling these questions seriously," it would be rather more reassuring than anything we have received from the Chancellor of late or from the Government Front Bench in reply.
It is far too serious a question, and he knows it perfectly well, to take any other line. It is not primarily a financial question, but is a question of goods, manufactured goods—and the possible increase of the flow of food and raw materials through new arrangements. Every time the Government and everybody else in this country exhort each other or ourselves to greater effort, we should bear in mind that a high proportion of that effort is now flowing out with no direct advantage to our economy. That situation cannot persist if we really hope to see sterling balances have a real meaning, such as they have had in the past.

§ Mr. S. N. Evans (Wednesbury)
This is a very important and interesting subject and we owe a debt of gratitude to the hon. and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) for raising it.
I find myself taking a different view from that of the majority of people on the matter of sterling balances. I thought there was a suggestion in the remarks of the hon. and gallant Member that if it came to a showdown we should repudiate these balances, but that seems to me to be a queer way of trying to restore confidence in the £. It ought to be understood that countries like India, enduring an infinitely lower standard of life than we British, will be very reluctant to see what they regard as legitimate debts owed to them for goods and services supplied during war, written off. There are in India, I suppose, 350 million people 1974 enduring a very low standard of life, and there can be no doubt that the exports we are sending to India in settlement of sterling balances are playing an important part in building up the Indian economy.
I take the view that this country has no future tied to the dollar. I accept fully that there is no escape from the short-term need for dollars, but I think that everything we do must be designed to emancipate ourselves eventually from the need for dollars. Therefore, I do not think we can consider this question of sterling balances in a vacuum. A nation's economic and financial problems collectively constitute a diamond of many facets and the sterling balances are only one facet. These sterling balances are in fact acting as a very effective cement within the sterling area during a very difficult, but we hope transitional, period of British rehabilitation.
We have no future tied to the scarcest currency in the world, and I do not think there is much possibility of the world getting back to economic and financial health so long as the lubricant is the world's scarcest currency. Therefore, when I approach the question of sterling balances I think in these terms; that this country has no future and no financial or economic independence except as the administrative and financial headquarters of a group of nations each faced with this dollar problem, each determined to be rid of it and each with complementary economies. The question of the sterling balances must be judged in relation to that analysis. I believe it to be very important that this sterling area should be kept together pending the time when we get back on to our own two feet and can once more act as the banker to this area, which would be independent of the dollar.
I believe that in buying time for us to achieve that position of banker to the area which I contemplate, these sterling balances are very important in respect of the countries which are beneficiaries of the sterling balances. These sterling balances are our debts, we owe the money, and if we wanted to argue about them the time to have done so was when they were incurred. I repeat that we owe the money, and I believe that in this difficult transitional period in which we are getting back to our old position of acting as banker to a large part of the world's 1975 economy, which was and I believe will again be based on sterling, the sterling balances are playing a very important part in holding that sterling area together.

§ Mr. Ellis Smith
I have a good deal of sympathy with what my hon. Friend is saying, but I should like to have his view on one point. We may lose some bargaining power if we wholly accept the position which he takes up. To give one concrete example, the enormous balance which India is claiming from us is for services which we rendered during the war.

§ Mr. Evans
But that is not the view which they take. It would be all very well if this were a world in which affairs were conducted on the basis of the principles of the Sermon on the Mount; there would then be some chance of attaining acceptance of the point of view of my hon. Friend the Member for Stoke (Mr. Ellis Smith). The fact of the matter is that if there had been an idealistic or even a fair approach to the problem of war debts, this country would owe nothing, because everybody knows that in the recent war against Fascism we poured out our blood and treasure to an extent out of all proportion to our strength. That is the cause of our weakness at the moment. But the Americans, whose country is the richest in the world, although they have made considerable assistance available to us—and I should be the last to be lacking in gratitude for that assistance—have not accepted the position which my hon. Friend the Member for Stoke is suggesting that India should accept in relation to ourselves.

§ Colonel Crosthwaite-Eyre
I think the hon. Member is wrong. If he will look at the Bretton Woods Agreement, which was the first major Anglo-United States Agreement after the war, he will see that it is specifically laid down in Article 10—I speak from memory—that we should scale down these, debts to a just proportion as one of our obligations under the Bretton Woods Agreement.

§ Mr. Evans
Yes, but that cannot be done unilaterally. There is a borrower and a lender; there are those who have received the goods and services and those who have supplied them. We really cannot restore confidence in the £ on the basis of repudiating our legitimate debts.

§ Mr. W. Fletcher
I am certain that the hon. Member does not wish to give a wrong impression. No one is suggesting repudiation, but exactly the opposite. Would he say which course he thinks would most cause confidence in sterling—to continue to service these debts at a rate which in unrequited exports will lead us to disaster or to try to make an arrangement to scale them down in the same way as America has done in relation to ourselves?

§ Mr. Evans
I am not here arguing that there should not be some scaling down of these debts. What I am arguing is that these debts cannot be scaled down without the willing consent of those to whom we owe these large sums of money. It will be within the knowledge of the hon. Member for Bury (Mr. W. Fletcher) that up to now the Indians have strongly resisted any suggestion that these debts should be scaled down, and the Indians, of course, are the owners of the largest portion of these sterling balances.

§ Colonel Crosthwaite-Eyre
I am sorry to interrupt the hon. Member again, but will he admit that His Majesty's Government, under the Bretton Woods Agreement, undertook the responsibility to scale down the debts? It may be that the Indians in the main are unwilling, but the Government undertook the obligation to scale them down.

§ Mr. Evans
His Majesty's Government could not accept such an obligation—

§ Colonel Crosthwaite-Eyre
They did, under the Bretton Woods Agreement.

§ Mr. Evans
Debts cannot be scaled down unilaterally. Debts can only be scaled down on the basis of a freely-negotiated agreement between the two parties to the contract. It may be that the Bretton Woods Agreement included a provision whereby we said that we would endeavour to negotiate a scaling down with the people to whom we owed these sterling balances, but that is the very most that the Bretton Woods Agreement—

§ Colonel Crosthwaite-Eyre
If the hon. Member will look at the Bretton Woods Agreement he will see that it was not a question of whether we would attempt to do this or that, but that we would undertake a just scaling down.

§ Mr. Evans
The hon. and gallant Member's persistence astounds me. How can we scale down debts entered into freely—in abnormal conditions, I agree? They did not ask us to have the goods and services. We asked for them.

§ Mr. W. Fletcher
The hon. Member says they did not ask. Was he in India during the time when they were crying out for our help?

§ Mr. Henry Usborne (Birmingham, Acock's Green)
Before the hon. Member answers that question, does he realise that the Indians say we declared them to be at war without their consent, and that they have not forgotten that yet?

§ Mr. Evans
Do not let us get drawn into splitting hairs. I would not accept that the Bretton Woods Agreement could include a clause which compelled us unilaterally to scale down these debts. After all, that would be the very negation of financial standards so far as I know them and as they have been practised in the City of London for generations. I am surprised at the suggestion that the debts should be unilaterally scaled down without regard to the wishes of those to whom we owe this money and what they regard as their legitimate interests.
I do not wish to pursue this any further, except to say that I believe that this question requires very much more study than it has had. I believe that the fact that we have capital equipment going into India in payment for these sterling balances, even though they be unrequited, will have a profound influence on the trading relationship between the 350 million inhabitants of India and this country in the years to come. I believe that the question of whether British equipment goes in now or whether United States equipment goes in now, is of profound importance to the future wealth of this country. Therefore, I would not be a party to any undue pressure on those to whom we owe these balances.
There are two ways of looking at this matter. Some of my hon. Friends may care to examine this thesis which I have put forward, that this country has no future except as the administrative and financial part of an association of nations which is faced with this dollar thraldom and which is determined to be rid of it. If they consider this matter in that light, it may well be that they will accept my 1978 contention that in this transitional period the sterling balances are acting as a very important cement, consolidating together the countries constituting the sterling area, pending our return to a position in which we can once more act as bankers to the world on a pound sterling basis.

§ Mr. William Shepherd (Bucklow)
I wish that I could share the complacency of the hon. Member for Wednesbury (Mr. S. N. Evans). He must be unaware of the real position in which this country finds itself if he puts forward the idea that by sending goods to the sterling area without return, we can improve the position of the sterling area. What in fact is the difficulty with the sterling area is that it cannot get sufficient dollar exchange. If we send out to the sterling area, to markets that are easy to obtain, goods which might have been sent to the dollar area, then we are postponing the day on which we shall get economic equilibrium between the dollar and the sterling areas. I should have thought that a glance at that problem would have made that point clear to the hon. Gentleman.

§ Mr. S. N. Evans
Will the hon. Member tell us what unrequited exports we are now sending to India which the Americans would be prepared to buy from us?

§ Mr. Shepherd
I should have thought that quite a lot of the things now sent to India could be sold, if not to America, then to Canada. I do not think that even the hon. Gentleman would deny that proposition. I was most surprised to hear the extraordinary denials made by the hon. Gentleman of the statements made by my hon. and gallant Friend the Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre). The hon. Gentleman suggested that there was no obligation on the part of the Government at the time of the American Loan Agreement to scale down these balances. This is the first time I have heard such a denial. I hope that the Financial Secretary to the Treasury will not fall into the same mistake. What was arranged in relation to these balances at the time of the Washington Loan Agreement? It was arranged that the balances should be dealt with in three parts. It was arranged, first, that we should cancel as much as we could get cancelled; secondly, that 1979 we should make a small proportion available in all countries in all currencies; and, thirdly, that we should enter into some long-term arrangement to fund what was left of the debts. Not one of these points has been met since the end of the war.
The real culprit in this case is the culprit in so many other cases. It is the right hon. Gentleman who is now Chancellor of the Duchy of Lancaster. I do not like to keep hitting at a man who obviously is somewhat down, but it is perfectly true to say that his neglect is weakening sterling at this very moment, and that no attempt was made—and, until a few weeks ago, no attempt has in fact been made—to lessen the enormous drain upon this country which sterling balances or debts really represent.
I should like to try to get this issue into perspective and to say that we cannot consider alone the issue of sterling balances. We cannot divorce that from our international economic and social obligations, and I would not attempt to do so. We certainly cannot divorce it from what we have already tried to do, and have in fact done, for other countries throughout the world. Only a short time ago the Financial Secretary gave an answer which showed that, during the years since the war we had granted assistance overseas in terms of sterling and in kind to the extent of something like £1,000 million. Really, we must ask ourselves whether a nation proudly impoverished as a result of two world wars in rapid succession can bring upon itself this enormous burden. I suggest that we cannot, at the same time as we give this vast aid overseas of £1,000 million, give also so freely of our sterling balances. I suggest that that is something which is quite beyond the economic capacity of our country, and that the right hon. Gentlemen who occupy the Treasury Bench are directly responsible for this difficulty.
We on this side of the House may not always have our facts exactly right, and, if that is so, it is due to the secrecy with which the Treasury surrounds all these matters. I know the old stock argument that, this country being the bankers of the sterling area, the Treasury must not give away the details of the 1980 accounts of our customers, and I am sure that my hon. Friends subscribe to that view, but we could be given more details than have been made available to us. We have to work on the calculations by the National Council of Foreign Trade in the United States, and if that National Council can make these extraordinary guesses, it ought to be the job of the Treasury to publish something which is authentic to enable the people of this country to know where they stand.
I want to know whether it is true that between one-fifth and one-sixth of our exports are now, or have been in the past year unrequited. If so, that is a most serious indictment of the Government. I recognise that we have certain obligations to these countries. I recognise that we have our obligations to try to put the other countries in the sterling area on their feet, and that, to a certain extent, putting them on their feet will restore the sterling area and make it more rapidly a viable entity. Although we have these moral and economic obligations, I still say that we have gone too far.
We are arousing very considerable suspicion in the minds of the Americans, because our American friends take a very different view of the matter. What they have thought of our attitude towards the sterling balances it that it is not the attitude of a Government which wants to get rid of them. They think that the Government are anxious to keep them because they are a means by which the Government are keeping a grip on world trade. They believe that we are purposely adhering to these balances and making no effort to scale them down simply because we want to keep the trade in our own hands. I must say that there is some justification for this view, because it can be said, and I think not unfairly, that this business of exports in the sterling area and the sending of huge quantities of unrequited goods, is in fact a means of maintaining full employment.

§ Mr. S. N. Evans
Is that a thing to which the hon. Gentleman would object?

§ Mr. Shepherd
I do not want to go into all the ramifications of that argument, because time is too short, but it is true to say that many of the goods which have been sold to sterling area 1981 countries would not have been sold to them had those countries not had free and easy access to sterling. If the hon. Member opposite wants to query the validity of my argument, let me say that every export, except that of coal, of which we cannot get enough, has a substantial element of import in it. The policy pursued by the Government in that regard is definitely against the national interest.

§ Mr. Evans
I do not think I can allow the hon. Gentleman to get away with that one, because a milling machine or a machine tool that might run into big money, perhaps £2,000 or £3,000, need not contain within itself one pennyworth of material derived from the dollar area.

§ Mr. Shepherd
Really, we cannot segregate items which have a high conversion value, such as a milling machine, and imagine that they are representative of the whole field. Obviously, as my hon. and gallant Friend says, there is a low conversion rate in the case of textiles.
I want the Financial Secretary to tell us something more now that we are having secrets revealed, if after answering two Debates he is not too tired to go into details. I want him to say how far at the present moment the sterling area is a liability to us in terms of dollars. How far are we allowing countries in the sterling area to spend money on all kinds of things which we in this country are denied? I have a very strong feeling that, with the exception of Malaya, which has an enormous net credit, the sterling area is involving Britain in a substantial dollar burden.
What steps are, in fact, being taken? We know, for example, that in many of the countries in the sterling area petrol is unrationed, and that all kinds of imports are being permitted for which we as a nation have to bear the ultimate dollar responsibility I have been driven to the conclusion—although I must say that I have not examined it very closely—that the sterling area seems at the moment to be a liability to us, and unless the Government really take the matter sternly in hand and see that Ike do not suffer a loss, we shall not be able to continue on the present basis.

§ Mr. Ivor Owen Thomas (The Wrekin)
Is the hon. Member suggesting that we should strengthen the sterling area by repudiating unrequited exports?

§ Mr. Shepherd
I think we went over this when the hon. Gentleman was not here, when I tried to show what, in fact, we had undertaken to do, and what the right hon. Gentleman the Chancellor of the Duchy of Lancaster had completely failed to do. It is that view which I want to impress upon the Government today. Let us remember that at the time of the Agreement, the Americans were prefectly happy to wipe off 30 million dollars of debt, and they expected us to do likewise. We have not done so. Moreover, we are paying, as far as I know, one half per cent. per annum on those debts. That is an additional drain upon the resources of this country.
I suggest to the right hon. Gentleman that this matter has been grossly mishandled by His Majesty's Government. There has been almost criminal neglect in this regard. I frankly confess that it is not much use talking about this issue at the present time because the time for action has passed. As usual, the Government try to do everything too late. If within six or 12 months of the end of the war they had done what they agreed to do, and what hon. Members on this side urged them to do, a scaling down of these debts would have been perfectly practicable. It is not so easy today because, to use the phrase of the Secretary of State for War, nobody cares a "tinker's cuss" what we did for them during the war.
All the burdens that have fallen upon this country, all the strain involved upon sterling, and all the difficulties which now face us when we try to get convertibility, which must be the goal of this nation if it is to restore itself as a great trading nation, arise out of the failure of the Government to do what they undertook to do in the Washington negotiations—to achieve the scaling down of the sterling balances which now hang round our necks and which other countries very properly say they will not have from us.

§ Mr. Shepherd
This is one more example of the manner in which His Majesty's Government have let the 1983 country down, and I hope the country will be mindful of the Government's neglect in a few months' time.

§ Mr. Scollan (Renfrew, Western)
I listened with great interest to the hon. and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre), but I am not yet convinced that he meant the discussion to centre around the question of sterling balances at all. He dealt at great length with devaluation and its cause. Listening to hon. Members opposite, I have come to the conclusion that there is some confusion in their own minds about this matter. The hon. Member for Bury (Mr. W. Fletcher) is definitely against convertibility—he said so—whereas the hon. Member for Buck-low (Mr. W. Shepherd) is in favour of it. I do not know whether they could make up their minds.

§ Mr. Shepherd
Would the hon. Gentleman allow me?

§ Mr. Scollan
I am sorry, but time does not permit. Let us see exactly where we are getting. The Labour Government, which actually negotiated the loan with the United States after Lend-Lease was cut off, are the villain in the piece, according to the Opposition. The Americans, we are told, are now looking with suspicion at these sterling balances and also at the Labour Government for using the sterling balances to shut them out of the markets in the sterling area.
There may be some truth in that suggestion and there may not be, but do not let us forget that the Americans themselves were responsible for inserting the convertibility clause in the Loan Agreement. They insisted on convertibility, and immediately the countries with sterling balances discovered the convertibility clause they began to order goods from America and passed the bill on to us. This Government then froze the sterling balances and said, "We are not going to have convertibility," The American Government then stopped the loan of £938 million. [Laughter.] The hon. Member for Bucklow obviously does not know anything about the subject.
The purpose of the convertibility clause in the loan agreement was to enable the sterling balance countries to trade on it. It was deliberately put there; the loan 1984 was running out and the Government had to freeze the sterling balances. The result was that the Americans then clamped down on us. Why cannot we face up to the issue? [Laughter.] There are none so blind as those that will not see. It is always possible to find something to laugh at, especially if one does not understand it.
We are now heading towards a second devaluation, for exactly the same reason as the first one, because certain sections in this country and in America are determined to undermine the credit of this Government and destroy it. The "Sunday Express" very blatantly published that certain insurance companies were paying 2.30 instead of 2.80 to the £ for dollars. Why are they doing that? On 24th May the chairman of the Chase National Bank was over here and Arthur Webb, correspondent to the "Daily Herald," sent a report to the "Daily Herald" saying that the common talk in America was that he was over here looking for a Ramsay MacDonald to bring down this Government. The common talk in America was that they would have to undermine sterling for the purpose of bringing down this Government because there was a chance of a General Election and the people of this country might send this Government back at that election.
It is time that some hon. Members in this House got down to the question of what is undermining confidence in sterling. It is not the sterling balances or the unrequited exports about which we have been told. Right behind sterling we must have gold, silver or commodities, and this country has neither the gold nor the silver; but we have the commodities, with only a small gold reserve to tide us over an emergency.

§ Mr. W. Fletcher
What commodities?

§ Mr. Scollan
All kinds of commodities. The products of the whole industry of this country. That is what we have behind us. Some of those who are laughing will not be laughing in three or four months' time when someone comes forward again and says that the people of the other countries in the world have lost confidence in sterling and that one can buy it in the markets at two dollars instead of 2.80. If that sort of thing is permitted to continue, on the basis of undermining sterling, then obviously this country cannot continue.
1985 With great glee the hon. and gallant Member for New Forest and Christchurch told us that sterling was being quoted at 2.30. What was the idea? That confidence in sterling was falling because of this Government. That is the campaign—a deliberate campaign—and it is not engineered only by hon. Members opposite. It is the great financiers, the insurance companies—and the chairman of the Chase National Bank was one of the gang—and the crowd who are deliberately determined to bring down the credit of this country and destroy the Socialist Government. That is the plot. Now this very innocent-looking Member for New Forest and Christchurch comes into the House and raises the question of the sterling balances, suggesting that the Government are to blame for sending unrequited exports out of the country. Then we have the hon. Member for Bucklow telling us that that is in order to holster up the full employment policy.
What is the trouble with hon. Members opposite? They hate policies of full employment. They think there is nothing like the whip of starvation to keep the lower orders in their place and to keep down the expenses of production. That is their policy. In the second place, they hate this Government almost as much as they hate the Government in the Kremlin. They will do anything to get rid of this Government and they have friends in America who are prepared to do the same. Do not forget the examples we have seen of what has been done by this Government in a country which was bankrupt when the Government took it over. Not a single word has been said about the debts that we pay. All the insinuation is to this effect—"Why do you not make some agreement about sterling balances?"; always giving the impression that we should repudiate these balances or tell the other countries that they will not be paid.
When we incurred these debts the people who gave us what we wanted had no say in the matter. They were told by the mighty armies of this country, "We need this and that and the next thing; we will pay for them after the war." That is the way in which we incurred these debts. And then we are told that at the Washington Conference America laid down the conditions whereby she wanted us to scale down these balances. India 1986 was not represented at the Washington Conference, but she was one of the countries to whom we owed a debt. We are now asked to tell India to scale down the debt because we are not going to pay, while at the same time we owe people in this country, including the big insurance companies and the banks, £25,000 million and we have to pay them £500 million every year in interest. Why not scale that down?

§ Colonel Crosthwaite -Eyre
His Majesty's Government signed their names to the Bretton Woods Agreement saying that they would scale down these debts. Whatever other argument the hon. Member wishes to adduce, the fact is that the Government signed their name to that proposition.

§ Mr. Scollan
It was a case of Hobson's choice. When the Bretton Woods Agreement was put before the Government, we had just emerged from the war and men had to be taken out of the Forces and put back into industry. There were 25 million to be transferred to peace-time industry, including the people in the Forces and the people on war work who had to be changed round. There were about 20 million people in industry. I think we have 22 million now. Hon. Members who do not agree with me had better look at the figures.
What were the Government to do? There was only one country in the world which had emerged unimpaired and had the greatest productive machine in the world, the United States of America. To whom else could we go? We had to go to them to get what was necessary. They laid down the terms about scaling down of sterling balances. The people to whom we owed the sterling balances had to consider the matter. They had a say in it. Let us not forget that at the end of the war India was in a position to make certain claims that she could not have made before the war, and she was not going to be fobbed off. She was able to assert herself and to say: "We have earned what we ask for." It is sheer hypocrisy for the hon. and gallant Member for New Forest and Christchurch to bring up a matter like this while he is prepared to advocate that people in this country should draw £500 million in war interest and should not have their balances scaled down. He brings up 1987 matters of this kind to slander the best Government the country ever had.

§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
As I think most hon. Members know, this Debate has been arranged at short notice. Over the last few years we have had a number of debates like it. The more recent ones have been answered by my hon. Friend the Economic Secretary. So far as I know, nothing has been said tonight which has not been said previously. There has certainly been very little that was not said when it used to fall to my lot to reply to a Debate on this subject.
I should like to say before I go any further how much I deprecate the attack made by the hon. and gallant Gentleman the Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) on my right hon. and learned Friend the Chancellor of the Exchequer. As he spoke I took the occasion to send out for a copy of the OFFICIAL REPORT which contains the remarks made by the right hon. Gentleman the present Leader of the Opposition. It is true that in the course of that Debate he said: The question is much discussed in the country of the Chancellor's political honesty. A certain distance further on, still on the same theme, he said: Although his personal honour and private character are in no wise to be impugned, it will be impossible in the future for anyone to believe or accept with confidence any statements which he may make as Chancellor of the Exchequer from that Box."—[OFFICIAL REPORT, 28th September, 1949; Vol. 468, c. 167–8.] I took that, and I think most hon. Members took that, as not unusual exuberance on the part of the right hon. Gentleman the Member for Woodford (Mr. Churchill).

§ Colonel Crosthwaite-Eyre
rose—

§ Mr. Glenvil Hall
I must go on. I have only a quarter of an hour. I would give way to the hon. and gallant Gentleman, but I should like to finish this point. Most of us took that as one of the usual exuberances which we get from time to time—in fact, all too often—from the Leader of the Opposition. We have to remember that he still takes his politics in the atmosphere and spirit of 1906, when it was quite usual for politicians of all 1988 schools to be fairly wide in what they said and to pay little attention very often to the exact truth. Therefore, today we take what the right hon. Gentleman says in that spirit. We know very well that the country makes allowances for him because of the great services which he has rendered.
However it is quite another thing for the hon. and gallant Gentleman to come here and reiterate what the right hon. Gentleman said and to give the impression, as he undoubtedly did, that that view is generally held. I have been in my present post long enough to remember the attacks of the same sort which were made on my right hon. Friend the present Chancellor of the Duchy of Lancaster. It is rather interesting that the attacks which were then directed at him are now directed at my right hon. and learned Friend. I can only assume that the hon. and gallant Gentleman made that attack tonight because of what happened at Question Time.

§ Mr. Scollan
Exactly.

§ Colonel Crosthwaite-Eyre
As the right hon. Gentleman has now given way, I should like to say that if all the statements he has made and all the insinuations he has made had been applied to his own Front Bench, they would have been far more successful.

§ Mr. Glenvil Hall
I do not know quite how that dovetails into what I have been saying.

§ Colonel Crosthwaite-Eyre
The Secretary of State for War.

§ Mr. Glenvil Hall
I have said what I have said because I felt that it needed saying and because the hon. Member for Bury (Mr. W. Fletcher) suggested that we should not import personalities into this Debate. The hon. and gallant Gentleman began by importing personalities. I never do so if I can help it. However, I believe that what the House expects of me is that I should not pass over innuendoes of that kind in silence. What was it this afternoon which apparently annoyed the hon. and gallant Gentleman? He put a Question to my right hon. and learned Friend and my right hon. and learned Friend answered it. He definitely answered the Question.

§ Mr. W. Fletcher
As the right hon. Gentleman has tried to find out what it 1989 was that annoyed my hon. and gallant Friend, myself and other hon. Members, may I say that it was that the Chancellor of the Exchequer seized the opportunity, as he always does, to evade the real purpose behind the Question, to sneer in every way and to give the minimum of information as if we were children incapable of understanding it?

§ Mr. Glenvil Hall
I am sorry if the hon. Member for Bury takes that view—

§ Mr. Fletcher
I do.

§ Mr. Glenvil Hall
—but the OFFICIAL REPORT tomorrow will show us exactly what happened. I was sitting next to my right hon. and learned Friend, and I saw what went on and I know what answer he gave to the Question. In fact, he repeated it in order to show quite plainly that he had answered it. What was the Question? It was: To ask Mr. Chancellor of the Exchequer what loss to the dollar pool of the sterling area has occurred as a result of the recent negotiations between India and the United States in Washington. To begin with, India is a sovereign country within the British Commonwealth. If she is so minded she can undertake negotiations with the United States. She is perfectly entitled to do that, but here is the hon. and gallant Gentleman asking my right hon. and learned Friend what is the loss to the dollar pool. My right hon. and learned Friend said, "No loss whatever." That was a perfectly truthful answer. There was nothing sneering about it, or underhand, or untrue. The hon. and gallant Gentleman went on to ask a supplementary question, which did not arise out of the main Question, about the possible sale of manganese. What on earth has that to do with the original Question? We do not know whether manganese was discussed but, if it were, that is a matter between the head of the Indian Government and those whom he saw in Washington.

§ Colonel Crosthwaite-Eyre
May I interrupt the right hon. Gentleman? As I understand it, he says that the sale of manganese by India to the United has nothing to do with His Majesty's Government. Is that correct?

§ Mr. Glenvil Hall
indicated dissent.

§ Colonel Crosthwaite-Eyre
Then may I put this point? As I understand it, if there is a sterling area dollar pool from which certain countries may withdraw according to the common need, then one must at the same time ensure that all proceeds of sale by members of the sterling area are credited to that pool. The Chancellor and the right hon. Gentleman are taking the view that the two things are not connected.

§ Mr. Glenvil Hall
I forget the exact words I used but what I intended to say—and I hope it is what I did say—was that any member of the British Commonwealth is, under the Statute of Westminster, perfectly competent to discuss any question which it feels it should discuss with arty other nation. What always happens so far as India and this country are concerned, in spite of the efforts of the party opposite to drive a wedge between us and the rest of the Commonwealth on these matters, is that India is still, and I hope always will be, a good friend of this country and she will always confer on any matter with us. That, however, is an entirely different matter from the hypothetical question put by the hon. Gentleman as a supplementary, on something about which it is quite obvious he knows nothing.
In the short time at my disposal let me try to deal with this matter in a more general way. The hon. and gallant Gentleman spoke of unrequited exports to Persia because we had paid Persia something like £8 million for the use of her railways during the war. It may interest him and the House to know that he has the facts all wrong—not unusual for him. The facts are that more than two years ago an arrangement which was come to with Persia to pay her for the use of her railways during the war fell due for settlement. Negotiations for the settlement have been going on for some time and at least two years ago, long before devaluation, it was arranged that should a change in money values come—quite properly so, it is the sort of thing that appears in most contracts—that would enter into any calculation or sum that was agreed—

§ Colonel Crosthwaite-Eyre
Why?

§ Mr. Glenvil Hall
—and Persia asked for a much higher sum than in the end she agreed to accept.

§ Mr. W. Fletcher
The right hon. Gentleman must really not try to put it over that it is ordinary commercial practice in contracts to have any other rate than the rate prevailing at the time the debt was incurred.

§ Mr. Glenvil Hall
Not a bit. I may not have been so long in business—in fact, I have never been in business in the sense that the hon. Member for Bury has been—but I can assure him that what I am now saying is by no means unusual. It may not happen in all cases but it does very often happen in times of instability, particularly after a war, when payments of that kind are made between nations, that bonds stipulate that payment should be made in gold in order that the exchange rate should not enter into the picture when those bonds fall to be paid.
Let me deal with the question of Persia. Is it suggested from the other side of the House that, having made an agreement with Persia to repay her for the use of her railways over a long period during the war, this country should, because of what are, I hope, temporary exchange difficulties, back out of that arrangement and tell them that they would have to go without? I do not know whether a Government formed by the party opposite would take that line, but I can assure the hon. and gallant Member that a Government formed by this party does not do that sort of thing, because two consequences are bound to arise: our good name and fame go down in the world and, secondly, Persia, with whom we desire good relations, would feel that she had been definitely let down by people who had held themselves out to be her friends.

§ Colonel Crosthwaite-Eyre
rose—

§ Mr. Glenvil Hall
I am very sorry, but there is a lot I should like to say, because it punctures the balloon which the hon. and gallant Member and his Friends have tried to put up tonight. Owing to shortness of time, however, it will be impossible for me to use all the matter I have here, but I should like to say this: the sterling area is a real entity, and those who belong to it enter into obligations, but they also have certain rights. It would be quite impossible for this country to say that because we owed money to various sister countries within 1992 the Commonwealth, we should, because of our difficulties at home, refuse in any circumstances to let them draw on these balances.

§ Colonel Crosthwaite-Eyre
We never suggested that.

§ Mr. Glenvil Hall
What has happened is that amicable arrangements have been made, where the money has been essential to the Dominion concerned, for that Dominion, particularly India—I make no secret of it—to draw on those balances. As has been pointed out both by my right hon. and learned Friend and the Prime Minister in recent Debates, we are now asking not only India, but other countries in a similar position, to realise the situation in which we are; but that does not mean, and it never will mean as long as this Government are in office, that we take a completely selfish point of view and refuse in any circumstances to allow them to draw on their balances.
Let me say a few words on the agreement covering the loan to this country in 1945, to which several hon. Members have referred tonight as the Bretton Woods Agreement. I happen to have here the actual wording. Article 10 quite definitely says that The Government of the United Kingdom intends to make agreements with the countries concerned. … for an early settlement. That is entirely different from what has been said tonight. We also said that we would make every endeavour to secure the early completion of those arrangements. Much has happened since then.

§ Colonel Crosthwaite-Eyre
But what has been done?

§ Mr. Glenvil Hall
India and Pakistan have become Dominions. We have tried, still are trying and will, we hope, in due time be able to make arrangements with these countries, but there is nothing in the Agreement which indicates that we undertook to make unilateral arrangements without consulting them.